Dollar Exchange Rate Volatility and Productivity Growth in Emerging Markets : Evidence from Firm Level Data

This paper examines the impact of Dollar exchange rate volatility on firm productivity in Emerging Markets economies (EMs). Firm level data shows evidence of negative spillovers of dollar exchange rate volatility to productivity in emerging markets economies. Exploring channels, we find that the results are driven by countries with low level of financial development, high dollar invoicing, high bilateral trade with the US, high collective bargaining coverage and open capital account. Further, exploiting firm level data, the paper shows that dollar exchange rate volatility operates also through the financial friction channel, reducing contemporaneous investments, especially at firms with low liquidity buffers and weak balance sheet (high leverage). In addition, we also find evidence of a large and persistent effect on firms with highly irreversible investment, lending support for the real option channel of uncertainty on the dollar exchange rate