Real Exchange Rate and Export Surge Episodes: What Sectors Take Advantage of the Real Exchange Rate Stimulus?

Abstract

What are the main characteristics of sectors that take advantage of the real exchange rate stimulus after a large and long-lasting devaluation? We aim to answer this question by analyzing the development of export sectors in Argentina during 2003–2008, after the crisis and large devaluation of 2002. This six-year period shows the highest number of sectors with export surge episodes from 1980 to 2015. We find, first, that the probability of export surge episodes increased 2.5% by each standard deviation of the higher labor intensity index during the large and long-lasting devaluation period because non-tradable costs prevail in their production function. Second, we show that export surges are more likely to occur in sectors related to already competitive sectors (mainly upstream sectors). Finally, the new export volumes in those sectors show persistent dynamics despite the end of the period of currency competitiveness, a signal of trade hysteresis.