Working Paper: NBER ID: w19291
Authors: Qingyuan Du; Shangjin Wei; Peichu Xie
Abstract: This paper studies the effect of transport infrastructure on the real exchange rate (RER) and reaches two relatively strong conclusions. First, while the list of robust determinants of the RER is not long, transport infrastructure belongs to that list. Many other potential determinants proposed in the literature, such as net foreign asset position or terms of trade, turn out to be not robust. Second, in terms of economic significance, the infrastructure effect follows closely the well-known Balassa-Samuelson effect and is one of the most important explanatory variables for RER movements, especially in developing countries.
Keywords: transport infrastructure; real exchange rate; Balassa-Samuelson effect
JEL Codes: F3; F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transport infrastructure (R42) | Real Exchange Rate (RER) (F31) |
| Improvements in transport infrastructure (R42) | Depreciation of RER (F31) |
| Transport infrastructure (R42) | RER (R50) |