The real exchange rate and services export diversification

Abstract

Purpose

The relationship between real exchange rate and services export diversification is at the heart of this study.

Design/methodology/approach

The analysis is performed using a sample of 113 countries over the period 1985–2014, and the 2-step system Generalized Method of Moments (GMM) approach. The analysis uses both the Theil index and Herfindahl–Hirschman index of services export concentration.

Findings

The analysis shows that over the full sample, the real effective exchange rate appreciation induces a greater services export diversification. This outcome applies to high-income countries and developing countries. However, the positive effect of the appreciation of the real exchange rate on services export concentration is lower in least developed countries than in other countries. Finally, the effect of the appreciation of the real exchange rate on services export concentration in tax haven countries depends on the indicator of services export concentration, as this is positive for the Theil index and negative for the Herfindahl–Hirschman index of services export concentration.

Research limitations/implications

These findings highlight the strong influence of real exchange policies on countries' path of services export diversification.

Originality/value

To the best of the authors' knowledge, this topic is being addressed in the empirical literature for the first time.

Citation

Gnangnon, S.K. (2023), "The real exchange rate and services export diversification", Journal of Economic Studies, Vol. 50 No. 6, pp. 1105-1120. https://doi.org/10.1108/JES-02-2022-0078