The heterogeneous sectoral productivity impacts of FDI on real exchange rate

Fei Guo, Eric Evans Osei Opoku, Isabel Kit Ming Yan

Research output: Journal PublicationArticlepeer-review


The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders.

Original languageEnglish
Pages (from-to)1101-1121
Number of pages21
JournalJournal of International Trade and Economic Development
Issue number7
Publication statusPublished - 3 Oct 2021


  • Tradable and non-tradable sectors
  • foreign direct investment
  • productivity impacts
  • real exchange rate

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Aerospace Engineering


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