The Effect of Real Exchange Rate Volatility on Productivity Growth in Iran With The Role of Financial Development

One of the most important items to select exchange system is to study the effect of Exchange rate volatility on real sector of economy especially on productivity growth. But exchange rate volatility and different exchange systems have different effects on country s economic system the selection of exchange system is dependent on the condition of the country. Thus, this paper evaluates the effect of exchange rate volatility on productivity growth in Iran with regard to financial development and the data are collected from World Bank during 1979-2014. By stationarity Phillips-perron test, stationarity of variables is evaluated. Then co- integration and long-run relationship were examined by Johansen and Julius test. Using vector error correction model, short-run volatilities of variables were evaluated in long-run equilibrium path. The results showed that exchange rate volatility had negative relationship with productivity growth and the effect of financial development on productivity growth was positive and significant. Also, the effect of reciprocal exchange rate volatility and financial development on productivity growth was negative and smaller than the effect of exchange rate volatility in extent.

Keywords:

Productivity Growth , Exchange Rate Volatility , Financial ……………Development , Johansen and Julius test