Profit margins, exchange rates and structural change: empirical evidences for the period 1996-2017

Vol. 40 No. 2 (2020)

Apr-Jun / 2020
Published April 1, 2020
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PDF-English

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Marconi, Nelson, Guilherme Magacho, João Guilherme R. Machado, and Rafael de Azevedo Ramires Leão. 2020. “Profit Margins, Exchange Rates and Structural Change: Empirical Evidences for the Period 1996-2017”. Brazilian Journal of Political Economy 40 (2):285-309. https://doi.org/10.1590/0101-31572020-3093.
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Profit margins, exchange rates and structural change: empirical evidences for the period 1996-2017

Nelson Marconi
Assistant Professor at Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas – EAESP-FGV, São Paulo/SP, Brasil.
Guilherme Magacho
Visiting Professor at Universidade Federal do ABC – UFABC,Santo André/SP, Brasil.
João Guilherme R. Machado
PhD Candidate in Public Administration/Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas – EAESP-FGV, São Paulo/SP, Brasil.
Rafael de Azevedo Ramires Leão
PhD Candidate in Public Administration/ Escola de Administração de Empresas de São Paulo da Fundação Getulio Vargas – EAESP-FGV, São Paulo/SP, Brasil.
Brazilian Journal of Political Economy, Vol. 40 No. 2 (2020), Apr-Jun / 2020, Pages 285-309

Abstract

This research seeks to understand the relationship between the rate of profit and the exchange rate and how this relationship can impact the productive structure. We construct a theoretical model in which the exchange rate influences the rate of profit, and we argue that although an overvalued exchange rate could benefit sectors with high imported input coefficients in the short term because it reduces costs, it negatively impacts the demand for their products and also reduces the aggregatedemand; hence, an overvalued exchange rate could shrink the profit rate of these sectors in the medium term. In the Brazilian case, these sectors are the high technological-content manufacturing sectors.

JEL Classification: F41; F63; L16; O11; O14.


Keywords: Profit-Margins, Exchange Rate Investment New Developmentalism Deindustrialization Manufacturing Structural Change

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