Real exchange rates and skills


  • Bodart Vincent
  • Carpantier Jean-François


  • C23
  • F31
  • F41
  • I25
  • Real exchange rate
  • Factor endowments
  • Skills
  • Balassa–Samuelson effect

document type



Recent developments in trade theory strongly emphasize that international trade requires an intensive use of skilled workers. Against this background, we explore in this paper whether labor skills are a key determinant of real exchange rates in the long run. Using panel regressions covering 22 countries over the period 1950–2010, we find that labor skills are indeed a structural determinant of real exchange rates, with a permanent increase of the skilled–unskilled labor ratio leading to a long-run appreciation of the real exchange rate. This finding is robust to the inclusion of several control variables, like those used in traditional analyses of real exchange rates.

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