Dynamics of employment and real exchange rates in developing countries: Evidence from three East Asian countries (Malaysia, Korea, Philippines)

In this dissertation, I analyze the impact of employment with respect to real exchange rates in developing countries. Previous studies focus on only developed countries such as OECD countries. But country characteristics and industry characteristics in developing countries are very different from characteristics of developed countries. I consider three East Asian countries (Korea, Malaysia, and the Philippines) having high openness to the world market.; According to theory, industries with high (low) openness are likely to show positive (negative) response to exchange rates. Industries with high (low) openness or low (high) labor intensity are likely to show large (small) responsiveness to a shock. I find that some patterns match the theory for the three countries; especially for the Korean and Malaysian cases. For the Korean and Malaysian cases, the response in employment to the change of exchange rates broadly matches theory in the direction and size regardless of the type of model. Interestingly, for Korea and Malaysia, industries having a negative sign in the short run show positive sign in the long run. However for the Philippines, the results are not consistent with theory; especially the signs of responses.; Based on variance decomposition analysis, for the developing countries, I find that the exchange rate, especially the permanent exchange rate, is important in the determination of employment. Also, for these countries, an increase in the export orientation ratio positively affects employment. Furthermore, it is found that, as expected, the developing countries tend to show a larger employment response to the shocks than a developed country.; Based on panel data analysis, Korea and Malaysia have positive employment responses to exchange rate shocks. The Philippines experience a structural parameter break. After the break, The Philippines have responses to the exchange shock similar to Korea and Malaysia.