Abstract
We investigate the real effects of foreign exchange (FX) volatility on technological innovation. Using a 32-market, three-decade sample, we show that heightened FX volatility associates with significantly lower firm-level RD it is weaker for firms with derivatives hedging, with higher sales, and in countries with better financial development. We also use FX regime changes and the collapse of the European Exchange Rate Mechanism to support a causal interpretation.
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