After a large devaluation in January of 2002, Argentina experienced six years of a stable and undervalued exchange rate (2003-2008), where the relative prices between tradable and non-tradable goods markedly changed. This six-year period shows the highest number of sectors with export surges from 1980 to 2015. What do we learn about RER undervaluation and export performance from this event? What are the main characteristics of the sectors that took advantage of the exchange rate stimulus? This paper proposes a series of hypotheses to answer these questions and test them empirically by analyzing sectoral export surges in Argentina. The main hypothesis is that labor-intensive sectors are more responsive to exchange rate movements because non-tradable costs prevail in their production function. We test this hypothesis by running a series of linear probability econometric models using the 4-digit disaggregation classification of the Standard International Trade Classification (SITC), revision 2. Our results are summarized as follows. First, we find that the probability of export surge episodes increased 2.5% by each standard deviation of higher labor intensity index during 2003-2008. Second, we show that export surges are more likely to occur in sectors related to already competitive sectors. Third, when assessing the cross-industry kinds of linkages, we find evidence that the probability of an export surge episode is higher in the upstream sector of those already competitive. Finally, the new export volumes in sectors with export surge episodes show persistent dynamics after the end of the undervalued period, being a signal of hysteresis in trade.
JEL Classification: F43, F14, O11.