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Fixed Exchange Rate Regimes, Real Undervaluation, and Economic Growth

Author

Listed:
  • Rui Mao

    (School of Management, Zhejiang University, 866 Yuhangtang Road, Hangzhou, Zhejiang Province 310058, China)

  • Yang Yao

    (#x2020;National School of Development and China Center for Economic Research, Peking University, 5 Yiheyuan Road, Beijing 100871, China)

Abstract

Using data on sectoral value added and purchasing power parity converter, we are able to estimate the home country’s industrial-service (quasi-) relative-relative total factor productivity (TFP) against the United States. Applying those estimates, our econometric exercises provide robust results showing that the fixed exchange rate regime (FERR) dampens the Balassa–Samuelson effect, and the real undervaluation thus created promotes growth. We also explore the channels of undervaluation to promote growth. Lastly, we compare industrial countries and developing countries and find that the FERR has more significant effects in developing countries than in industrial countries.

Suggested Citation

  • Rui Mao & Yang Yao, 2016. "Fixed Exchange Rate Regimes, Real Undervaluation, and Economic Growth," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-35, June.
    • Handle: RePEc:wsi:jicepx:v:07:y:2016:i:02:n:s1793993316500083
    DOI: 10.1142/S1793993316500083
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    Cited by:

    1. Andrea Ricci, 2016. "Unequal Exchange in International Trade:A General Model," Working Papers 1605, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2016.

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    More about this item

    Keywords

    Fixed exchange rate regimes; real undervaluation; economic growth;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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