The Fallacy of Composition and Contractionary Devaluations: The Output Impact of Real Exchange Rate Shocks in Developing Countries that Export Manufactures
AbstractThis paper studies whether intra-developing country price competition has significant effects on the short-run growth of output in developing countries that are specialized in manufactured exports. Regression estimates using the generalized method of moments (GMM) applied to annual panel data for 17 developing countries in 1983-2004 show that these countries exhibit a ‘fallacy of composition’, in the sense that a real depreciation relative to competing developing country exporters increases the home country’s growth rate in the short run. The results also suggest that real depreciations for these developing countries relative to the industrialised countries are contractionary.
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Bibliographic InfoPaper provided by American University, Department of Economics in its series Working Papers with number 2007-02.
Length: 45 pages
Date of creation: Jan 2007
Date of revision:
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Web page: http://www.american.edu/cas/economics/
Real exchange rates; fallacy of composition; terms of trade; manufactured exports; contractionary devaluations; competitive devaluations;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
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