Exchange rate policies, patterns of specialization and economic development : theory and evidence in developing countries
AbstractThe objectives of this paper are twofold. First, it intends to provide theoretical elements toanalyze the relation between real exchange rates and economic development. Our mainhypothesis is very much in line with the Dutch disease literature, and states that competitivecurrencies contribute to the existence and maintenance of the manufacturing sector in theeconomy. This, in turn, brings about higher growth rates in the long run, given the existenceof increasing returns in the industrial sector, and its importance in generating technologicalchange and increasing productivity in the overall economy. The second objective of this paperis empirical. It intends to analyze examples of successful exchange rate policies, such as Chileand Indonesia in the eighties, as a benchmark for comparison with countries where currencyovervaluation has taken place, such as Brazil. In the latter case, the local currency is beinginflated by large capital inflows, due to high domestic interest rates and to a boom in demandand prices of commodities in the international markets. It will be argued that the industrialsector bears most of the burden when the currency appreciates, and that Brazil risks at deindustrializationif there are no changes in the exchange rate regime
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Date of creation: 02 Jul 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-DEV-2010-07-10 (Development)
- NEP-IFN-2010-07-10 (International Finance)
- NEP-OPM-2010-07-10 (Open Economy Macroeconomic)
- NEP-SEA-2010-07-10 (South East Asia)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- SugestÃ£o de resenha: Gala, Libanio e a doenÃ§a dos holandeses
by "O" Anonimo in A Mão Visível on 2010-07-13 15:00:00
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