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Exchange rate policies, patterns of specialization and economic development : theory and evidence in developing countries

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  • Gala, Paulo Sérgio de Oliveira Simões
  • Libanio, Gilberto

Abstract

The 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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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 211.

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Date of creation: 02 Jul 2010
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Handle: RePEc:fgv:eesptd:211

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  1. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers, United Nations, Department of Economics and Social Affairs 19, United Nations, Department of Economics and Social Affairs.
  2. Penélope Pacheco López & A. P. Thirlwall, 2006. "Trade liberalization, the income elasticity of demand for imports, and growth in Latin America," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 29(1), pages 41-61, October.
  3. Norman Loayza & Raimundo Soto, 2002. "Inflation Targeting: An Overview," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 1, pages 001-022 Central Bank of Chile.
  4. Lopez, Ramon & Thomas, Vinod, 1988. "Imports and growth in Africa," Policy Research Working Paper Series 20, The World Bank.
  5. John Williamson, 1996. "Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia and Israel, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 14, July.
  6. Ricardo Azevedo Araujo & Gilberto Tadeu Lima, 2007. "A structural economic dynamics approach to balance-of-payments-constrained growth," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 31(5), pages 755-774, September.
  7. Dixon, R & Thirlwall, A P, 1975. "A Model of Regional Growth-Rate Differences on Kaldorian Lines," Oxford Economic Papers, Oxford University Press, vol. 27(2), pages 201-14, July.
  8. Luiz Carlos Bresser-Pereira, 2002. "Brazil's Quasi-Stagnation and the Growth cum Foreign Savings Strategy," International Journal of Political Economy, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 32(4), pages 76-102, January.
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  1. Sugestão de resenha: Gala, Libanio e a doença dos holandeses
    by "O" Anonimo in A Mão Visível on 2010-07-13 15:00:00

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