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Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy?

Author

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  • Patrick Plane

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Ridha Nouira

    (UREP - UREP - Université de Sfax - University of Sfax)

  • K. Sekkat

    (UREP - UREP - Université de Sfax - University of Sfax)

Abstract

Recent literature suggests that a proactive strategy consisting of deliberate real exchange rate depreciation can promote exports diversification and growth. This paper is built on these recent developments and investigates whether four developing countries have adopted such a strategy. Data from Egypt, Jordan, Morocco and Tunisia are used to construct and compare the macroeconomic Real Effective exchange rate (REER), similar exchange rates at the sector level (SREER) and the macroeconomic Equilibrium Real Effective exchange rate (EREER). It shows that there are instances where the objective of diversifying exports through depreciation of exchange rate comes at the expense of further misalignment (REER departs from the EREER) and, then, monetary authorities are doomed to choose. The results show that Morocco and Tunisia are choosing the proactive exchange rate strategy while Egypt and Jordan are not. This fits with the observation that the former are doing much better than the latter in terms of exports diversification.

Suggested Citation

  • Patrick Plane & Ridha Nouira & K. Sekkat, 2011. "Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy?," CERDI Working papers halshs-00553163, HAL.
    • Handle: RePEc:hal:cdiwps:halshs-00553163
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00553163
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    More about this item

    Keywords

    Exchange rate; Misalignment; Undervaluation; Exports diversification;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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