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Desperately seeking the positive impact of undervaluation on growth

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  • Nouira, Ridha
  • Sekkat, Khalid

Abstract

This paper contributes to a current and intense debate among economists on whether real exchange rate undervaluation can boost growth. It focuses on addressing econometric and empirical issues that cast doubt about the validity of such positive impact. It also allows for the possibilities that the effect of undervaluation on growth operates with delay or dependent on the persistence or the level of undervaluation. We did not find any convincing support to the claim that a depreciated real exchange rate promotes economic growth. We argue that the contrast between our results and the documented examples of a successful adoption of undervaluation strategy reported in the literature reveals that undervaluation alone is not enough to boost growth. The simultaneous adoption of companion policies may be behind the claimed success.

Suggested Citation

  • Nouira, Ridha & Sekkat, Khalid, 2012. "Desperately seeking the positive impact of undervaluation on growth," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 537-552.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:2:p:537-552 DOI: 10.1016/j.jmacro.2011.12.002
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    Citations

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    Cited by:

    1. Abdessalem GOUIDER & Ridha NOUIRA, 2014. "The Impact of Misalignment on FDI in the Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 784-800.
    2. Sekkat, Khalid, 2016. "Exchange rate misalignment and export diversification in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 1-14.
    3. Samba Mbaye, 2013. "Currency undervaluation and growth: Is there a productivity channel?," International Economics, CEPII research center, issue 133, pages 8-28.
    4. Duygu Yolcu Karadam & Erdal Özmen, 2016. "Real Exchange Rates and Growth," ERC Working Papers 1609, ERC - Economic Research Center, Middle East Technical University, revised Sep 2016.
    5. Chen, Shiu-Sheng, 2017. "Exchange rate undervaluation and R&D activity," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 148-160.
    6. Marcel Schroder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers 2013-12, The Australian National University, Arndt-Corden Department of Economics.
    7. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    8. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, vol. 105(C), pages 140-151.
    9. repec:eco:journ1:2014-03-09 is not listed on IDEAS
    10. Habib, Maurizio Michael & Mileva, Elitza & Stracca, Livio, 2017. "The real exchange rate and economic growth: Revisiting the case using external instruments," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 386-398.
    11. Rafael Saulo Marques Ribeiro & John S. L. McCombie, Gilberto Tadeu Lima, 2016. "Some Unpleasant Currency Devaluation Arithmetic in a Post-Keynesian Macromodel," Working Papers, Department of Economics 2016_03, University of São Paulo (FEA-USP), revised 01 Jun 2017.
    12. repec:wsi:serxxx:v:62:y:2017:i:01:n:s0217590816500168 is not listed on IDEAS
    13. Rafael Saulo Marques Ribeiro & John S. L. McCombie, Gilberto Tadeu Lima, 2017. "Does Real Exchange Rate Undervaluation Really Promote Economic Growth?," Working Papers, Department of Economics 2017_11, University of São Paulo (FEA-USP).

    More about this item

    Keywords

    F31; F43; O24; Equilibrium exchange rate; Misalignment; Undervaluation; Growth; Panel; Co-integration;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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