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The relationship between exchange rate and structural change: an approach based on income elasticities of trade
[New insights from a structural economic dynamic approach to balance of payments constrained growth]

Author

Listed:
  • Nelson Marconi
  • Eliane Araujo
  • Marco Capraro Brancher
  • Tiago Couto Porto

Abstract

We analyse the hypothesis that variations in the income elasticities of the demand for exports and imports are influenced by the difference between the actual and industrial equilibrium levels of real effective exchange rates. The industrial equilibrium is defined as the exchange rate level that equalises real unit labour costs between local producers of manufactured goods and their trading partners. To test our hypothesis, based on data between 1995 and 2014 from the World Input-Output Database (WIOD), a sample of 43 countries was built. First, the actual and the industrial equilibrium real effective exchange rates were calculated; then, the income elasticities were estimated for each country during this period. A dynamic panel data model was adopted to estimate the relationship between these elasticities and the differences between those exchange rates. The results suggest that the magnitude of these differences modifies the income elasticities of trade, potentially contributing to structural change.

Suggested Citation

  • Nelson Marconi & Eliane Araujo & Marco Capraro Brancher & Tiago Couto Porto, 2021. "The relationship between exchange rate and structural change: an approach based on income elasticities of trade [New insights from a structural economic dynamic approach to balance of payments cons," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 45(6), pages 1297-1318.
    • Handle: RePEc:oup:cambje:v:45:y:2021:i:6:p:1297-1318.
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    File URL: http://hdl.handle.net/10.1093/cje/beab039
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    Citations

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    Cited by:

    1. Botta, Alberto & Porcile, Gabriel & Spinola, Danilo & Yajima, Giuliano Toshiro, 2023. "Financial integration, productive development and fiscal policy space in developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 175-188.
    2. Felipe Orsolin Teixeira & Fabricio Jose Missio & Ricardo Dathein, 2022. "Economic complexity, structural transformation and economic growth in a regional context: Evidence for Brazil," PSL Quarterly Review, Economia civile, vol. 75(300), pages 63-79.
    3. Jacques Sapir, 2023. "The Macroeconomic Impact of the New Geopolitical Deal on the French Economy," Studies on Russian Economic Development, Springer, vol. 34(3), pages 308-319, June.
    4. H. Stephen Gardner & Lourenço S. Paz & John Ssozi, 2023. "The influence of international trade on labour productivity in services: The case of Brazil in the 1990s," Review of Development Economics, Wiley Blackwell, vol. 27(1), pages 268-290, February.
    5. Nell, Kevin, 2023. "Inflation and growth in developing economies: A tribute to Professor Thirlwall," MPRA Paper 118757, University Library of Munich, Germany, revised 01 Sep 2023.
    6. Hugo Iasco-Pereira & Fabricio José Missio, 2022. "Would a competitive real exchange rate be a driver of economic prosperity?," PSL Quarterly Review, Economia civile, vol. 75(303), pages 355-383.

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