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Exchange Rate Misalignment, Capital Accumulation and Income Distribution Theory and Evidence from the Case of Brazil


  • José Luis Oreiro

    () (Universidade de Brasília (UnB), National Scientific Council (CNPq), Brasil)

  • Eliane Araujo

    () (Universidade Estadual de Maringá (UEM), Brasil)


This article analyzes the relationship between economic growth, income distribution and real exchange rate within the neo-Kaleckian literature, through the construction of a nonlinear macrodynamic model for an open economy in which investment in fixed capital is assumed to be a quadratic function of the real exchange rate. The model demonstrates that the prevailing regime of accumulation in a given economy depends on the type of currency misalignment, so if the real exchange rate is overvalued, then the regime of accumulation will be profit-led, but if the exchange rate is undervalued, then the accumulation regime is wage-led. Subsequently, the adherence of the theoretical model to data is tested for Brazil in the period 1994/Q3-2008/Q4. The econometric results are consistent with the theoretical non-linear specification of the investment function used in the model, so that we can define the existence of a real exchange rate that maximizes the rate of capital accumulation for the Brazilian economy. From the estimate of this optimal rate we show that the real exchange rate is overvalued in 1994/Q3- 2001/Q1 and 2005/Q4-2008/Q4 and undervalued in the period 2001/Q2-2005/Q3. As a direct corollary of this result, it follows that the prevailing regime of accumulation in the Brazilian economy after the last quarter of 2005 is profit-led.

Suggested Citation

  • José Luis Oreiro & Eliane Araujo, 2013. "Exchange Rate Misalignment, Capital Accumulation and Income Distribution Theory and Evidence from the Case of Brazil," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(3), pages 381-396, May.
  • Handle: RePEc:voj:journl:v:60:y:2013:i:3:p:381-396

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    References listed on IDEAS

    1. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," International Finance 9707001, EconWPA.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
    4. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    5. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-393, December.
    6. J.S.L. McCombie & Mark Roberts, 2002. "The Role of the Balance of Payments in Economic Growth," Chapters,in: The Economics of Demand-Led Growth, chapter 6 Edward Elgar Publishing.
    7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Fernando Rugitsky, 2017. "The rise and fall of the Brazilian economy (2004-2015): the economic antimiracle," Working Papers, Department of Economics 2017_29, University of São Paulo (FEA-USP).
    2. Tomio, Bruno Thiago, 2016. "Understanding the Brazilian demand regime: A Kaleckian approach," IPE Working Papers 73/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Laura Carvalho & Fernando Rugitsky, 2015. "Growth and distribution in Brazil the 21st century: revisiting the wage-led versus profit-led debate," Working Papers, Department of Economics 2015_25, University of São Paulo (FEA-USP).
    4. Laura Carvalho & Fernando Rugitsky, 2016. "Growth And Distribution In Brazil In The 21st Century: Revisiting The Wage-Led Versus Profit-Led Debate," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 027, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. José Luis Oreiro & Fabricio Missio & Frederico G. Jayme Jr., 2015. "Capital Accumulation, Structural Change and Real Exchange Rate in a Keynesian-Structuralist Growth Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(2), pages 237-256, June.

    More about this item


    Open economy macroeconomics; Income distribution and real exchange rate;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D3 - Microeconomics - - Distribution


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