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Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long

Author

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  • Haddad, Mona

    (World Bank)

  • Pancaro, Cosimo

Abstract

A policy of managed real undervaluation may have been an important factor behind the success of East Asia’s export-led growth model. But current discussions over the value of China’s currency demonstrate the controversy this kind of policy can generate. Although a managed real undervaluation can enhance domestic competitiveness, it is difficult to sustain—both economically and politically—in the post-crisis environment. We show that a real undervaluation works only for low-income countries, and only in the medium term.

Suggested Citation

  • Haddad, Mona & Pancaro, Cosimo, 2010. "Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long," World Bank - Economic Premise, The World Bank, issue 20, pages 1-5, June.
    • Handle: RePEc:wbk:prmecp:ep20
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    More about this item

    Keywords

    exchangte rates; undervaluation; exports; growth; developing countries; China; currency; East Asia; competitiveness; renminbi;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F3 - International Economics - - International Finance

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