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Exchange rate policies, patterns of specialization and economic development: theory and evidence in developing countries

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  • Gala, Paulo
  • Libanio, Gilberto

Abstract

The objectives of this paper are twofold. First, it intends to provide theoretical elements to analyze the relation between real exchange rates and economic development. Our main hypothesis is very much in line with the Dutch disease literature, and states that competitive currencies contribute to the existence and maintenance of the anufacturing sector in the economy. This, in turn, brings about higher growth rates in the long run, given the existence of increasing returns in the industrial sector, and its importance in generating echnological change and increasing productivity in the overall economy. The second objective of this paper is empirical. It intends to analyze examples of successful exchange rate policies, such as Chile and Indonesia in the eighties, as a benchmark for comparison with countries where currency overvaluation has taken place, such as Brazil. In the latter case, the local currency is being inflated by large capital inflows, due to high domestic interest rates and to a boom in demand and prices of commodities in the international markets. It will be argued that the industrial sector bears most of the burden when the currency appreciates, and that Brazil risks at deindustrialization if there are no changes in the exchange rate regime

Suggested Citation

  • Gala, Paulo & Libanio, Gilberto, 2010. "Exchange rate policies, patterns of specialization and economic development: theory and evidence in developing countries," Textos para discussão 211, FGV EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  • Handle: RePEc:fgv:eesptd:211
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    File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/6875/1/TD%20211%20-%20Paulo%20Gala.pdf
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    References listed on IDEAS

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    1. Norman Loayza & Raimundo Soto, 2002. "Inflation Targeting: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 1, pages 001-022 Central Bank of Chile.
    2. Roberto Frenkel & Lance Taylor, 2006. "Real Exchange Rate, Monetary Policy and Employment," Working Papers 19, United Nations, Department of Economics and Social Affairs.
    3. Dixon, R & Thirlwall, A P, 1975. "A Model of Regional Growth-Rate Differences on Kaldorian Lines," Oxford Economic Papers, Oxford University Press, vol. 27(2), pages 201-214, July.
    4. Ricardo Azevedo Araujo & Gilberto Tadeu Lima, 2007. "A structural economic dynamics approach to balance-of-payments-constrained growth," Cambridge Journal of Economics, Oxford University Press, vol. 31(5), pages 755-774, September.
    5. Penélope López & A. Thirlwall, 2006. "Trade liberalization, the income elasticity of demand for imports, and growth in Latin America," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 41-61.
    6. Luiz Carlos Bresser-Pereira, 2002. "Brazil's Quasi-Stagnation and the Growth cum Foreign Savings Strategy," International Journal of Political Economy, Taylor & Francis Journals, vol. 32(4), pages 76-102.
    7. John Williamson, 1996. "Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia and Israel, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 14.
    8. Lopez, Ramon & Thomas, Vinod, 1988. "Imports and growth in Africa," Policy Research Working Paper Series 20, The World Bank.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Sugestão de resenha: Gala, Libanio e a doença dos holandeses
      by "O" Anonimo in A Mão Visível on 2010-07-13 20:00:00

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    Cited by:

    1. 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).
    2. repec:hur:ijarbs:v:7:y:2017:i:11:p:1284-1293 is not listed on IDEAS

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