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The Real Exchange Rate and Economic Growth: Some Observations on the Possible Channels

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Listed author(s):
  • Martín Rapetti

    ()

    (University of Buenos Aires)

Abstract

A recent body of empirical research has documented a strong association between the level and volatility of the RER and economic growth. This research has relied on a variety of econometric techniques applied to large cross-country data sets. Although the documented positive effects of both RER competitiveness and stability on growth appear to be robust, it is still unclear what the mechanisms driving these associations are. Several explanations have been proposed, but their theoretical examination and empirical validation is still in an infant stage. I analyze the mechanisms that have been proposed and evaluate them in light of the documented empirical evidence. My reading is that two of them adjust to the empirical findings best: the financial globalization channel and the tradable-led growth channel. I conclude that since these mechanisms are not mutually exclusive, both might have some explanatory power.

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Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2013-11.

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Date of creation: 2013
Handle: RePEc:ums:papers:2013-11
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Keywords: real exchange rate; growth; development; growth econometric;

Find related papers by JEL classification:

  • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
  • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
  • F31 - International Economics - - International Finance - - - Foreign Exchange
  • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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Cited by:

  1. Emiliano Libman & Juan Antonio Montecino & Arslan Razmi, 2017. "Sustained investment surges," UMASS Amherst Economics Working Papers 2017-09, University of Massachusetts Amherst, Department of Economics.
  2. Ionuţ JIANU & Laura-Mădălina PÎRȘCOVEANU & Maria-Daniela TUDORACHE, 2017. "The impact of financial risks on economic growth in EU-15," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 23-44, Spring.

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