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

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  • Mona Haddad
  • Cosimo Pancaro

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.
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Suggested Citation

  • Mona Haddad & Cosimo Pancaro, 2010. "Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long," World Bank Publications - Reports 10178, The World Bank Group.
    • Handle: RePEc:wbk:wboper:10178
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    More about this item

    Keywords

    Finance and Financial Sector Development-Debt Markets Macroeconomics and Economic Growth-Macroeconomic Management Macroeconomics and Economic Growth-Economic Stabilization Finance and Financial Sector Development-Currencies and Exchange Rates Poverty Reduction-Achieving Shared Growth;

    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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