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The real exchange rate and economic growth

Rodrik, Dani (2008) The real exchange rate and economic growth. Journal of Economic Studies, 40 (3). pp. 298-313. ISSN 0144-3585

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I provide evidence that undervaluation of the currency (a high real exchange rate) stimulates economic growth. This is true particularly for developing countries. There is also some evidence that the operative channel is the size of the tradable sector (especially industry). These findings suggest that tradable goods suffer disproportionately from the government or market failures that keep poor countries from converging towards higher-income levels. I present two categories of explanations as to why this may be so, focusing on (a) institutional weaknesses, and (b) product-market failures. A formal model elucidates the linkages between the level of the real exchange rate and the rate of economic growth.

Item Type: Article
Official URL:
Additional Information: © 2008 The Author
Divisions: LSE
Subjects: H Social Sciences > HB Economic Theory
JEL classification: F - International Economics > F3 - International Finance > F31 - Foreign Exchange
F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
Date Deposited: 18 Aug 2014 15:56
Last Modified: 20 Oct 2021 00:43
Funders: International Development

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