Real Exchange Rate and the Structure of Exports

Cimoli, Mario and Fleitas, Sebastian and Porcile, Gabriel (2011): Real Exchange Rate and the Structure of Exports.

Abstract

Abstract

This paper discusses the effects of the real exchange rate (RER) on the structure of exports. Based on a North-South Ricardian model, two hypotheses are suggested and tested. The first one is that a higher RER allows for a higher diversification of exports. The second hypothesis is that this diversification raises the technological intensity of exports. We find favorable evidence for the two hypotheses from a panel data study including 111 counties in the period 1965-2005. From these results it is argued that a competitive RER should be considered a relevant variable in the process of economic development as it encourages the transformation of the pattern of specialization.

• Item Type: MPRA Paper
• Language: English
• Keywords: export diversification, real exchange rate
• Subjects: N - Economic History > N7 - Transport, Trade, Energy, Technology, and Other Services

References

Acemoglu, D. (2009) Introduction to Modern Economic Growth. Princeton U. Press.

Agosin, M.R. (2009) “Export Diversification and Growth in Emerging Economies”, Revista de la Cepal 97, pp. 115-131, April.

Agosin, M.R., Alvarez, R. and Bravo-Ortega, C. (2011) “Determinants of Export Diversification Around the World”, Central Bank of Chile, Working Paper N. 605, January.

Amsden, A. (1989), Asia’s Next Giant: South Korea and Late Industrialization, New York, Oxford University Press

Araujo, R.A. and G. Lima (2007) ‘A Structural Economic Dynamics Approach to Balance of Payments Constrained Growth’, Cambridge Journal of Economics, September.

Arellano, M., and S. Bond. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58: 277{97.

Arthur, B. (1994) Increasing Returns and Path-Dependency in Economics. Ann Arbor: Michigan University Press.

Baldwin, R. (1988) “Hysteresis in Import Prices: The Beachhead Effect”, American Economic Review, 78, pp. 773-785.

Baldwin R., Krugman P. R. (1989) “Persistent Trade Effects of Large Exchange Rate Shocks, Quarterly Journal of Economics, 104, pp. 635-654.

Bastourre, D.; Casanova, L. And Espora, A. (2011)”Tipo de Cambio Real y Crecimiento: Síntesis de la Evidencia y Agenda de Investigación”, Departamento de Economía, Universidad Nacional de la Plata, Documento de Trabajo n. 82, February 2011.

Bell, M. (2006), “Time and technological learning in industrialising countries: how long does it take? How fast is it moving (if at all)?, International Journal of Technology Management, vol. 36, No. 1–3, pp. 25–39

Bernard, A. and B. Jensen (2004) “Entry, Expansion and Intensity During the U.S. Export Boom 1987-1992.” Review of International Economics 12(4): 662-675.

Berthou, A. (2008) “An Investigation on the Effect of the Real Exchange Rate Movements on OECD Bilateral Exports”, European Central Bank”, Working Paper Series n. 920, July.

Blecker, R. (2009) “Long-Run Growth in Open Economies: Export-Led Cumulative Causation or a Balance-of-Payments Constraint?, Paper prepared for presentation at the 2nd Summer School on “Keynesian Macroeconomics and European Economic Policies,” Research Network Macroeconomics and Macroeconomic Policies, 2-9 August, 2009, Berlin, Germany.

Bresser-Pereira, Luiz Carlos (2008) “Dutch Disease and Its Neutralization: a Ricardian Approach”, Brazilian Journal of Political Economy 28 (1) January: 47-71.

Broda, C.M (2002) “Terms of Trade and Exchange Rate Regimes in Developing Countries”, FRB of New York Staff Report No. 148, March.

Berg, A. and Miao, Y (2010) “The Real Exchange rate and Growth Revisited: The Washington Consensus Strikes Back?”, IMF Working Paper, March.

Cadot, O.; Carrère, C. and Strauss-Kahn, V. (2011) “Export Diversification: What’s Behind the Hump?”, Review of Economics and Statistics, 93(2), pp. 590-605.

Ciarli, T., Lorentz, A., Savona, M., & Valente, M. (2010). “The Effect of Consumption and Production Structure on Growth and Distribution. A Micro to Macro Model”,

Metroeconomica, 61(1), pp. 180–218 Chang, H.J. (2001), “Infant Industry Promotion in Historical Perspective. A Rope to Hang Oneself or a Ladder to Climb With?”, document prepared for the conference Development Theory at the Threshold of the Twenty-first Century”, Economic Commission for Latin America and the Caribbean (ECLAC), August 2001.

Cimoli, M. (1988), “Technological gaps and institutional asymmetries in a North-South model with a continuum of goods”, Metroeconomica, vol. 39, No. 3, pp. 245–74.

Cimoli, M., G. Dosi and J. Stiglitz (eds.) (2009), Industrial Policy and Development, The Political Economy of Capabilities Accumulation, Oxford, Oxford University Press

Cimoli, M. and Porcile, G. (2009) “Sources of Learning Paths and Technological Capabilities: An Introductory Roadmap of Development Processes”, Economics of Innovation and New Technology, 1476-8364, Volume 18, Issue 7, 2009, pp. 675 – 694

Cimoli, M.; Porcile, G. Rovira, S. (2010) “Structural Convergence and the Balance-of-Payments Constraint: Why Did Latin America Fail to Converge”, Cambridge Journal of Economics, v. 34, n. 2, March, pp. 389-411.

Cimoli and Porcile (2011) “Learning, Technological Capabilities and Structural Dynamics”, in Ocampo, J.A. and Ros, J. (2011) The Oxford Handbook of Latin American Economics, Oxford University Press, in press.

David, P. (2007) “Path-Dependence: A Foundational Concept for Historical Social Science”, Cliometrica, 1(2), pp. 91—114.

Dornbusch, R., Fischer, S. and Samuelson, P. (1977) “Comparative Advantage, Trade and Payments ina Ricardian Model With a Continuum of Goods”, American Economic Review, 67, pp. 823-309.

Dosi, G., K. Pavitt and L. Soete (1990), The Economic of Technical Change and International Trade, London and New York, Harvester Wheatsheaf Press/New York University Press.

Dosi, S. Lechevalier, A. Secchi (2010) “Introduction: Interfirm heterogeneity? Nature, sources and consequences for industrial dynamics”,Industrial And Corporate Change, 19(6), pp. 1867-1890.

ECLAC (2006) Estudio Económico de América Latina y el caribe 2005-6. Santiago: ECLAC.

ECLAC, (2007), “Progreso Técnico y Cambio Estructural en América Latina”, (LG/W. 136), Division of Production, Productivity and Management, United Nations, Santiago (Chile), October 2007.

Eichengreen, B. (2008) “The Real Exchange Rate and Growth” Working Paper N. 4, Commission on Growth and Development. Fang, W., Y. Lai and S. Miller (2006) “Export Promotion through Exchange Rate Changes: Exchange Rate Depreciation or Stabilization?” Southern Economic Journal, 72(3): 611-626.

Feenstra, R., Lipsey, R., Deng, H, Alyson C. and Mo, H (2005) World Trade Flows: 1962-2000. NBER Working Paper Series, Vol. w11040, 2005.

Freeman, C. (1995) “The National System of Innovation in Historical Perspective”, Cambridge Journal of Economics, v. 19 (1), pp. 5-24.

Frenkel, R. and Rapetti, M. (2011) “A Concise History of Exchange Rate Regimes in Latin America”, in Ocampo, J.A. and Ros, J. (2011) The Oxford Handbook of Latin American Economics, Oxford University Press.

Freund, C. and Pierola, M.D. (2008a) “Export Surges: The Power of a Competitive Currency”. The World Bank, Policy Research Working Paper 4750, October.

Freund, C. and Pierola, M.D. (2008b) “Export Entrepreneurs: Evidence From Peru”, Word Bank Workin Paper, December.

Gouvea, R.R. and G.T. Lima (2010) “Structural Change, Balance of Payments Constraint and Economic Growth : Evidence from the Multi-Sectoral Thirlwall’s Law”, Journal of Post Keynesian Economics, 33 (1), October, pp. 169-204.

Hansen, L. 1982. Large sample properties of generalized method of moments estimators. Econometrica 50(3): 1029,54

Hausmann, R.; Hwang, J. and Rodrik, D. (2007) "What you Export Matters," Journal of Economic Growth, 12(1), pp. 1-25, March.

Haber and Menaldo (2011) ”Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse”, American Political Science Review, Vol. 105, No. 1, pp. 1-26, 2011.

Imbs, J. and Wacziarg, R. (2003) Stages of Diversification, American Economic Review, 93 (1), pp. 63-86.

Katz, J. (1987), Technology Generation in Latin American Manufacturing Industries: Theory and Case-Studies Concerning its Nature, Magnitude and Consequences, London, The Macmillan Press.

Krugman, P.R. (1979) "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, 87(2), pp. 253-266.

Lall, S. (2000) “The Technological Structure and Performance of Developing Country Manufactured Exports, 1985–98”, Oxford Development Studies, vol. 28, n. 3, pp. 337-369. McMillan, M. and Rodrik, D. (2001) “Globalization, Structural Change and Productivity Growth”, Joint ILO-WTO paper, February.

Metcalfe, J. S. (2001), "Institutions and Progress," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 561-86, September.

Moreno-Brid, J. (2003) “Capital Flows, Interest Payments and the Balance of Payments Constrained Growth Model: A Theoretical and Empirical Analysis”, Metroeconomica , 54 (3), pp. 346-365.

Narula, R. (2004)“Understanding Absorptive Capacities in an Innovation Systems Context: Consequences for Economic and Employment Growth”, DRUID Working Paper n. 04-02, December.

Nassif, A., Feijó, C. and Almeida, M.A.S. (2010) “Why Does Real Exchange Rate Overvalue in Brazil? Theoretical Determinants, Empirical Evidence and Economic Policy Dilemmas”, 38th Encontro Nacional de Economia, ANPEC, 7-10 December, Salvador, Brazil.

Nelson, R. (ed.) (1993), National Systems of Innovation, Oxford, Oxford University Press.

Nelson, R. and Winter, S. (1982) A evolutionary Theory of Economic Change, Harvard U. Press.

Nugent, J. B.; Robinson, J. A. (2010) “Are Factor Endowments Fate?”, Revista de Historia Económica. Journal of Iberian and Latin American Economic History 28(1), pp. 45-82.

Ocampo, J.A. (2011) “Macroeconomía Para el Desarrollo: Políticas Anticíclicas y Transformación Productiva”, Revista CEPAL 104, pp. 7-35, August.

Pacheco-Lopez, P. and Thirlwall, A.P. (2006) “Trade Liberalization, the Income Elasticity of Demand for Imports and Economic Growth in Latin America”, Journal of Post-Keynesian Economics 29 (1), pp. 41-61.

Peres,W. (2010), “The (slow) return of industrial policies in Latin America and the Caribbean”, M. Cimoli, G. Dosi and J. E. Stiglitz (eds) The Political Economy of Capabilities Accumulation: the Past and Future of Policies for Industrial Development, Oxford University Press.

Prebisch, R. (1949) El Desarrollo Económico de América Latina y su Principales Problemas (New York: United Nations, 1950).

Pritchett, L. (2001) “Where has all the education gone?” The World Bank Economic Review, 15(3), pp. 367-391.

Rada, C. (2007) “Stagnation or transformation of a dual economy through endogenous productivity growth”, Cambridge Journal of Economics 31(5), pp. 711-740.

Rapetti, M. (2011) “Macroeconomic Policy Coordination in a Competitive Real Exchange Rate Strategy for Development”, Working Paper, Department of Economics, University of Massachusetts, Amherst, 2011-9.

Rapetti, M.; Razmi, A. and Skott, P. (2009) “The Real Exchange Rate as an Instrument of Developing Policy”, Working Paper, Department of Economics, University of Massachusetts, Amherst, 2009-07.

Reinert, E.S. (1995) “Competitiveness and its predecessors - a 500 Year cross-national perspective” in Structural Change and Economic Dynamics, Vol. 6, pp. 23-42.

Rodríguez, O. (2007) El Estructuralismo Latinoamericano. México: Siglo XXI.

Rodrik, D. (2008): “The Real Exchange Rate and Economic Growth,” Brookings Papers on Economic Activity, 2008:2.

Ros, J. (2002) Economic Growth and Development Theory, Michigan University Press.

Saviotti, P. and Pyka, A. (2004) “Economic Development, Variety and Employment”, Revue Économique 55 (6), pp.1023-1050.

Saviotti, P and Frenken, K. (2008) “Export Variety and the Economic Performance of Countries”, Journal of Evolutionary Economics (18), pp. 201-218.

Schumpeter, J.A. (1911) The Theory of Economic Development: An inquiry into profits, capital, credit, interest and the business cycle). New Jersey: Transaction books, 1984 (translation of 1934).

Setterfield, M. (2009a) “Neoclassical Growth Theory and Heterodox Growth Theory: Opportunities For and Obstacles To Greater Engagement”, Trinity College Department of Economics, Working Paper 09-1, December.

Setterfield, M. (2009b) "Path dependency, Hysteresis and Macrodynamics," in P. Arestis and M. Sawyer (eds) Path Dependency and Macroeconomics (International Papers in Political Economy 2009), London, Palgrave, Macmillan.

Stalling, B. and Peres, W. (2000) Growth, Employment and Equity: The Impact of Economic Reforms in Latin America and the Caribbean, Washington, DC: Brookings Institution Press.

Sekkat, K. and Varoudakis, A. (2000) “Exchange Rate Management and Manufactured Exports in Sub-Saharan Africa”, Journal of Development Economics, 61 (1), pp. 237-253.

Thirlwall, A.P. (1979) “The Balance of Payments Constraint as an Explanation of International Growth Rate Differences”, Banca Nazionale di Lavoro, March, 128, pp. 45-53.

Thirwall, A. (2011) “Balance of Payments Constrained Growth Models: History and Overview”. University of Kent, School of Economics Discussion Paper 1111, May.

Vera, L.A. (2006) “The Balance-of-Payments Constrained Growth Model: A North-South Approach”, Journal of Post-Keynesian Economics, 29 (1), pp. 67-92.

Wade, R. (1990), Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, Princeton, Princeton University Press.

WITS (2000-2008), World Integrated Trade Solution (WITS) http://wits.worldbank.org/wits/ .