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Would a competitive real exchange rate be a driver of economic prosperity?

Author

Listed:
  • Hugo Iasco-Pereira

    (Federal University of Parana´, Brazil)

  • Fabricio José Missio

    (Federal University of Minas Gerais, Brazil)

Abstract

This article assesses the effects of real exchange rate misalignment on long-term growth, between 1995 and 2018, in a set of 151 countries. Our findings indicate that a competitive real exchange rate is positively associated with growth over the long run. The novel element here is our demonstration that the enhanced international competitiveness generated by lower labor costs may increase growth. The study also includes a series of robustness checks and alternative estimates to better understand this association, using seven different measures of real exchange rate misalignment, controlling for the possibility that the real exchange rate has a non-monotonic effect on growth, testing the Washington Consensus, separately estimating the effects of real exchange rate devaluation and overvaluation, testing the argument that a real exchange rate policy is an important factor in explaining why Asian economies perform better than Latin American and African ones, and employing alternative measures for real exchange rate misalignment.

Suggested Citation

  • Hugo Iasco-Pereira & Fabricio José Missio, 2022. "Would a competitive real exchange rate be a driver of economic prosperity?," PSL Quarterly Review, Economia civile, vol. 75(303), pages 355-383.
    • Handle: RePEc:psl:pslqrr:2022:42
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    More about this item

    Keywords

    Real exchange rate; international competitiveness; economic growth;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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