The real exchange rate matters, but why? A new developmentalist assessment
Abstract
New Developmentalism doctrine defends the central role played by a
competitive real exchange rate in promoting catch-up in developing economies. Recently,
this theory has been questioned by critics; the main criticism has been that an outward
growth strategy based on a competitive real exchange rate would harm income/real wage
distribution and have a negative effect on the economy. This study discusses how the real
exchange rate influences growth in light of the new developmentalist doctrine and the
contrasting experiences of Asian and Latin American countries. Its main contribution is
to document the influence of the real exchange rate on economic performance, specifically
through certain transmission channels. The article’s findings suggest that a competitive
RER is an important aspect in a country’s growth path, insofar as it favors profits, capital
accumulation, net exports, and gains in social capabilities.
JEL Classification: O1; O11; O19.
Keywords: Real exchange rate economic development new developmentalism