Real exchange rate and manufacturing growth in Latin America
DOI:
https://doi.org/10.1007/s40503-014-0002-6Keywords:
Real currency appreciation, De-industrialization, Manufacturing growth, Latin AmericaAbstract
The manufacturing sectors in Latin America have been more affected by the currency over/undervaluation than their counterpart in industrialized economies. From a panel data set covering 39 countries and 22 manufacturing sectors (2-digit) within 1995–2008, we formally test the hypothesis that there exists a Latin American effect and then investigate the possible reasons for this distinguished pattern. The use of a disaggregated data is an important feature of our empirical strategy: the undervaluation index (main covariate) is less likely to be determined by the growth rate of a specific manufacturing sector, partially addressing the specification problem that plagues standard cross-country regressions. We then explore the within sector–country variation to study the relationship between currency over/undervaluation and manufacturing sectors growth. We find that the import content of exports might be an important driver of this result at a sectoral level. At a macro-level, the openness and the income per capita of a country are important factors.
References
Aten R, Heston A, Summers R (2011) Penn World Table version 7.0. Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania
Baer W, Kerstenetzky I (1964) Import substitution and industrialization in Brazil. Am Econ Rev 54(3):411–425
Baer W (1972) Import substitution and industrialization in Latin America: experiences and interpretations. Latin Am Res Rev 7(1):95–122
Baer W (1984) Industrialization In Latin America: successes and failures. J Econ Edu 15(2):124–135
Baer W (2014) The Brazilian economy: growth and development, 7th edn. Lynne Rienner Publisher, Boulder
Balassa B (1964) The purchasing power parity doctrine: a reappraisal. J Polit Econ 72(6):584–596
Berg A, Miao Y (2010) The real exchange rate and growth revisited: the Washington consensus strikes back? IMF Working Papers 10/58, International Monetary Fund
Eichengreen B (2008) The real exchange rate and economic growth. Commission on growth and development, Working Paper No.4. http://www.growthcommission.org/storage/cgdev/documents/gc-wp-004_web.pdf
Gala P (2008) Real exchange rate levels and economic development: theoretical analysis and econometric evidence. Camb J Econ 32(2):273–288
Imbs J (2007) Growth and volatility. J Monet Econ 54(7):1848–1862
Imbs J, Wacziarg R (2003) Stages of diversification. Am Econ Rev 93(1):63–86
Kiyotaki N, Moore J (1997) Credit cycles. J Polit Econ 105(2):211-48
Little I, Scitovsky T, Scott M (1970) Industry and trade in some developing countries. Oxford University Press for the OECD
Rajan RG, Zingales L (1998) Financial dependence and growth. Am Econ Rev 88(3):559–86
Rajan RG, Subramanian A (2011) Aid, Dutch disease, and manufacturing growth. J Dev Econ 94(1):106–118
Rodrik D (2008) The real exchange rate and economic growth. Brookings Papers on Economic Activity, Fall
Samuelson PA (1964) Theoretical notes on trade problems. Rev Econ Stat 46(2):145–154
Shafaeddin SM (2005) Trade liberalization and economic reform in developing countries: structural change or de-industrialization? UNCTAD Discussion Papers 179, United Nations Conference on Trade and Development
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Paulo Henrique Vaz, Werner Baer
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
LAER Copyright and License
Authors submitting articles to Latin American Economic Review (LAER), automatically grant this journal a license to publish. Copyright of all published material remains with the authors, who can reuse it in future work without needing to make reference to LAER. Similarly, any other contribution of material to the website (for example text, photographs, graphics, video or audio) automatically grants us a right to publish. Copyright, however, remains with the author(s).
Authors release their work under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). This license allows anyone to copy, distribute and transmit the work, provided the use has no derivatives, is non-commercial and appropriate credit to the author(s) is given. (If you remix, transform, or build upon the material, you may not distribute the modified material.)
A human-readable summary of the licence:
https://creativecommons.org/licenses/by-nc-nd/4.0/
Full legal text: