Adjustment, investment, and the real exchange rate in developing countries

Riccardo Faini () and Jaime de Melo ()

No 473, Policy Research Working Paper Series from The World Bank

Abstract: At the center of the controversy about effectiveness of"adjustment with growth"loan packages from the IMF and the World Bank has been the heavy emphasis on real exchange rate depreciation as a way to restore external balance and elicit a positive supply response. The authors find that adjustment has been far more successful for countries exporting manufactured goods than for countries exporting primary goods. Devaluation of the exchange rate in countries exporting primary goods appears to be ineffective. Most of their adjustment has taken the form of reduced spending rather than increased supply. As a result, they have not resumed sustainable growth. The longer term prospects for exporters of manufactured goods are much brighter. They show more signs of improving efficiency and less decline in investment than do exporters of primary goods.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Stabilization; Macroeconomic Management; Achieving Shared Growth (search for similar items in EconPapers)
Date: 1990-08-31
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