Does Exchange Rate Appreciation 'Deindustrialize' the Open Economy? A Critique of U.S. Evidence

Reuven Glick and Michael Hutchison

Economic Inquiry, 1990, vol. 28, issue 1, 19-37

Abstract: This paper takes a critical look at the conventional view that the dollar exchange rate appreciation during the early 1980s caused a major resource shift in the U.S. economy away from tradables production, such as manufactures, toward nontradables production. We argue that the association of a dollar appreciation with relative strength or weakness in the tradable goods sector depends on the particular shock causing the appreciation, and consequently that the relation between exchange rates and the sectoral composition of output is unlikely to be stable over time. Our empirical analysis finds evidence of instability in the exchange rate--sectoral output link and of a positive association between tradables output and fiscal stimulus. Copyright 1990 by Oxford University Press.

Date: 1990
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Working Paper: Does exchange rate appreciation 'deindustrialize' the open economy? a critique of U.S. evidence (1988)
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