Developmental states and undervalued exchange rates in the developing world

David A. Steinberg

Review of International Political Economy, 2016, vol. 23, issue 3, 418-449

Abstract: This paper investigates why some developing countries maintain weak and undervalued exchange rates while others do not. I argue that one key feature of the ‘developmental state’ – namely, state control over the financial system – contributes to an undervalued exchange rate. However, state control of finance promotes undervaluation under a narrower set of conditions than most developmental state theories suggest. State-owned banks increase support for exchange rate undervaluation from certain interest groups. When those interest groups are politically important, state-owned banks encourage policymakers to undervalue their exchange rates. Two sets of empirical analyses support the argument. Using time-series – cross-sectional data, I show that state-owned banks are associated with undervalued exchange rates, but only in developing countries with large manufacturing sectors. Second, analyses of firm-level survey data reveal that state-owned banks increase the manufacturing sector's support for an undervalued exchange rate. These findings suggest that state institutions influence exchange rate policy, though their effects are contingent upon the configuration of interests in society.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/09692290.2015.1135177 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rripxx:v:23:y:2016:i:3:p:418-449

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rrip20

DOI: 10.1080/09692290.2015.1135177

Access Statistics for this article

Review of International Political Economy is currently edited by Gregory Chin, Juliet Johnson, Daniel Mügge, Kevin Gallagher, Ilene Grabel and Cornelia Woll

More articles in Review of International Political Economy from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().