Going under to stay on top: How much real exchange rate undervaluation is needed to boost growth in developing countries

Cecilia Bermúdez and Carlos Dabús ()

Estudios de Economia, 2018, vol. 45, issue 1 Year 2018, 5-28

Abstract: This paper explores the real exchange rate (RER)-economic growth relationship for a wide sample of countries over the period 1960-2009. After removing influen-tial observations, the system-GMM estimates suggest a positive link between an undervalued RER and growth in non-industrial countries, particularly in those with upper-middle and high income levels. In turn, RER volatility is found har-mful for growth. These results holds when testing for asymmetric effects of RER misalignment: a real undervaluation boosts growth in non-industrial countries, while overvaluation seems to have no effects at any income level. Besides, the magnitude of the misalignment is also relevant: an undervalued RER of about 26% on average has a positive impact on growth.

Keywords: Economic growth; real exchange rate; exchange rate volatility; non-industrial countries (search for similar items in EconPapers)
JEL-codes: F4 O4 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:udc:esteco:v:45:y:2018:i:1:p:5-28

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