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Capital Accumulation, Structural Change and Real Exchange Rate in a Keynesian-Structuralist Growth Model

José Luís Oreiro (), Fabricio Missio () and Frederico Jayme Jr ()

Panoeconomicus, 2015, vol. 62, issue 2, 237-256

Abstract: The aim of this paper is to show at theoretical level that maintaining a competitive real exchange rate positively affects the economic growth of developing countries by means of a Keynesian-Structuralist model that combines elements of Kaleckian growth models with the balance of payments constrained growth models pioneered developed by Thirlwall. In this setting, the level of real exchange rate is capable, due to its effect over capital accumulation, to induce a structural change in the economy, making endogenous income elasticities of exports and imports. For reasonable parameter values it is shown that in steady-state growth there is two long-run equilibrium values for real exchange rate, one that corresponds to an under-valued currency and another that corresponds to an over-valued currency. If monetary authorities run exchange rate policy in order to target a competitive level for real exchange rate, than under-valued equilibrium is stable and the economy will show a high growth rate in the long-run.

Keywords: Exchange rate; Economic growth; Structural change (search for similar items in EconPapers)
JEL-codes: O40 O41 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:voj:journl:v:62:y:2015:i:2:p:237-256