DEVALUATION, COMPETITIVENESS AND NEW BUSINESS FORMATION IN EMERGING COUNTRIES

Hernán Herrera-Echeverri (), Jerry Haar, Alexander Arrieta Jiménez and Manuel Araújo Zapata
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Hernán Herrera-Echeverri: School of Economics and Finance Universidad EAFIT, Cra. 49 N 7 sur 50 Medellín, Colombia
Jerry Haar: College of Business, Florida International University, 1200 SW 8th Street, CBC201 Miami, FL 33199, USA3Global Fellow Woodrow Wilson International Center for Scholars, USA
Alexander Arrieta Jiménez: School of Economics and Finance Universidad EAFIT, Cra. 49 N 7 sur 50 Medellín, Colombia
Manuel Araújo Zapata: Economics and Finance School Universidad EAFIT, Cra. 49 N 7 sur 50 Medellín, Colombia

Journal of Developmental Entrepreneurship (JDE), 2015, vol. 20, issue 03, 1-22

Abstract: In September 2010, Brazil’s Finance Minister, Guido Mantega, used the term “currency war” with reference to monetary policies implemented by different countries to generate an artificial devaluation of their currency and achieve a cheaper, more competitive domestic economy that may be attractive to foreign investors. Similar cases have been documented since the 1930’s Great Depression, when several countries abandoned the gold standard as backing for their currencies. More recently, a large-scale asset purchase by Japan’s Central Bank in 2013 was singled out as a strategy aimed at generating devaluation of the yen. This research uses statistics of new business formation density reported by Doing Business for 30 emerging countries in the period from 2004 through 2011 to evaluate the impact of devaluation measured by the behavior of the real effective exchange rate (REER) on the rate of new business formation (NBF). It is determined how variables associated with competitiveness affect the relationship between devaluation and business formation. Results show that devaluation has a positive effect on NBF in the short term, which gets diluted in the long term. Countries with greater competitiveness have less dependence on devaluation to increase the number of businesses.

Keywords: New business formation; emerging countries; devaluation; competitiveness (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S1084946715500156

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