An extended structural economic dynamics approach to balance-of-payments constrained growth: level of the real exchange rate and endogenous elasticities

Fabrício Misso, Ricardo Araujo and Frederico Jayme Jr
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Fabrício Misso: UFMT
Authors registered in the RePEc Author Service: Fabricio Jose Missio

No 499, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: The aim of this paper is to show that the level of the real exchange rate affects the rate of economic growth. More specifically, we extend the model developed by Araujo and Lima (2007) to derive a balance-of-payments equilibrium growth rate analogous to Thirlwall’s Law based on a Pasinettian multi-sector macrodynamic framework in which income elasticities are endogenous to the level of the real exchange. Furthermore, the model is built to relate growth, the real exchange rate and sectoral heterogeneity. We thus demonstrate the effect of the level of real exchange rates on the generation of technological progress, from a cumulative causation perspective, and how these rates also impact the growth of the whole economy via a balance-of-payments constraint approach. Hence, we show that an undervalued real exchange rate has positive effects on economic growth in developing countries.

Keywords: Real exchange rate; cumulative causation; Balance-of-Payments constraint and growth. (search for similar items in EconPapers)
JEL-codes: F12 O14 O19 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2013-09
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://www.cedeplar.ufmg.br/pesquisas/td/TD%20499.pdf (application/pdf)

Related works:
Working Paper: AN EXTENDED STRUCTURAL ECONOMIC DYNAMICS APPROACH TO BALANCE-OF-PAYMENTS-CONSTRAINED GROWTH: LEVEL OF THE REAL EXCHANGE RATE AND ENDOGENOUS ELASTICITIES (2014)
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