Enhancing Industry-Modern Services Integration via Competitive Real Exchange Rates

Wallace Marcelino, Fabrício Missio and Frederico Jayme Jr
Additional contact information
Wallace Marcelino: UFPA
Fabrício Missio: Cedeplar/UFMG
Frederico Jayme Jr: Cedeplar/UFMG

No 680, Textos para Discussão Cedeplar-UFMG from Cedeplar, Universidade Federal de Minas Gerais

Abstract: This article discusses theoretically the role of the Real Exchange Rate (RER) on the integration of industrial and modern services sectors. It highlights the historical importance of manufacturing in economic growth and explains how deindustrialization since the 1970s has elevated the significance of modern services, which are critical for productivity and innovation. The symbiotic relationship between the manufacturing and services sectors is a vital force that induces pro-growth structural economic change. We demonstrate how competitive RER encourages structural adjustments and investments, promoting interaction between the manufacturing and services sectors, particularly in developing economies, thereby enhancing global competitiveness. In a two-cycle process, a competitive RER initially boosts profitability and external competitiveness, leading to increased automation and collaboration with modern services. This interaction catalyzes "amplified dynamic increasing returns to scale," driven by shared innovations. Over time, as sectors reap profits, they deepen their integration, improve products, and broaden market access. Consequently, the RER fosters a symbiotic relationship that is essential for sustainable economic development and competitiveness in international trade.

Keywords: Industry-Modern Services Symbiosis; Real Exchange Rate, Economic Growth (search for similar items in EconPapers)
JEL-codes: E6 L8 O4 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-05
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