Manufacturing and the real exchange rate: natural resource rents matter when measuring misalignments

Mohamed Chaffai and Patrick Plane ()
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Mohamed Chaffai: Université de Sfax - University of Sfax
Patrick Plane: FERDI - Fondation pour les Etudes et Recherches sur le Développement International, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

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Abstract: We analyze the relationship between the share of manufacturing in GDP and real exchange rate misalignments based on the purchasing power parity criterion (PPP) and a sample of 102 developing and transition economies (2003-2019). In a departure from usual practice, we subtract natural resource rents from GDP in order to correct misalignments for the productivity bias. A dynamic threshold panel model is used and we separate out the impact of undervaluation and overvaluation components in the same regression. Overvaluation has a negative linear effect, while undervaluation stimulates the manufacturing sector in a non-linear way. Above an 18% threshold, the marginal effect of undervaluation diminishes.

Keywords: Real exchange rate; Misalignment; Threshold model; Overvaluation; Undervaluation; Manufacturing sector (search for similar items in EconPapers)
Date: 2024-08-11
Note: View the original document on HAL open archive server: https://uca.hal.science/hal-04845262v1
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Published in Applied Economics, 2024, ⟨10.1080/00036846.2024.2387859⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04845262

DOI: 10.1080/00036846.2024.2387859

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