Dani Rodrik's weblog

How real exchange rate policy can promote economic growth

My new paper on real exchange rates and growth is now online. Here is the summary in abstractese:

I provide evidence that undervaluation (a high real exchange rate) stimulates economic growth. This is true particularly for developing countries, suggesting that tradable goods suffer disproportionately from the distortions that keep poor countries from converging. I present two categories of explanations as to why this may be so, focusing on (a) institutional/contractual weaknesses, and (b) market failures. A formal model elucidates the linkages between the level of the real exchange rate and the rate of economic growth.

The paper is still raw, so comments are appreciated.

Real exchange rates and economic growth

This is my current obsession. Many if not most cases of rapid economic growth take place under undervalued currencies. Look for example at the cases of China and India in the accompanying charts.  But the phenomenon is much more general, and extends to other countries as well. The question is why. I am writing a paper that explores these issues.