Submitted by: Submitted by andresossa
Views: 365
Words: 1730
Pages: 7
Category: Business and Industry
Date Submitted: 05/23/2012 09:40 AM
Real exchange rate undervaluation and economic development
Real exchange rate undervaluation and economic development
Everyday, millions and millions of people go to work to earn their
corresponding pay checks with the hope that it will be sufficient enough to support
their families and pay their expenses. Many of them – hopefully most of them –
manage to do just fine and at the end of the month there is no big problems in their
‘family finances’. But the minority of them truly comprehends that the picture is, in
fact, much bigger than that. Behind these individual efforts (or maybe the other way
around) there are big corporations, industries of many types, importers, exporters,
governments and thousands of policymakers all over the world, altogether making the
economy move and develop. Nevertheless, the exact ingredients that are needed in
order to promote this ‘economic development’ are, actually, quite uncertain. As a
matter of fact, every now and then, different economists come up with new theories to
show which is truly the key policy that promotes and generates economic growth in a
nation. Some may say it all comes down to technology and innovation. Others, on the
other hand, are more likely to support strong institutions and, in general, organizations
that can help a government make things more efficient and reduce the wastefulness of
resources. And others believe it basically depends on promoting exports and the
growth of the manufacturing sector. There are many more theories and probably there
will be more in the future, but there is one in particular that seems to be – in the eyes
of this humble writer – the one worth analyzing nowadays.
It is generally accepted that overvaluation of a currency causes negative
consequences to an economy. An overvalued exchange rate produces different
problems associated with macroeconomic instability like “shortages of foreign
currency, rent-seeking and corruption, balance-of-payments...