[Journal:] Estudios de Economía [ISSN:] 0718-5286 [Volume:] 45 [Year:] 2018 [Issue:] 1 [Pages:] 5-28
This paper explores the real exchange rate (RER)-economic growth relationship for a wide sample of countries over the period 1960-2009. After removing influential observations, the system-GMM estimates suggest a positive link between an undervalued RER and growth in non-industrial countries, particularly in those with upper-middle and high income levels. In turn, RER volatility is found harmful for growth. These results holds when testing for asymmetric effects of RER misalignment: a real undervaluation boosts growth in non-industrial countries, while overvaluation seems to have no effects at any income level. Besides, the magnitude of the misalignment is also relevant: an undervalued RER of about 26% on average has a positive impact on growth.
Economic growth real exchange rate exchange rate volatility non-industrial countries