Real exchange rate effect on economic growth: comparison of fundamental equilibrium exchange rate and Balassa–Samuelson based Rodrik approach. Issue 1 (1st January 2021)

• Record Type: Journal Article
• Authors: Seraj, Mehdi; Coskuner, Cagay
• Is Part Of: Journal of applied economics. Volume 24:Issue 1(2021)
• Page Start: 541
• Page End: 554
• Publication Date: 2021-01-01
• Subjects: Economic growth -- exchange rate undervaluation -- Balassa–Samuelson effect -- fundamental equilibrium exchange rate model -- Rodrik model; Economics -- Periodicals; Economic policy -- Periodicals; Finance -- Periodicals; Economic policy; Economics; Finance; Electronic journals; Electronic journal; Periodicals; 330.05
• DOI: 10.1080/15140326.2021.1977083
• Languages: English
• ISSNs: 1514-0326

Abstract

ABSTRACT: This study reproduces the work of Dani Rodrik on real exchange rate undervaluation and economic growth for 93 countries over the period 1990–2018. While the empirical literature on the dynamics between the real exchange rate 1 and economic growth is relatively comprehensive, little has been done to compare these dynamics within economies using the Balassa–Samuelson-based Rodrik approach (BS) and the fundamental equilibrium exchange rate model (FEER). This research, to the best of the authors' knowledge, is one of the first to compare the fundamental equilibrium exchange rate model and Balassa–Samuelson-based Rodrik approach and use dynamic estimation on the Rodrik approach. The findings of the study support Rodrik's conclusion that undervaluation has a significant impact on economic growth, although the results of FEER are more significant than those of BS. Furthermore, the first lag of undervaluation has a significant effect on economic growth.