Research On Exchange Rate Condition Of Economic Growth From The Perspective Of Two Setors

In an open environment,the real exchange rate is an important factor affecting a country's economic growth.In recent years,in the study of exchange rate and growth,there are two controversial typical facts:on the one hand,some countries with rapid economic growth are accompanied by "Real Exchange Rate Undervaluation and Accumulating Current Account Surpluses" in the process of development,on the other hand,through the international comparison,we found that not all developing countries can achieve undervalued real exchange rate,and even some Latin American countries appeared an overvalued currency,thus formed "the Mystery of Currency Undervaluation" in the process of development of different countries.The above two kinds of typical facts happen in the process of industrialization of various countries in the world,and export-oriented industrialization strategy has become the realistic background of the question of the real exchange rate and growth.Starting from the perspective of two departments,this paper studies exchange rate conditions for economic growth,and tries to answer three important questions,that is,what are the exchange rate conditions for economic growth?Why can't some countries achieve real exchange rate undervaluation?And can exchange rate conditions for economic growth be sustained?In addition,under the dual background of trade opening and financial opening,the exchange rate conditions of economic growth need to be re-examined,and the research on the impacts of the stability of the real exchange rate on economic growth is also a question for further consideration in this paper.Focus on the main objectives of the study,based on the two-sector model of tradable and non-tradable sectors,this paper studies the internal mechanism of exchange rate conditions affecting economic growth,the endogenous determination of exchange rate conditions and the dynamic process of exchange rate conditions,thus forming the following four aspects of research and discussion:(1)Cross-country comparisons of typical facts suggest that real exchange rate undervaluation appears to be a necessary condition for the success of industrialization.Industrialization process of late-development country facing coordination failure and market failure problems,labor transfer across departments,young industrial sector of capital accumulation and externality characteristics are department of advanced technology has become one of the major reasons lead to inadequate level of industrialization.This chapter attempts to explain the theoretical mechanism of real exchange rate undervaluation promoting economic growth in industrialized countries by constructing a two-sectoral analytical framework.It mainly includes three parts:firstly,an undervalued real exchange rate facilitates the transfer of labor from the traditional to the industrial sector through wage premiums;secondly,an undervalued real exchange rate may compensate for the undercapitalization of the industrial sector through a subsidy mechanism;thirdly,the undervalued real exchange rate can form a differentiated subsidy to technological externalities,wich can rapidly increase the productivity of the trade sector and ultimately drive the overall total factor productivity of the economy.(2)Starting from the endogeneity of exchange rate conditions,this paper studies the formation mechanism of real exchange rate undervaluation,mainly based on the classical Balassa-Samuelson Effect,and constructs an extended endogenous model of exchange rate conditions under the two-sectoral framework.The traditional B-S effect affirmed the endogeneity of the real exchange rate,and believed that,along with economic growth,inter-sectoral productivity differences led to a large increase in non-tradable wages,which would push up the appreciation of the real exchange rate.On the one hand,the structural transformation of the two sectors will release a large number of production factors;on the other hand,it will promote the improvement of productivity,which will weaken the B-S effect by reducing the price rise of the non-trading sectors,and then maintain the undervaluation of the real exchange rate.The specific research contents are as follows:firstly,the author constructed the Balassa Samuelson effect model based on factor endowment influencing the change of real exchange rate,and found that labor surplus and high savings rate would achieve the undervaluation of real exchange rate by reducing labor cost and capital cost;second,based on the institutional variables of labor market regulation and financial repression,the study finds that both of them,through government intervention in the factor market,are also important reasons for the undervaluation of the real exchange rate.(3)From the dynamic exchange rate conditions,based on the real exchange rate of developing countries and economic growth in three ways,developing countries may experience dynamic process include "BS effect-anti BS effect-BS effect".The successful realization of anti-BS effect depending on factor endowment and institutional variables is an important reason for the economic growth of Asian countries.Then,with the deterioration of factor conditions and the strengthening of institutional constraints,the premature overvaluation of the real exchange rate makes a country return to the path of the real exchange rate appreciation of the BS effect,and has begun to affect the process of industrialization.The phenomenon of premature industrialization means that the premature decline of the share of industrial added value in the middle-income stage.In the future,it is necessary to create persistent exchange rate conditions of real exchange rate undervaluation by further promoting resource allocation in factor markets and technological progress in the non-tradable goods sector.(4)Under the background of dual opening,it is no longer the only policy goal to form competitive exchange rate through undervaluation of real exchange rate,and the stability of exchange rate is another exchange rate condition that needs attention.Through empirical analysis,it is found that the impact of volatility on economic growth is negative,which is more obvious in financial open economies.These results have important implications for the design of exchange rate policies in developing countries.Given the importance of international trade and investment in the process of economic growth,these countries must be endeavour to pursue an exchange rate policy primarily aimed at stabilizing their exchange rates.A relatively stable and predictable exchange rate seems to be an important condition for economic growth.Through the research we reach the following conclusions and enlightenment as follows:(1)Real exchange rate undervaluation promotes economic growth through industrialization.The rapid industrialization of East Asian countries and the stagnation of the industrialization of Latin American countries are closely related to the conditions of the real exchange rate of each country.(2)Whether a country can achieve the undervaluation of the real exchange rate is an endogenous decision.Both factor endowment and institutional variables can reduce the cost of the factor market,inhibit the Balassa-Samuelson effect,and maintain the undervaluation of the real exchange rate.Excessive urbanization and high interest rates in Latin American countries hinder the achievement of the undervaluation of the real exchange rate.(3)The growth effects of real exchange rate undervaluation depend on the stage of industrialization.When the threshold of industrialization is crossed,an undervalued real exchange rate will hinder economic growth.However,most countries appear“premature overvaluation" and "premature deindustrialization",which mainly comes from the rapid deterioration of factor endowment conditions and the loss of efficiency caused by institutional variables.Labor surplus and high savings rate are important conditions to support the undervaluation of the real exchange rate,which will lead to the improvement of factor allocation efficiency,that is,good undervaluation;however,long-term reliance on institutional constraints will reduce the efficiency of factor allocation and bring bad undervaluation.In the future,with the deterioration of factor endowment conditions,a country needs to break the institutional constraints and achieve the persistence of real exchange rate undervaluation by promoting the flexibility of labor market,enhancing financial deepening and accelerating the technological progress of non-tradable goods sector.(4)Considering the dual background of trade opening and financial opening,a high degree of capital flow will lead to large fluctuations of exchange rate.The competitive real exchange rate policy with the goal of undervaluation of real exchange rate will change to the goal of balancing competitiveness and stability.In the future,it is necessary to strengthen the management of capital account and promote the stability of exchange rate.