The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia
Ethiopia has achieved sustained high growth for more than a decade. At the same time, the country has been facing several economic challenges, including falling exports, chronic foreign currency shortages, as well as a slow pace of structural trans...
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/898821559134798352/The-Exchange-Rate-Why-It-Matters-for-Structural-Transformation-and-Growth-in-Ethiopia http://hdl.handle.net/10986/31750 |
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okr-10986-317502022-09-08T12:17:34Z The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia Haile, Fiseha EXCHANGE RATES STRUCTURAL TRANSFORMATION ECONOMIC GROWTH FOREIGN EXCHANGE EXPORTS CURRENCY RESERVES EXPORT COMPETITIVENESS INDUSTRIALIZATION Ethiopia has achieved sustained high growth for more than a decade. At the same time, the country has been facing several economic challenges, including falling exports, chronic foreign currency shortages, as well as a slow pace of structural transformation. In recent years, the already overvalued birr has appreciated sharply in real terms, partly driven by the appreciation of the dollar, thereby making Ethiopia’s competitiveness and industrialization drive more difficult. In response to these challenges, this paper looks at the question of why the real exchange rate is a useful policy instrument. The analysis suggests that Ethiopia needs a more flexible exchange rate policy. A competitive or undervalued exchange rate is important in bringing about productivity-enhancing structural change. There is robust evidence that a real devaluation stimulates exports in general and manufacturing exports in particular, improves the trade and current account balances, and spurs economic growth. Currency undervaluation is a second-best policy intervention that can help offset some of the key constraints to manufacturing growth prevalent in low-income countries and speed up structural transformation. However, exchange rate adjustments need to take into account the increase in the cost of capital imports and debt burden. 2019-05-30T20:22:35Z 2019-05-30T20:22:35Z 2019-05 Working Paper http://documents.worldbank.org/curated/en/898821559134798352/The-Exchange-Rate-Why-It-Matters-for-Structural-Transformation-and-Growth-in-Ethiopia http://hdl.handle.net/10986/31750 English Policy Research Working Paper;No. 8868 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Ethiopia |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
EXCHANGE RATES STRUCTURAL TRANSFORMATION ECONOMIC GROWTH FOREIGN EXCHANGE EXPORTS CURRENCY RESERVES EXPORT COMPETITIVENESS INDUSTRIALIZATION |
| spellingShingle |
EXCHANGE RATES STRUCTURAL TRANSFORMATION ECONOMIC GROWTH FOREIGN EXCHANGE EXPORTS CURRENCY RESERVES EXPORT COMPETITIVENESS INDUSTRIALIZATION Haile, Fiseha The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| geographic_facet |
Africa Ethiopia |
| relation |
Policy Research Working Paper;No. 8868 |
| description |
Ethiopia has achieved sustained high
growth for more than a decade. At the same time, the country
has been facing several economic challenges, including
falling exports, chronic foreign currency shortages, as well
as a slow pace of structural transformation. In recent
years, the already overvalued birr has appreciated sharply
in real terms, partly driven by the appreciation of the
dollar, thereby making Ethiopia’s competitiveness and
industrialization drive more difficult. In response to these
challenges, this paper looks at the question of why the real
exchange rate is a useful policy instrument. The analysis
suggests that Ethiopia needs a more flexible exchange rate
policy. A competitive or undervalued exchange rate is
important in bringing about productivity-enhancing
structural change. There is robust evidence that a real
devaluation stimulates exports in general and manufacturing
exports in particular, improves the trade and current
account balances, and spurs economic growth. Currency
undervaluation is a second-best policy intervention that can
help offset some of the key constraints to manufacturing
growth prevalent in low-income countries and speed up
structural transformation. However, exchange rate
adjustments need to take into account the increase in the
cost of capital imports and debt burden. |
| format |
Working Paper |
| author |
Haile, Fiseha |
| author_facet |
Haile, Fiseha |
| author_sort |
Haile, Fiseha |
| title |
The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| title_short |
The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| title_full |
The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| title_fullStr |
The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| title_full_unstemmed |
The Exchange Rate : Why It Matters for Structural Transformation and Growth in Ethiopia |
| title_sort |
exchange rate : why it matters for structural transformation and growth in ethiopia |
| publisher |
World Bank, Washington, DC |
| publishDate |
2019 |
| url |
http://documents.worldbank.org/curated/en/898821559134798352/The-Exchange-Rate-Why-It-Matters-for-Structural-Transformation-and-Growth-in-Ethiopia http://hdl.handle.net/10986/31750 |
| _version_ |
1764475003903934464 |