Export Surges : The Power of a Competitive Currency

How can countries stimulate and sustain strong export growth? To answer this question, the authors examine 92 episodes of export surges, defined as significant increases in manufacturing export growth that are sustained for at least seven years. T...

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Bibliographic Details
Main Authors:	Freund, Caroline, Pierola, Martha Denisse
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING APARTHEID ASSETS AVERAGE GROWTH BALANCE OF PAYMENTS BALANCE OF PAYMENTS CRISES BANK POLICY BASE YEAR BILATERAL TRADE BILATERAL TRADE DATA BLACK MARKET BLACK MARKET EXCHANGE RATE CENTRAL BANK COMMODITY COMMODITY PRICE COMMODITY PRICE BOOMS COMMON CURRENCY COMPARATIVE ADVANTAGE COMPETITIVENESS CONSTANT DOLLARS CONSUMER PRICE INDEX CONSUMERS CONSUMPTION EXPENDITURE COUNTRY FIXED EFFECTS COUNTRY LEVEL COUNTRY SIZE CROSS-COUNTRY STUDY CURRENCY CURRENCY DEPRECIATION CURRENCY UNIONS CURRENT ACCOUNT CURRENT ACCOUNT BALANCE CURRENT ACCOUNT POSITION DEBT DEBT CRISIS DEBT CRISIS COUNTRIES DEPENDENT VARIABLE DEPENDENT VARIABLES DEPRECIATIONS DEVALUATION DEVALUATIONS DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPMENT RESEARCH DEVELOPMENT STRATEGY DIMINISHING RETURNS DISCRETE JUMP DISTORTION DOMESTIC CURRENCY DOMESTIC DEMAND DOMESTIC ECONOMY DOMESTIC GOODS DOMESTIC SAVING DOMESTIC SAVINGS DUMMY VARIABLE ECONOMIC ACTIVITY ECONOMIC BOOM ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC REFORM ECONOMIC STUDIES EFFECT OF EXCHANGE RATE CHANGES EQUILIBRIUM EQUILIBRIUM LEVEL EQUIPMENT EXCHANGE DEPRECIATION EXCHANGE RATE EXCHANGE RATE FLUCTUATIONS EXCHANGE RATE MANAGEMENT EXCHANGE RATE MISALIGNMENT EXCHANGE RATE MOVEMENT EXCHANGE RATE MOVEMENTS EXCHANGE RATE POLICY EXCHANGE RATE SHOCKS EXCHANGE RATE VOLATILITY EXCHANGE RATES EXCHANGE-RATE EXIT STRATEGIES EXPENDITURE INCREASES EXPORT DIVERSIFICATION EXPORT GROWTH EXPORT GROWTH RATES EXPORT INCENTIVES EXPORT MARKETS EXPORT PROMOTION EXPORT SECTOR EXPORT SECTORS EXPORT SHARE EXPORT SUBSIDY EXPORT VOLUMES EXPORTER EXPORTERS EXTERNAL DEMAND EXTERNAL INVESTORS EXTERNALITY FEDERAL RESERVE FEDERAL RESERVE SYSTEM FINANCIAL INTERMEDIATION FIXED EFFECT FIXED EFFECTS FIXED EXCHANGE RATE FLEXIBLE RATE FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN INCOME FOREIGN INVESTMENT FOREIGN MARKETS FRANC ZONE FUTURE RESEARCH GDP GLOBAL INTEGRATION GOLD GROWTH RATE GROWTH RATES GROWTH SPECIFICATION HIGH GROWTH IMPORT IMPORT BARRIERS IMPORT DEMAND IMPORT GROWTH IMPORT PRICES IMPORT TARIFF IMPORTS INCOME GROWTH INCREASING RETURNS INDEPENDENT VARIABLE INDUSTRIAL COUNTRIES INDUSTRIALIZATION INFLATION INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCE INTERNATIONAL MONETARY SYSTEM INTERNATIONAL MONEY INTERNATIONAL TRADE INVESTMENT RATE LABOR FORCE MACROECONOMICS MANUFACTURING INDUSTRIES MARKET FAILURE MARKET SHARE MONOPOLY NEW MARKET NEW MARKETS NEW PRODUCTS OPEN COUNTRIES OPEN ECONOMIES OPEN ECONOMY OVERVALUATION PERC POLICY RESEARCH POLICY STANCE POLITICAL ECONOMY POSTWAR PERIOD POVERTY REDUCTION PRICE INDEX PRIVATE INVESTMENT PRODUCTION STRUCTURE RAPID GROWTH RATE MOVEMENTS REAL CONSUMPTION REAL DEPRECIATION REAL DEVALUATIONS REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE REAL EXCHANGE RATE MISALIGNMENT REAL EXCHANGE RATES REAL EXPORTS REAL GDP REGIME CHANGES REGIONAL INTEGRATION REGRESSION ANALYSIS RELATIVE PRICES RETURNS SAVINGS RATE SIGNIFICANT EFFECT SMALL COUNTRIES SMALL ECONOMIES STANDARD DEVIATION SUNK COSTS TARIFF BARRIER TARIFF BARRIERS TAX TAX INCENTIVES TECHNICAL ASSISTANCE TIME HORIZON TOTAL EXPORTS TOTAL IMPORTS TRADE BARRIERS TRADE DATA TRADE EQUATIONS TRADE LIBERALIZATION TRADE LIBERALIZATIONS TRADE PATTERNS TRADE POLICIES TRADE POLICY TRADING UNDERVALUATION UNDERVALUED EXCHANGE RATE UNEMPLOYMENT VALUE ADDED WAGES WEALTH WEIGHTS WORLD TRADE WORLD TRADE ORGANIZATION WTO
Online Access:	http://documents.worldbank.org/curated/en/2008/10/9933586/export-surges-oower-competitive-currency-export-surges-power-competitive-currency http://hdl.handle.net/10986/6937

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Summary:	How can countries stimulate and sustain strong export growth? To answer this question, the authors examine 92 episodes of export surges, defined as significant increases in manufacturing export growth that are sustained for at least seven years. They find that export surges in developing countries tend to be preceded by a large real depreciation-which leaves the exchange rate significantly undervalued-and a reduction in exchange rate volatility. In contrast, in developed countries, the role of the exchange rate is less pronounced. The authors examine why the exchange rate is so important in developing countries and find that the depreciation leads to a significant reallocation of resources in the export sector. In particular, depreciation generates more entries into new export products and new markets, and the percentage of new entries that fail after one year declines. These new products and new markets are important, accounting for 25 percent of export growth during the surge in developing countries. The authors argue that maintaining a competitive currency leads firms to expand the product and market space for exports, inducing a large reorientation of the tradable sector.

Export Surges : The Power of a Competitive Currency

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