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Exchange rate depreciation and exports: the evidence

In this blog we discussed several times the reasons why exchange rate depreciation is not necessarily a panacea for current account problems (see for example here and here on Argentina depreciation before the last one with the Macri administration, here on the Europe, here in general about the idea of a Sustainable and Stable Competitive Real Exchange Rate or SSCRER, and here on the role of the exit from the Gold Standard during the Depression). Exchange rate skepticism suggested that depreciation often works because it is contractionary, and it worked by causing a recession and reduced imports. The optimists, like the so-called New Developmentalists pointed out to the positive impact on exports.

Now a new paper by Filippo di Mauro and others (h/t Pablro Bortz) at shows that the exchange rate has a reduced role in the explanation of exports shares for European and Asian countries. As the authors suggest:
"An obvious reason for the low explanatory power of price competitiveness is that a large part of trade involves intermediates products – i.e. inputs used within rather well established global value chains (GVCs) – and is thus far less influenced by pure exchange rate considerations."
That is the steady increase in Chinese global export shares have less to do with their currency manipulation (something briefly discussed here) and more to do with the strategic decisions of firms on where to locate their supply chains. The authors conclude:
"By disentangling the impact of exchange rate changes on trade results, we have shown that the underlying assumption of the ‘currency wars’ discussion – that devaluations bring about substantial export gains – may be severely flawed."
The evidence seems to suggest that depreciation does not stimulate the type of substitution that would lead to external equilibrium, neither on the import or export side, and that a devalued currency is no substitute for industrial policy. Of course evidence, once John Eatwell noticed, has not solved any economic debate so far.


  1. what do you think about international monetary clearing union bancor?

    as far as i know current international unit of account is the U.S Dollar but as far as i know its cause a problem since the U.S Dollar is a national currency and in this case the Federal Reserve/Federal Government have to be concerned about the Macroeconomic situation of the United States firstly and only after that about the macroeconomic situation in other countries.

    so my question is can be a situation where U.S need for dollars in order to function well (full employment and etc) will be less than the need of U.S dollars in all other countries in order to function well since we have no international unit of account like bancor?

    and if so maybe it will be better then to establish international monetary clearing union like keynes wished?

  2. Matias, probably you've seen this before but just in case, an interesting fact linked to this that I recently "discovered" is that this was first shown by Kaldor and nowadays is know as "Kaldor Paradox".

    1. Si hay unos papers de Jesus Felipe. Este, por ejemplo,

  3. Dear Matias, I don´t see how the conclusion that the RER does not matter follows from the article. The author suggest that non-price competitiveness drives market share gains. RER irrelevance does not follow from that. Neither a low supply/demand elasiticies.

    btw, is the paper available?

  4. Hello, Matias! I think there are several of considerations about this piece. First: the authors considered the 2000-2014 period, exactly when China happened, that is, even though you had a depreciation, you could not increase market share competing to the lower internal chinese costs; second: they use a low number of countries or observations; third: intermediaries are just a part of the final price, so they can't hinder the positive competitiveness effects on the final price, even more because the possibility of exchanging foreign suppliers to domestic ones, with lower prices taken the depreciation considered. Cheers!


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