New-Structuralist Exchange-Rate Policy and the Pattern of Specialization in Latin American Countries

ARIEL DVOSKIN; GERMAN FELDMAN; GUIDO IANNI

Graz

Seminario; Seminario de investigación, Departamento de Economía, Karl-Franz University Graz; 2019

Graz University

Abstract The present article critically examines the transmission channels from real-exchange-rate undervaluation to output growth adduced by New-Structuralism (NS) (see, for instance, Frenkel and Ros, 2006; Razmi et al., 2012; Rapetti, 2013). To this end, we slightly modify new-structuralist canonical model for small open peripheral economies, and make the underlying productive structure depend on income distribution. This allows us both to discuss: (a) the limits of the transmission channels adduced by NS in their own terms, i.e. under the assumption that the tradable sector is the modern sector; and (b) the further limitations of these channels when the pattern of trade is more suitable to characterize Latin American countries, whose tradable sector mainly exports primary goods under conditions of differential rent. We conclude that the channels work under highly restrictive assumptions, and therefore the alleged positive relationship between real exchange rate and growth cannot be generally ascertained.