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The concept of economic growth has been debated theoretically and empirically, since
the evolution of endogenous growth. The latter focused only on savings and investment
as determinants of economic growth. However, the recent development of neoclassical
growth models has never paid attention to the importance of exchange rate as direct determinant
of economic development. These models consider the nature and quality of education
and training as the main determinants of growth.
The use of exchange rate as a stimulus of economic development has been successful
for some Asian countries (Japan, Hong Kong, Singapore, South Korea, Taiwan and
China). Although there are some fundamentals that can foster economic growth, real exchange
rate is best thought of as a facilitating condition—keeping it at competitive levels and
avoiding excessive volatility facilitates efforts to capitalize on these fundamentals (Eichengreen,
2008). Therefore, appropriate real exchange rate can be a best condition to enhance
economic growth.
Initially, many Asian countries that experienced real exchange rate to improve
their economic development were at the same levels of economic development when
compared with most of the countries in Sub-Saharan Africa (SSA) at the beginning of the last
half century. Paradoxically, SSA is still one of the poorest regions of the world. How can
we explain this phenomenon? Is it a problem of wrong choice of exchange rate regime or
the level of financial development? The use of large data set from different countries in SSA
with different exchange rate regimes will allow us to find the best way to explain the effects
of exchange rate and financial development on the economic growth. Recent studies
about economic growth and real exchange rate found that the latter affects negatively the
former, more accurately when there is a high variability of real exchange rate. |
