New Developmentalism: beyond competitive exchange rate

Abstract

The aim of this article is to show that the achievement of a competitive level for real exchange rate is a necessary, although not sufficient condition for the catching-up of middle-income countries to developed countries. It is also required a change in the long-term expectations of real exchange rate by entrepreneurs which requires the elimination of the underlying causes of the tendency of overvaluation of real exchange rate, that encompass the Dutch Disease and capital account liberalization. Due to the existence of technological gap, industrial equilibrium exchange rate in middle-income countries may be higher enough to compensate domestic firms for their technological backwardness relative to firms of developed countries. This means that there is a space for Industrial and Science and Technology Policies in the New-Developmentalist theoretical framework.

An ecological view of New Developmentalism: a proposal of integration

“…Dutch disease derives from a situation of abundance of natural resources Dutch disease pushes the exchange rate over the industrial equilibrium level causing premature deindustrialization. The case of Brazil is dramatically lighting (Ferreira Gabriel et al , 2020;Oreiro et al , 2020). Green industries can be the most damaged ones, because they have a higher technological intensity the brown industries, requiring more a trained and educated workforce (that is relatively scarce in middle-income countries) which demand high real wages.…”

“…The standard proposal for neutralization of Dutch disease is the introduction of taxation of commodities that provoke this disease, which size can be measured by difference between the industrial equilibrium exchange rate 3 and the current 3 Bresser-Pereira et al (2015, p. 59) defines industrial equilibrium exchange rate as the level of real exchange rate that "[...] makes competitive those business enterprises producing internationally tradable goods and services using state-of-the art technology that don´t benefit from Ricardian rents". This concept was refined more recently by Oreiro (2020) and 2020b), in order to incorporate the existence of technological gaps between firms of developing and developed countries and, hence, the issue of technological asymmetries (Verspagen, 1993). For Oreiro (2020, p. 241) "the problem with this definition is that most companies in middle-income countries do not operate with technology in the state of the world art, but behind the technological frontier".…”

“…New developmentalism underlines the centrality of the relationship between center and periphery countries, the risk and opportunities for the periphery countries of the openness to the international market as well as the relevance of reduction of technological gap and of economic catching up. The external constraint is central for new developmentalism (Oreiro, 2020) as well as for the ecological macroeconomics (Guarini and Porcile, 2016) and for the eco-developmentalism. At the same time, international inequality negatively affects the governance of global environmental sustainability (Althouse et al , 2020).…”

“…Ecological view is founded on the interconnection across environment, economy and society, thereby it could represent an enlargement of the economy-society nexus at the base of ND. We detail the essentials of ND through the "ecological" lenses by considering the commune aspects of old and new developmentalism as well as the peculiarities of ND indicated by Bresser-Pereira (2012, 2019 and Oreiro et al (2020).…”