Exchange rate misalignment and export diversification in developing countries

The Role of Returns to Scale in the Relationship between Exchange Rate and Economic Growth

“…Consequently, an exchange rate appreciation tends to lower the cost of production, but each time to a lesser extent. This result is similar to Sekkat's (2016), in which the overvalued currency reduces the firm production costs. Being aware of the minimum total cost function for the proposed model, the average total cost (ATC) function is obtained by dividing Equation (1.5) by production, y, which can be expressed as follows:…”

“…From the results obtained it is recommended, especially for developing economies, to maintain the real exchange rate at a competitive level (undervalued exchange rate) and with low volatility. Sekkat (2016) seeks to clarify the impact of exchange rate misalignment on export diversification. Rodrik (2008) suggested that the undervaluation of the currency promotes diversification of exports from an institutionally weak country, as the currency would thus increase the cost of importing some production inputs.…”

“…In search of economic growth, many developing countries try to diversify their exports and this can be done with the real misalignment of the exchange rate (Sekkat, 2016). The article investigated whether the impact of exchange rate misalignment on export diversification depends on the level of financial development or the quality of the institutions of the exporting economy.…”

Angola Country Economic Memorandum

“…Agosin et al (2012) and Levy-Yeyati et al (2013) fail to provide such evidence, while Méon and Sekkat (2008), Freund and Pierola (2012) and Rajan and Subramanian (2011) find some empirical support. Addressing some of the empirical and methodological issues of earlier studies, Sekkat (2016) conducts a comprehensive analysis that accounts for the quality of institutions, the degree of financial development and distinguishes between the effects of under and over valuation. Sekkat (2016) fails to establish a clear impact of exchange rate misalignment and export diversification.…”

“…Addressing some of the empirical and methodological issues of earlier studies, Sekkat (2016) conducts a comprehensive analysis that accounts for the quality of institutions, the degree of financial development and distinguishes between the effects of under and over valuation. Sekkat (2016) fails to establish a clear impact of exchange rate misalignment and export diversification. While this study may not proof conclusive, it seems to validate the recommendation from mainstream economics that a fair-valued exchange is best for economic diversification.…”