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industrial development is a little bit harder than just setting an artificially low exchange rate. you need a well-trained workforce, access to input materials
by t_mann 4y ago
industrial development is a little bit harder than just setting an artificially low exchange rate. you need a well-trained workforce, access to input materials (if you have to import those at higher prices you have a bit of a hen-and-egg situation), infrastructure, logistics, a strong legal system, political stability,...
if you only lower your exchange rate without any of the other factors in place, my guess would be that you'd just end up being poorer. on the other hand, if you do have the other factors, Switzerland is a good example that a low exchange rate is not necessary to be an export powerhouse
- pydry 4y agoIt's definitely not a magic wand but it's a prerequisite for sure. Switzerland has actually tried to pursue a policy of keeping its exchange rate depressed to make its industry and agricultural exports competitive. High exchange rates dont preclude switzerland from exporting complex industrial machinery or watches or anything else high up on the value chain but you need to develop industrially before getting to the point where you can do that. El Salvador cant export fancy watches. 1990s China couldnt even dream of it either. China after decades of pegging low can do it.