Abstract
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.
Highlights
The aim of this article is to show that the achievement of a competitive level for real exchange rate is a necessary, not sufficient condition for the catching-up of middle-income countries to developed countries
This trend is the result of the operation of two distinct, complementary, forces.The first one is the abundance of natural resources, the source of Dutch Disease
As the cost of production encompasses the normal rate of return on capital applied in productive activity, it follows that activities related to the exploitation of natural resources end up obtaining an extra normal profit rate
Summary
The aim of this article is to show that the achievement of a competitive level for real exchange rate is a necessary, not sufficient condition for the catching-up of middle-income countries to developed countries. One of the core propositions of the New-Developmental Brazilian school is that the tendency to overvaluation of the real exchange rate is one of the main obstacles to the catching-up process of middle-income countries
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