The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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We develop a dual open‐economy model which incorporates a flow of public infrastructure as a factor of production to investigate effects of a competitive exchange rate policy under different levels of provision of public infrastructure. It is suggested that an exchange rate policy coordinated with a public infrastructure policy should produce better results. By increasing productivity in the tradable sector and reducing inflationary pressures, this supply‐side public policy contributes to the success of an economic growth strategy led by a competitive currency.