Real exchange rate management and economic growth: export performance in Kazakhstan, 2009–2019

Real exchange rate effect on economic growth: comparison of fundamental equilibrium exchange rate and Balassa–Samuelson based Rodrik approach

“…Habib, Mileva, and Stracca (2017) found the same results and confirmed that real exchange rate depreciation rises the annual GDP growth in developing countries and real exchange rate appreciation decreases the GDP growth. Meanwhile, Ybrayev (2021) claimed that there is a positive linkage between real exchange rate undervaluation and growth of manufacturing exports and high-tech manufacturing industries, but RER overvaluation increases the growth rate in primary products industries. Tharakan (1999) and Vieira, Holland, Gomes da Silva, and Bottecchia (2013) posited that a highly misaligned exchange rate would have an adverse effect on economic growth, while an average misaligned exchange rate would have a positive effect on economic growth.…”

Impact of an Undervalued Exchange Rate on Economic Growth

“… the combination of significant international reserves and insignificant foreign savings warns the economy against the destructive impact of external shocks, preventing exchange rate volatility and thus contributing to economic growth;  national currency devaluation increases tradable industries' profitability, especially labour-intensive ones, and their production volumes; hence it promotes weaker foreign exchange restrictions, capital accumulation, the spread of technology and learning externalities, thus contributing to economic growth. Source: author's summary based on [1,3,4,5,6] Research results. Most scientific studies empirically confirm the connection between the exchange rate and economic growth.…”

“…In Kazakhstan, during 2009-2019, a fall in the real exchange rate by 1% led to an increase in GDP of only 0.004-0.005 pp. [6]. A study of the Liberian economy during 1980-2015 stated that exchange rate volatility does not affect real GDP in the short and long term, despite significant absolute exchange rate fluctuations [12].…”

“…In particular, most scientists led by D. Rodrik note a positive relationship between the analysed variables in developing countries and emerging markets [7,28,29] and indicate an increase in the effect for poorer countries [1]. Source: author's idea based on [1,6,7,9,10,16,22,30] However, according to M. Rapetti, P. Scott, and A. Ramzi, Rodrik's results hide an "interesting non-monotonicity" because of different countries' classifications. If one uses another classification, we can find not only the positive impact of the undervalued exchange rate on emerging markets but also on the least and most developed countries [22], which completely contradicts the results of [20].…”

“…Among other scientists who have studied theoretical depreciation's impact on economic growth, summarized in table 1, one can note D. Patel and G. Mah [4], S. Mbaye [5], and Z. Ybrayev [6]. A comprehensive analysis of the possible influences and their pro et contra will allow one to form an optimal macroeconomic policy for Ukraine, considering the specifics of the national economy.…”