Exchange Rates, Structural Change, and Productivity Growth
Macroeconomics tends to view exchange rate movements as transitory. However, persistent exchange rate realignments and the associated capital flows can have long-run implications for structural change and productivity growth. We provide empirical evidence that policies of reserve accumulation and currency undervaluation have had significant effects on manufacturing productivity, as well as on manufacturing share, product varieties, and domestic orientation of production chains. We develop a dynamic two-country model with two sectors, firm dynamics, and trade hysteresis to demonstrate a novel mechanism by which exchange rate policy reorients global supply chains and industrial structure. The model identifies conditions under which such a policy raises productivity and welfare in the home country. It also identifies conditions under which the policy leads to either permanent or reversible deindustrialization in a trading partner. Findings have implications for the long-run relationship between China and the U.S.
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Copy CitationPaul Bergin, Woo Jin Choi, and Ju H. Pyun, "Exchange Rates, Structural Change, and Productivity Growth," NBER Working Paper 35609 (2026), https://doi.org/10.3386/w35609.Download Citation
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