Devaluing to Prosperity

by Surjit S. Bhalla

This book documents the evolution of policies that contributed to the recent global financial crisis. Specifically, it looks at economic growth - how poor countries can become less poor, and eventually rich. Bhalla offers a controversial new perspective: economic growth can, in large part, be explained by the change in an economy's currency undervaluation. The author points to China as just one of a number of countries where explosive economic growth was accompanied b y an undervalued currency. Underappreciated Growth: Why Competitive Exchange Rates Matter contradicts the prevailing argument - that real exchange rates are endogenously determined and therefore cannot be a policy-choice variable. To support this contentious viewpoint, Bhalla uses all available data, from the mid-nineteenth century to 2007, and examines the effect of currency undervaluation on investments, growth, and productivity. He finds that across a variety of models, time-periods, and estimation techniques the results show the positive effects of undervaluation.

256 pages, Paperback

First published September 20, 2010

Reviews

[Johnathan]

I've now read this three times. The idea of devaluation has kept me busy since I've first received this book.