Does China’s exchange rate policy help or hurt other poor nations?

Some say help: what is good for Chinese growth is good for primary exports elsewhere. Dani Rodrik begs to differ:

…the central challenge of economic development is not foreign demand, but domestic structural change. The problem for poor countries is that they are not producing the right kinds of goods. They need to restructure away from traditional primary products to higher-productivity activities, mainly manufactures and modern services.

The real exchange rate is of paramount importance here, as it determines the competitiveness and profitability of modern tradable activities. When developing nations are forced into overvalued currencies, entrepreneurship and investment in those activities are depressed.

From this perspective, China’s currency policies not only undercut the competitiveness of African and other poor regions’ industries; they also undermine those regions’ fundamental growth engines. What poor nations get out of Chinese mercantilism is, at best, temporary growth of the wrong kind.

More here.

Unfortunately little of this will matter when Congress has renminbi hearings later this month…

4 thoughts on “Does China’s exchange rate policy help or hurt other poor nations?

  1. There are a number of countries where large aid packages would result in an overvalued exchange rate, and have the effects Dani posits. Has anyone done this analysis?