Undervalued Economy


In the context of economic discussions and building industries, an undervalued currency plays a significant role, as explained by in the . He suggests that an undervalued currency acts as a form of industrial policy that effectively subsidizes all tradable industries across the board, without the need for specific selections by the government, which can often become politicized. He further demonstrates the negative impacts of overvaluation caused by uncontrolled capital inflows, particularly in Latin America, which has struggled to maintain competitive export industries due to currency overvaluations. In contrast, Asian countries have managed their currencies to prevent such issues and fostered industrial growth, highlighting the stark differences between these regions 1.

The Power of Undervalued Currency

Dani explains the importance of undervalued currency as a tool for promoting new industries and the limitations of industrial policy. He contrasts the experiences of Latin America and Asia in managing their exchange rates and highlights the negative consequences of overvalued currency on economic development.


Dani Rodrik on Globalization, Development, and Employment