This paper presents a Balance-of-payments (BOP)-constrained growth model
in which the interaction between the real exchange rate (RER) policy and
industrial policy result in the emergence of different patterns of
growth and income distribution. The paper relies on cumulative causation
à la Kaldor and path-dependency to relate both types of policies. The
transition from one equilibrium level of the RER to a new equilibrium
level generates a process of learning that transforms the income
elasticity of exports and hence the BOP-constrained rate of growth in
the long run. The model produces a variety of outcomes that help explain
the contradictory results that emerge from the empirical literature on
the impact of the real exchange rate on economic growth in the long run.
Keywords: Real Exchange Rage; Structural Change, Growth models, Structuralist models, BOP-constrained growth.
JEL Classification: O33, O40, O41