Does the real exchange rate influence the manufacturing value added?

A haircut is more expensive in the United States than in Mali. However, this does not mean that Malian hairdressers are less productive or skilled. The price difference stems from higher productivity in tradable goods in the United States compared to Mali. This productivity gap spills over into the prices and wages of non-tradable goods. It is therefore essential to address this imbalance by aiming to equalize goods prices and account for international productivity differences in tradable sectors. This regulation —through the real exchange rate— can influence the development of the manufacturing sector and its contribution to value added.

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Article reference

Chaffai, M et P, Plane (2024). “Manufacturing and the real exchange rate: natural resource rents matter when measuring misalignments”, Applied economics, 1–21.

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