Exchange rate undervaluation and manufactured exports: A deliberate strategy?

► Manufactured export is an important driver of development. ► A proactive exchange rate policy (i.e. undervaluation) can foster manufactured exports. ► The paper shows that many countries has used undervaluation to foster manufactured exports. Recent literature suggests that a proactive exchange rate policy in accordance with price incentives (i.e. undervaluation) can foster manufactured exports and growth. This paper is built on these recent developments and investigates, using a sample of 52 developing countries, whether such a proactive exchange rate policy is adopted. The results show that during the period 1991–2005 a number of countries has used undervaluation to foster the price competitiveness of manufactured exports.