{"title":"When and How African Real Exchange Rates Relative to China Affect its Manufacturing","authors":"S. G. Jeanneney, Ping Hua","doi":"10.35866/CAUJED.2020.45.4.001","DOIUrl":null,"url":null,"abstract":"African countries suffer from a low rate of growth of manufacturing production. Many economists consider that it is due to an overvaluation of their currency. Indeed, several African countries have known an appreciation of their currency, notably against the Chines currency. Moreover, Chinese exports of manufactured goods rose between 2000 and 2015 at the astronomic annual rate of 26% (versus 10% for the rest of the world). This article tries to answer the following questions: what is the impact of the real exchange rates of African countries relative to China on African manufacturing? Is it specific? We estimated a manufacturing function by using a panel data of 44 African countries over the period from 2000 to 2015 and GMM estimator. We built an original set of real exchanges rates, weighted by the share of imports of manufactured goods from the ten main partners, globally and by categories of goods. Contrary to the common opinion, we show that African real appreciation of exchange rates relative to China exerts a positive and specific effect on African manufacturing, despite a traditional negative effect through the competition of China’s exports. We assume that this positive effect is due to productivity improvement. First, we reassure this assumption by several theoretical arguments relative to Schumpeterian “creative destruction,” improvement of labor efficiency, increase of capital-labor ratio. Second, by some specificities of imports from China, which are both consumption goods cheap and bottom of the range covering daily needs, and machines and transport equipment easily bought by medium and small enterprises. Naturally, this positive effect disappears with too strong appreciations. By contrast, we do not find the same positive effect for the rest of the world. Our work has clear political implication, as it does not speak in favor of systematic depreciations of African currencies.","PeriodicalId":15602,"journal":{"name":"Journal of economic development","volume":"45 1","pages":"1-34"},"PeriodicalIF":0.0000,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of economic development","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.35866/CAUJED.2020.45.4.001","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"Economics, Econometrics and Finance","Score":null,"Total":0}
引用次数: 0
Abstract
African countries suffer from a low rate of growth of manufacturing production. Many economists consider that it is due to an overvaluation of their currency. Indeed, several African countries have known an appreciation of their currency, notably against the Chines currency. Moreover, Chinese exports of manufactured goods rose between 2000 and 2015 at the astronomic annual rate of 26% (versus 10% for the rest of the world). This article tries to answer the following questions: what is the impact of the real exchange rates of African countries relative to China on African manufacturing? Is it specific? We estimated a manufacturing function by using a panel data of 44 African countries over the period from 2000 to 2015 and GMM estimator. We built an original set of real exchanges rates, weighted by the share of imports of manufactured goods from the ten main partners, globally and by categories of goods. Contrary to the common opinion, we show that African real appreciation of exchange rates relative to China exerts a positive and specific effect on African manufacturing, despite a traditional negative effect through the competition of China’s exports. We assume that this positive effect is due to productivity improvement. First, we reassure this assumption by several theoretical arguments relative to Schumpeterian “creative destruction,” improvement of labor efficiency, increase of capital-labor ratio. Second, by some specificities of imports from China, which are both consumption goods cheap and bottom of the range covering daily needs, and machines and transport equipment easily bought by medium and small enterprises. Naturally, this positive effect disappears with too strong appreciations. By contrast, we do not find the same positive effect for the rest of the world. Our work has clear political implication, as it does not speak in favor of systematic depreciations of African currencies.
期刊介绍:
The Journal of Economic Development (JED) promotes and encourages research that aim at economic development and growth by publishing papers of great scholarly merit on a wide range of topics and employing a wide range of approaches. JED welcomes both theoretical and empirical papers in the fields of economic development, economic growth, international trade and finance, labor economics, IO, social choice and political economics. JED also invites the economic analysis on the experiences of economic development in various dimensions from all the countries of the globe.