Exchange Rate and Employment: The Experience of Fast-Growing Economies

by NGANDU, S., 2005
Research Report, Employment Growth & Development Initiative, Human Sciences Research Council

This paper forms part of an Human Sciences Research Council project on exchange rates and employment, which seeks to understand the impact of exchange rate fluctuations on employment in South Africa. Ngandu examines the exchange rate policies of countries that achieved rapid, labour-absorbing growth. While exchange rates are only one instrument in an employment and growth policy, commonality in policy approach among fast-growing economies might offer useful policy pointers. The questions the paper seeks to answer include: How important were the level and stability of the exchange rate in these countries? How did they achieve exchange rate stability and maintain the rate at levels conducive to exports? What is the relationship between the exchange rate regime and economic performance? The high-growth countries assessed in this paper include Brazil (1963–73), Chile, Ireland and high-performing Asian economies. These countries were selected in view of their sustained export performance and the availability of literature on their policy choices. The paper first reviews the theory on the relationship between employment and the exchange rate. It then looks at the role of and policy on exchange rates in these countries, followed by an assessment of exchange rate regimes and economic performance.