Industrial structure, competitiveness, and trade

This paper examines the effect of sector-specific growth on real exchange rates, competitiveness, and the trade balance. Growth and accumulation in export- and import-competing industries exert their primary effect on the trade balance, while the direct effect of accumulation in non-tradables is on the real exchange rate. Thus, exchange-rate policies that are incompatible with non-tradables equilibrium are bound to fail. Furthermore, growth policies with strong biases toward tradables are often inferior to more balanced strategies, due to their adverse implications for real-exchange- rate movements and the trade balance.