Specifically with regard to the role of the exchange
Specifically, with regard to the role of the exchange rate policy, on the one hand, the level of the exchange rate is a key price for developing countries, therefore, when defining the profitability of production by the ratio of prices between tradable and non-tradable goods, the exchange rate directly affects the definition of viability economic of sectors that can leverage the growth of overall productivity of the economy (Gala and Mori, 2009). Accordingly, the maintenance of appreciated exchange rates prevents the transfer of employees to the most dynamic sectors of high productivity, since the prices of non-tradable goods are artificially high. This implies low incorporation and small development of technical progress, as well as in maintaining high levels of unemployment or underemployment of labor in low productivity activities and therefore low incomes, which affects the GW5074 capacity (demand) of the economy.
On the other hand, the variability of the exchange rate also affects industrial competitiveness, since uncertainty about the exchange rate behavior affects investment decisions. Davidson (2002) argues that fluctuations in the exchange rate affect the competitive position of the domestic industry and limit its external insertion, given the uncertainty that impedes the calculation of the potential profitability, the entrepreneurs end up postponing investment decisions. Thus, these fluctuations impose negative effects on trade and investments, especially for developing economies. This determines the economic dynamism of a country and affects its long-term growth. However, for the economy to grow enough in the long term, it is essential that such productive structure is formed by a competitive export sector, especially regarding the export of products technology-intensive due to the higher income-elasticity of demand for exports associated with them.
This paper is structured in five sections, the first being this introduction. Section 2 briefly presents the relationship between the industrial sector and economic growth. Next, it presents the analytical model calibrated for the study. Section 4 presents the simulated results and, finally, the main conclusions.
Relationship between the manufacturing sector and economic growth In the heterodox economics literature, the sectoral composition of the economy is important for the economic growth. This is because the manufacturing industry, according to the Kaldorian model, operates with increasing returns to scale, generating spillovers through interaction with other sectors of the economy, which is reflected in the increase in labor productivity and, therefore, in the real wage. More specifically, the increase in industrial production shifts the labor allocated in other sectors, raising the total productivity of the economy. Moreover, pesticides stimulates the growth of the output, given the resulting increase of demand. Thus, according to McCombie and Thirlwall (1994), the manufacturing sector is considered as an “engine of growth”. The relationship between the growth process of economies involving the growth rate of output, employment and productivity in different sectors was presented by Kaldor (1968), consolidated in the economic literature as “Kaldor\'s Laws”. These generalizations manifest that: (i) there is a positive relationship between the growth of industry and the growth of real output, and than higher the industry growth rate, the greater the national product growth rate; (ii) there is a positive relationship between productivity growth rate in the industry and growth of industrial output, with the causality relation implying that the higher the growth rate in the industry, the higher the growth rate of productivity; and (iii) there is a positive relationship between growth in Gross Domestic Product (GDP) and industrial productivity growth. The first law incorporates the idea of industry as an “engine” of growth as the most innovation-diffuser and dynamic sector; the second, known as the Kaldor–Verdoorn law, establishes a causal relation between the rate of productivity growth and the rate of output growth. Thus, an increase in the outcome induced by demand causes an increase in productivity in sectors where there is the presence of economies of dynamic scale (Blecker, 2009).