Real exchange rate management and economic growth: export performance in Kazakhstan, 2009–2019

Abstract

This study contributes to the literature on the evaluation of the effects of the stable and competitive real exchange rate management (SCRER) on economic growth by studying the exporting performance of the tradable sector in Kazakhstan between 2009 and 2019. We also aim to capture the impact of a significant change in the behavior of the exchange rate in August of 2015, following the introduction of inflation targeting monetary policy and switching to the flexible exchange rate regime of domestic currency – tenge. Our results show that a 10% undervaluation of the RER leads to a 0.05 percentage points increase in the growth rate of manufacturing exports. At the same time, a one percent increase in RER leads to a 0.08 percentage points growth in primary products industries, while a depreciation of the RER by one percent leads to a rise of 0.14 percentage points in the growth rate of high-tech manufacturing industries. We also find that a highly volatile exchange rate regime of the exchange rate is not favorable to the development of capital-intensive sectors. Overall, the results suggest that a macroeconomic policy targeting a stable and competitive real exchange rate can be beneficial for the advancement of higher technologically intensive sectors, increased price competitiveness for Kazakhstan’s manufacturing goods and high-skill tradable services, and the process of rapid capital accumulation.

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