Real Exchange Rate, Mercantilism And The Learning By Doing Externality

Joshua Aizenman, Jaewoo Lee

Research output: Contribution to journalArticlepeer-review

37 Scopus citations


This paper examines the degree to which the learning by doing (LBD) externality calls for an undervalued exchange rate. We obtain mixed results. For an economy where the LBD externality operates in the traded sector, real exchange rate undervaluation may be used to internalize this externality, if the LBD calls for subsidizing employment in the traded sector. If the LBD externality is embodied in aggregate investment, the optimal policy calls for subsidizing the cost of capital in the traded sector, and there is no room for undervalued exchange rate policy.

Original languageEnglish
Pages (from-to)324-335
Number of pages12
JournalPacific Economic Review
Issue number3
StatePublished - 1 Aug 2010
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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