ABSTRACT
Chapter 9 makes a number of important points that have not been brought together systematically in the literature. It argues that a large real depreciation is a natural first step in inducing industrialization, which is the key to development (at least in all except very small economies) because a country that wants to start to export industrial goods has no advantage that it can deploy other than hyper-competitive labor costs. A corollary is that Dutch disease is dangerous, because it threatens to halt industrialization, rather than the rational exploitation of good fortune as portrayed in the neoclassical literature. The chapter recognizes the existence of potential constraints on the feasible real depreciation. And it accepts that real appreciation is a natural and healthy accompaniment of successful industrialization, as argued by Balassa and Samuelson. I know of no other work that has discussed the desirable behavior of the real exchange rate in the course of development in this way, and that has got the answer basically right.
