Revisiting the 'Kaldor-paradox': the real exchange rate, export performance and economic growth in the European Union

26  January 2017    4:00 pm

Gábor Oblath


wiiw, Rahlgasse 3, 1060 Vienna, lecture hall (ground floor)


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The presentation addresses the contemporary relevance of Nicolas Kaldors’s (1908-1986) empirical propositions and policy recommendations regarding the real exchange rate (RER). The proposition concerning the relationship between changes in RERs and market shares is known as the “Kaldor paradox” (KP). In a narrow sense the KP involves that real exchange rate (RER) changes either “do not work”, or have “perverse” effects (i.e., depreciations are associated with decreasing market shares, and vice versa). Our empirical results, relying on alternative RER-indicators, and on the analysis of trade data of the EU member states between 1995 and 2015, contradict this assertion. They do, however give support to a broader interpretation of the KP, involving the relevance of non-price/cost competitiveness. This leads us to revisit Kaldor’s policy proposal regarding the importance of maintaining a “competitive” RER level to promote economic growth. Our estimates for the EU-countries suggest that overvalued RERs involve non-linear negative growth-effects, but the relationship is asymmetric. Undervalued RERs are associated with milder positive effects on growth, and the returns to increasing overvaluation are diminishing.

Gábor Oblath is senior research fellow of the Institute of Economics, Centre for Economic and Regional Studies of the Hungarian Academy of Sciences. His academic work and teaching is related to macroeconomic analysis. He taught at the Central European University, Corvinus University and ELTE University. He worked with the UN Economic Commission for Europe and was guest scholar at the Helsinki School of Economics, the Brookings Institution and the Bank of Finland. Between 2001 and 2008 he was a member of the Monetary Council, National Bank of Hungary. In 2009-2010 he was a member of Hungary’s Fiscal Council. His recent research topics cover economic convergence, methodological issues of macroeconomic statistics, accession to the euro-zone and international competitiveness.

Paper and Powerpoint presentation, as far as available, are posted on this page after the seminar.