Min, Hong-Ghi2013-09-092013-09-092002-01https://hdl.handle.net/10986/15719The author provides theoretical and empirical evidence of a negative association between income inequality and real exchange rates. First, he builds a theoretical model showing the transmission mechanism from inequality to real exchange rates. Second, using cross-country data, he demonstrates that the theoretical argument has empirical support. The association is large, significant, and robust to alternative specifications of the reduced form model and estimation methodologies. These findings provide empirical support for Poverty Reduction Strategy Papers, government strategies agreed on with the World Bank that hinge on four major objectives: accelerating equity-based growth, guaranteeing access to basic social services for the poor, expanding opportunities for employment and income-generating activities for the poor, and promoting good governance. The author's analysis indicates that "equity-based growth" and "export-driven growth" are compatible policy goals. But the negative relationship between inequality and real exchange rates does not imply that policies aimed at dramatic redistribution will automatically lead to real depreciation of the domestic currency, improve the external balance, and accelerate economic growth.en-USCC BY 3.0 IGOBUDGET CONSTRAINTCAPITAL INFLOWSCDCENTRAL BANKCOUNTRY DUMMYCROSS- COUNTRY EVIDENCECROSS-COUNTRY DATACROSS-COUNTRY DIFFERENCESCROSS-COUNTRY EVIDENCECROSS-COUNTRY STUDYCURRENT ACCOUNTDATA SETDEPENDENT VARIABLEDEPOSIT DOLLARIZATIONDEVELOPING COUNTRIESDEVELOPING COUNTRYDISTRIBUTIONAL IMPLICATIONSDOMESTIC INFLATIONDOMESTIC PRICEECONOMIC GROWTHECONOMIC LITERATUREECONOMIC REVIEWECONOMICSELASTICITYEMERGING ECONOMIESEMPIRICAL ANALYSISEMPIRICAL EVIDENCEEMPIRICAL FINDINGSEMPIRICAL MODELEMPIRICAL RESULTSEMPIRICAL STUDIESEMPIRICAL STUDYEMPIRICAL SUPPORTESTIMATION RESULTSEXCHANGE RATE DEPRECIATIONEXCHANGE RATE DEVALUATIONEXCHANGE RATESEXPLANATORY VARIABLESEXTERNAL BORROWINGEXTERNAL SHOCKSFOREIGN CURRENCYGDPGDP DEFLATORGINI COEFFICIENTGOVERNMENT BUDGETGROWTH MOMENTUMGROWTH TARGETHISTORICAL PERSPECTIVEINCOMEINCOME DISTRIBUTIONINCOME ELASTICITYINCOME ELASTICITY OF DEMANDINCOME GROUPINCOME GROUPSINCOME INEQUALITYINCOME LEVELINCOME SHAREINDEPENDENT VARIABLESINEQUALITYINEQUALITY INDEPENDENTINEQUALITY MEASUREINTERNATIONAL COMPARISONSINTERNATIONAL COMPETITIVENESSINTERNATIONAL MONETARY FUNDLABOR MARKETSLIQUID LIABILITIESLIQUIDITYLONG-TERM GROWTHLOW INCOMEMACROECONOMIC ADJUSTMENTMACROECONOMIC MANAGEMENTMACROECONOMIC POLICYMEASURING INCOME INEQUALITYMEMBER COUNTRIESNEGATIVE CORRELATIONNEGATIVE RELATIONSHIPNEGATIVE SIGNNOMINAL EXCHANGE RATEOPEN ECONOMIESPOLICY IMPLICATIONSPOLICY MAKERSPOLICY REFORMPOLICY RESEARCHPOLITICAL ECONOMYPOLITICAL INSTABILITYPOVERTY REDUCTIONPOVERTY REDUCTION STRATEGYPOWER PARITYPRICE LEVELSPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC DEBTPUBLIC INVESTMENTPUBLIC SECTORPURCHASING POWERREAL DISTURBANCESREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATESREAL INTERESTREAL INTEREST RATESREDISTRIBUTIVE POLICIESREDISTRIBUTIVE POLICYREDUCING INEQUALITYREDUCTION STRATEGYREGRESSION RESULTSRELATIVE PRICERELATIVE PRICESSAFETY NETSIGNIFICANCE LEVELSTRUCTURAL REFORMSTRADE OPENNESSTRANSMISSION MECHANISMUNEMPLOYMENTWEALTHWorld Bank10.1596/1813-9450-2758