Exchange-Rate Movements and Economic Development in the Late Nineteenth Century

Abstract

This paper empirically tests the hypothesis that devaluation stimulates export and income growth. The historical period 1873-94 is utilized because it is relatively free of the simultaneous-equation bias which has plagued previous studies. During this period the price of silver relative to gold fell by about 50 percent, thereby implying a substantial devaluation by silver standard countries relative to gold standard countries. Support for the hypothesis is provided by evidence that exports and income grew significantly more rapidly in the former countries than in the latter ones.