Competitive Advantage and Export Promotion: Does It Depend on the Devaluation of Currency or Improving Absorptive Capacity? (A Comparative Analysis of China and Iran)

The relationship between exchange rate and export promotion is a controversial debate in the professional economics literature. While mainstream neoclassical approach believes that devaluation of national currency decreases current account deficit, heterodox institutional-structural approach believes that the effectiveness of exchange rate policy dependents on the infrastructural factors of absorptive capacity. This paper aims to evaluate empirically the validity of these two approaches using a comparative analysis. To end this, the relationship between absorptive capacity and infrastructural factors is examined along with the technological catching up and export promotion using time series data of China and Iran. The findings of this paper show that the implementation of the same exchange rate policy could have different outcomes depending on the absorptive capacity of these two economies. More specifically, the effectiveness of the exchange rate policy depends on the various factors in the economies such as human capital, management skills, organizational coordination, and regional and international scientific and economic cooperation.