## Who Captures Export Windfalls? Exchange Rates, Export Profitability, and National Saving under Dominant-Currency Pricing

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---

### Main findings and headline statistics
- A one-percentage-point rise in real local-currency export income (as a share of GDP) is associated with an increase in the national saving rate of about 0.27 percentage points.
- Dollar export income has no statistically significant independent effect on national saving once the local-currency measure is included.
- A coefficient estimated from 41 countries predicts China’s 9.7-percentage-point saving increase (2002–2007) with an error of just 0.1 point.
- The analysis covers five-year panels for 42 economies over 1982–2022 and is complemented by diagnostic country episodes (China’s post-WTO surge, Argentina’s 2002 devaluation, Peru versus Brazil during the commodity boom).

### Mechanism: distribution via the real exchange rate under Dominant-Currency Pricing (DCP)
- Core identity and definitions:
  - Real export income in dollars: X_USD_t ≡ P^$_{X,t} Q_t / P_{US,t}.
  - Real export income in local currency: X_LC_t ≡ S_t P^$_{X,t} Q_t / P_t.
  - Relationship: X_LC_t = X_USD_t · R_t, where R_t ≡ S_t P_{US,t} / P_t (an increase denotes a real depreciation).
- Pass-through with incomplete exchange-rate pass-through (Δ log P_t = θ Δ log S_t, 0 < θ < 1):
  - Δ log R_LX_t = Δ log P^$_{X,t} + Δ log Q_t + (1−θ) Δ log S_t.
  - Δ log R_W_t = Δ log W_t + Δ log L_t − θ Δ log S_t.
- Distributional implications:
  - Stable real exchange rate (small appreciation): rising dollar receipts largely pass through into higher real local-currency export income, widening firm margins and increasing retained earnings.
  - Real appreciation: part of the windfall accrues to consumers via cheaper imports, compressing exporters’ margins and weakening the saving response.
- Imported-input intensity:
  - The domestic-value-added component scales with (1−α) R_LX_t, attenuating but not reversing the mapping from dollar windfalls to domestic value added.

### From distribution to national saving (mechanism and role of fiscal policy)
- Behavioral mapping:
  - ΔSAV_t ≈ s_F ΔY^F_t + s_H ΔY^H_t,   s_F > s_H, (3.11) — firms have higher marginal propensity to save than households.
  - Under DCP: ΔY^F_t ∝ ΔX^LC_t (3.12); appreciation-driven increases in household purchasing power primarily affect ΔY^H_t.
- Fiscal policy:
  - Fiscal choices alter taxation of windfalls and whether proceeds are saved or absorbed via public spending/transfers, amplifying or damping the translation of firm windfalls into national saving.
  - The estimated saving elasticity is a reduced-form relationship; fiscal behavior contributes to cross-country heterogeneity around it.
- Not a national-accounts identity:
  - X^LC_t = X^USD_t · R_t is an identity, but the saving mechanism is behavioral: movements in R_t reallocate income between high-saving firms and low-saving households, explaining why saving responds asymmetrically to X^LC but not X^USD once X^LC is included.
- Applicability:
  - Mechanism applies to both commodity- and manufacturing-based export booms (commodity: dollar shock via prices; manufacturing: dollar shock via quantities).

### Testable implications and empirical strategy
- Three sharp implications:
  - National saving should respond strongly to changes in real local-currency export income (scaled by GDP).
  - Dollar export income is not a reliable guide to the saving response once exchange-rate effects are accounted for.
  - The saving response should align with the profitability shock and appear contemporaneously rather than only with long lags through investment and capacity expansion.
- Empirical strategy: examine five-year changes in saving and export income, exploit cross-country variation, natural experiments, and out-of-sample prediction.

### Empirical evidence and validation
- Cross-country panel evidence: national saving tracks real local-currency export income rather than real dollar export income per se.
- Case studies / natural experiments:
  - China post-WTO surge: large rise in saving tied to local-currency profitability until 2007; after 2007 real appreciation compressed margins and saving declined.
  - Argentina 2002 devaluation: peso depreciated roughly 75 percent in real terms within six months; real local-currency export income per capita rose from index 100 in 2001 to roughly 250 by 2003; national saving rate jumped from 17 percent of GDP in 2001 to 25.9 percent in 2002 (an 8.9 percentage-point increase).
  - Peru versus Brazil: Peru’s gradual real appreciation and fiscal restraint → higher saving and investment concentrated in tradables; Brazil’s sharper appreciation and fiscal expansion → windfall absorbed in consumption and nontradable investment.
- Out-of-sample prediction (China):
  - Excluding China yields coefficient 0.27 (standard error 0.02) on five-year changes in real local-currency export income.
  - Table 6.2 (China):
    - Period 2002–2007:
      - ΔX_LC (% of lagged GDP): 42.5
      - Predicted ΔSaving (pp): +9.6
      - Actual ΔSaving (pp): +9.7
      - Prediction Error (pp): −0.1
    - Period 2007–2012:
      - ΔX_LC (% of lagged GDP): 6.0
      - Predicted ΔSaving (pp): −0.2
      - Actual ΔSaving (pp): −0.2
      - Prediction Error (pp): 0.0

### Key regression results and magnitudes
- Regression of five‑year changes in the saving‑to‑GDP ratio on components (Table 5.1):
  - Δ5 REER: 0.078*** (0.009)
  - Δ5 P$(real)X: 0.080*** (0.010)
  - Δ5 QXPOP: 0.058*** (0.006)
  - Constant: −1.943*** (0.272)
  - Observations: 321
  - R2: 0.339; Adjusted R2: 0.333
  - Significance: * p<0.1; ** p<0.05; *** p<0.01
- Aggregate elasticity (Table 5.2):
  - Coefficient on Δ5 Local‑currency export income: 0.27*** (e.g., (0.02) in column (1))
  - Δ5 Dollar export income: 0.11*** in USD‑only specification, but negligible or negative when included with local‑currency measure.
  - Interpretation: a one‑percentage‑point‑of‑GDP increase in exporters’ real local‑currency income is associated with roughly a 0.27‑percentage‑point rise in the national saving rate.
- Joint regressions and diagnostics:
  - Joint regression results (column 4 of Table 6.2): Coefficient on ΔX_LC: 0.29 (t‑statistic 9.1); Coefficient on ΔX_USD: −0.01 (t‑statistic −0.3, insignificant).
  - When X_LC and real GDP growth are included together (column 5): coefficient on X_LC remains 0.25 while GDP growth falls to 0.04.
- Cross-country predictive performance and fit:
  - China: R² = 0.76 for the five‑year relationship between Δ X_LC (percent of 5‑year lagged GDP) and Δ saving‑to‑GDP.
  - Peru: R² = 0.94 for same relationship.
  - Brazil: R² = 0.59 for same relationship.

### Case studies: China, Brazil, and Peru — comparative findings
- Overview:
  - Common: per‑capita dollar export income rose sharply in all three.
  - Divergence driven by real‑exchange‑rate paths and fiscal responses under DCP.
- China (1990–2007):
  - Relatively stable real exchange rate supported pass-through into higher local‑currency export income, profitability, retained earnings, and high saving.
  - Reserve accumulation supported exchange‑rate stability.
- Brazil (2002–2012):
  - Pronounced real appreciation during the mid‑2000s commodity boom → limited pass‑through to local‑currency export income and tradable margins; fiscal expansion and capital inflows absorbed windfall → consumption boom.
  - Example: exchange rate went from 100 in 2002 to 36 in 2011.
  - Manufacturing’s share of exports fell from about 85 percent in early 2000s to roughly 50 percent by 2020.
- Peru (2002–2008):
  - Managed float with moderate appreciation, fiscal restraint and reforms → stronger pass‑through to local‑currency export income and exporters’ margins; national saving rose from about 17 percent of GDP in 2002 to 29 percent by 2008; investment concentrated in tradables.
- Fiscal amplification:
  - China: rising export receipts boosted revenues faster than expenditures; fiscal restraint saved a larger share of the windfall.
  - Brazil: primary balance weakened after 2004; fiscal expansion absorbed windfalls.
  - Peru: general‑government balance shifted into surplus; public debt declined steadily.

### The virtuous cycle and sectoral implications
- Virtuous cycle:
  - Higher saving finances capacity expansion and future exports; stability or competitiveness of the real exchange rate allows export income, profitability, and saving to reinforce one another.
  - Appreciation reverses the cycle by compressing margins and reducing profitability and saving.
- Sectoral outcomes:
  - With preserved profitability, investment concentrates in tradables (e.g., mining, manufacturing).
  - With compressed margins and appreciation, investment shifts toward construction, real estate, and services, often financed via capital inflows and credit expansion.

### Timing, reverse causality, and direction of effect
- Timing and identification:
  - Supply-side reverse-causality channel (saving → investment → expanded capacity → higher export income) operates over extended horizons, not within a single five‑year period.
  - Distributed‑lag regression: contemporaneous coefficient remains 0.27 (t = 12.3) while the five‑year‑lagged change is statistically zero (−0.00, t = −0.01); R2 unchanged at 0.33.
  - Country correlations: China 0.87, Peru 0.94, Brazil 0.76 between five‑year changes in X_LC and saving rate.
- Investment transmission:
  - One‑percentage‑point‑of‑GDP increase in national saving is associated with a 0.45‑percentage‑point rise in investment (R2 = 0.17).
  - Regressing Δ5 X_LC on Δ5 investment yields R2 near zero; plotted line y = 7.44 + 0.49x with R² = 0.06, emphasizing investment explains almost none of export‑income variation over the horizon.
- Natural experiments:
  - Argentina 2002: depreciated ≈75 percent in real terms within six months; immediate surge in X_LC and contemporaneous jump in national saving from 17 percent to 25.9 percent of GDP.
  - China 2002–2007: exchange‑rate stability (via reserve accumulation and capital controls) prevented appreciation despite rising saving, enabling pass‑through to local‑currency profitability.
- Conclusion on direction:
  - Multiple lines of evidence support export profitability (measured in local currency) driving national saving contemporaneously, not the reverse.
  - The chapter interprets the estimated elasticity (reported as 0.27 or 0.28 in places) as an average effect across diverse policy regimes.

### Robustness and extensions
- Imported‑input intensity (domestic‑value‑added, DVA) adjustments:
  - Restricted-sample regressions with DVA data yield coefficients virtually identical to baseline.
  - Table G.1 (restricted sample): Δ5 Local‑currency export income coefficient: 0.253***, Observations = 245, R2 = 0.313, Adjusted R2 = 0.310.
  - Table G.2 (DVA‑weighted): DVA share * Δ5 Local‑currency export income coefficient: 0.327***, Observations = 257, R2 = 0.340, Adjusted R2 = 0.338.
- Alternative explanations for China’s saving surge (Appendix F):
  - Financial repression, SOEs, and social safety net changes are evaluated and found insufficient to explain the rapid timing and magnitude.
  - DCP profitability channel matches speed and magnitude and is validated out of sample.

### Policy‑relevant implications
- Exchange‑rate behavior during export booms matters for distribution and national saving:
  - Stable real exchange rates (or resisted appreciation) during export booms increase the share of windfalls accruing to producers, boosting profitability, retained earnings, and national saving—facilitating reinvestment in tradables.
  - Appreciations shift windfalls to consumers and public spending, dampening the saving response and potentially limiting tradable‑sector accumulation.
- Policy regimes condition outcomes:
  - Fiscal restraint and stable real exchange rates exhibit stronger pass‑through from export booms to domestic profitability and saving.
  - Fiscal expansions and appreciations are associated with windfalls being absorbed in consumption or public spending.
- Trade‑offs:
  - Leaning against appreciation involves monetary and financial trade‑offs (capital mobility, reserve policies); desirability is country‑ and state‑contingent and not a universal prescription.

*Source: Who Captures Export Windfalls? Exchange Rates, Export Profitability, and National Saving under Dominant-Currency Pricing — Prepared by Bas B. Bakker (wpiea2026009-source-pdf).*

### 0.27 percentage points for each 1 percentage point of GDP increase in real local-currency export income, while

### Who Captures Export Windfalls? Exchange Rates, Export Profitability, and National Saving under Dominant-Currency Pricing

### Main findings and headline statistics
- A one-percentage-point rise in real local-currency export income (as a share of GDP) is associated with an increase in the national saving rate of about 0.27 percentage points.
- Dollar export income has no statistically significant independent effect on national saving once the local-currency measure is included.
- A coefficient estimated from 41 countries predicts China’s 9.7-percentage-point saving increase (2002–2007) with an error of just 0.1 point.
- The paper analyzes five-year panels for 42 economies over 1982–2022 and complements these with diagnostic country episodes (China’s post-WTO surge, Argentina’s 2002 devaluation, Peru versus Brazil during the commodity boom).

### Mechanism: distribution via the real exchange rate under Dominant-Currency Pricing (DCP)
- Under DCP (export prices sticky in dollars), export windfalls in dollars can translate differently into domestic outcomes depending on the real exchange rate.
- Identity linking measures:
  - Real export income in dollars: X_USD_t ≡ P^$_{X,t} Q_t / P_{US,t}.
  - Real export income in local currency: X_LC_t ≡ S_t P^$_{X,t} Q_t / P_t.
  - Relationship: X_LC_t = X_USD_t · R_t, where R_t ≡ S_t P_{US,t} / P_t (an increase denotes a real depreciation).
- With incomplete pass-through (Δ log P_t = θ Δ log S_t, 0 < θ < 1), exchange-rate movements shift purchasing power between exporters and consumers:
  - Δ log R_LX_t = Δ log P^$_{X,t} + Δ log Q_t + (1−θ) Δ log S_t.
  - Δ log R_W_t = Δ log W_t + Δ log L_t − θ Δ log S_t.
- When the real exchange rate is stable (small appreciation), rising dollar receipts largely pass through into higher real local-currency export income, widening firm margins and increasing retained earnings.
- When the real exchange rate appreciates, part of the windfall accrues to consumers via cheaper imports, compressing exporters’ margins and weakening the saving response.
- Imported-input intensity (share α) scales domestic value added: the component of export income accruing to domestic value added scales with (1−α) R_LX_t, attenuating but not reversing the mapping.

### Empirical evidence and validation
- Cross-country panel evidence: national saving tracks real local-currency export income rather than real dollar export income per se.
- Case studies and natural experiments provide diagnostic validation:
  - China’s post-WTO export surge (large rise in saving tied to local-currency profitability until 2007; after 2007 real appreciation compressed margins and saving declined).
  - Argentina’s 2002 devaluation as a natural experiment validating timing and direction of effects.
  - Peru versus Brazil during the commodity boom: Peru experienced more gradual real appreciation with higher saving and investment; Brazil experienced sharper appreciation with larger consumption response.
- Out-of-sample prediction: coefficient from a 41-country estimate closely predicts China’s 2002–2007 saving increase (9.7-percentage-point observed increase, predicted within 0.1 point).
- Robustness checks address imported-input intensity and timing/reverse causality; additional annexes explore alternative explanations for China’s saving surge and Dutch-disease profitability channels.

### Contributions to literature and interpretation
- Extends the Dominant Currency Pricing paradigm from short-run price rigidity to a medium-run profitability and accumulation channel: real depreciations raise profit margins and investment in tradables; appreciations compress margins and slow capacity growth.
- Reinterprets Dutch-disease arguments as operating through tradable-sector profitability under DCP rather than primarily through factor reallocation.
- Offers a macroeconomic mechanism linking divergent experiences (East Asia vs. Latin America) to differences in how exchange-rate behavior shapes local-currency export income and thus saving, investment, and structural transformation.
- Interpretation is positive (descriptive) rather than prescriptive: resisting appreciation is not deemed universally optimal because trade-offs (monetary, financial, capital mobility, fiscal policy) make the desirability state-contingent.

### Policy-relevant implications
- Exchange-rate behavior during export booms matters for the domestic distribution of windfalls and for national saving:
  - Stable real exchange rates (or resisted appreciation) during export booms increase the share of windfalls accruing to producers, boosting profitability, retained earnings, and saving—facilitating reinvestment in tradables.
  - Appreciations shift windfalls to consumers and public spending, dampening the saving response and potentially limiting tradable-sector accumulation.
- The export–saving link varies with policy regimes and macro configurations:
  - Episodes with fiscal restraint and stable real exchange rates exhibit stronger pass-through from export booms to domestic profitability and saving.
  - Fiscal expansions and appreciations are associated with windfalls being absorbed in consumption or public spending.
- Trade-offs in leaning against appreciation (monetary and financial) require country- and state-contingent assessment; the mechanism does not imply a universal prescription.

### Key classifications and metadata from the source
- JEL Classification Numbers: F31, F41, E21, F14
- Keywords: Dominant-currency pricing; real exchange rates; export profitability; national saving; global saving glut; export booms; structural transformation
- Author’s E-Mail Address: BBakker@imf.org
- Prepared by Bas B. Bakker

*Source: Who Captures Export Windfalls? Exchange Rates, Export Profitability, and National Saving under Dominant-Currency Pricing — Prepared by Bas B. Bakker*

### 3.3  From distribution to national saving

### 3.3 From distribution to national saving

### Mechanism linking distribution and national saving
- Let national saving be the sum of saving by firms and households. Let Y^F_t denote firm income generated by the export sector (profits and retained earnings), and Y^H_t household real income. Changes in national saving satisfy
  - ΔSAV_t ≈ s_F ΔY^F_t + s_H ΔY^H_t,   s_F > s_H, (3.11)
  - where firms have a higher marginal propensity to save than households.
- Under DCP (dominant-currency pricing), the firm-income component of an export boom loads on real local-currency export income:
  - ΔY^F_t ∝ ΔX^LC_t, (3.12)
  - while appreciation-driven increases in household purchasing power primarily affect ΔY^H_t.
- Exchange-rate movements therefore govern the pass-through from global export conditions to saving by reallocating income between high-saving firms and low-saving households.

### Role of fiscal policy
- Fiscal policy can amplify or dampen the translation of firm windfalls into national saving by altering:
  - how much of the windfall is taxed, and
  - whether the proceeds are saved or absorbed through higher public spending and transfers.
- The saving elasticity estimated in the empirical sections should be interpreted as a reduced-form relationship, with fiscal behavior contributing to cross-country heterogeneity around it rather than as a separate mechanism.

### Not a national-accounts identity
- X^LC_t = X^USD_t · R_t is an identity, but the mechanism is behavioral: under DCP, movements in R_t reallocate a given export windfall between exporters’ domestic-currency profitability and households’ purchasing power, and these groups have different saving propensities.
- This is why the empirical diagnostic is asymmetric: saving responds to changes in real local-currency export income (X^LC) but not to dollar export income once X^LC is included.

### Applicability across sectors
- The profitability mechanism applies to both commodity- and manufacturing-based export booms:
  - commodity booms: the dollar shock operates primarily through prices;
  - manufacturing booms: the dollar shock operates primarily through quantities.
- In both cases, exchange-rate behavior governs how the dollar windfall translates into local-currency export income and firm margins.

---

### 3.4 Testable implications
- Three sharp implications:
  - First, national saving should respond strongly to changes in real local-currency export income, scaled by GDP, because this variable captures the domestic purchasing-power income of exporters.
  - Second, dollar export income is not a reliable guide to the saving response, because exchange-rate movements can cause the same dollar export price shock to generate very different changes in exporters’ real local-currency income and margins.
  - Third, the saving response should line up with the profitability shock, rather than appearing only with long lags through investment and capacity expansion.
- These implications motivate an empirical strategy that examines five-year changes in saving and export income, exploits cross-country variation, natural experiments, and out-of-sample prediction.
- Annex D discusses why this mechanism reflects exchange-rate–driven profitability under DCP rather than a national-accounts identity, and contrasts it with alternative invoicing paradigms. Annex E provides country evidence connecting these dynamics to Dutch-disease patterns.

---

### 4 Case studies: China, Brazil, and Peru — comparative findings

### Overview: three export booms (China 1990–2007; Brazil 2002–2012; Peru same period)
- Common feature: per-capita dollar export income rose sharply in all three economies.
- Divergent macroeconomic outcomes reflect differing real-exchange-rate paths and fiscal responses under DCP:
  - China: relatively stable real exchange rate → rising dollar receipts passed through into higher local-currency export income, profitability, retained earnings, and high saving. Stability was supported by substantial reserve accumulation.
  - Brazil: pronounced real appreciation during the mid-2000s commodity boom → rise in dollar export receipts translated much less into local-currency export income and tradable-sector margins; appreciation coincided with fiscal expansion and capital inflows, shifting the windfall toward domestic absorption and a consumption boom.
  - Peru: managed float with moderate appreciation → stronger pass-through from dollar receipts to local-currency export income and exporters’ margins than in Brazil; fiscal restraint and reforms supported sustained profitability, retained earnings, and investment concentrated in tradables.

### Fiscal behavior and its amplification of the channel
- China:
  - Rising export receipts boosted revenues faster than expenditures, improving the general-government balance and strengthening the primary surplus (Figure 4.4).
  - Fiscal restraint saved a larger share of the windfall, raising public saving and reinforcing national saving and investment.
- Brazil:
  - Primary balance weakened after 2004 and public debt stabilized rather than falling. Differences in effective real interest rates influenced debt dynamics.
  - Fiscal expansion shifted the windfall toward domestic demand and was associated with stronger appreciation pressures.
- Peru:
  - Fiscal position improved markedly during the boom years, with the general-government balance shifting into surplus and public debt declining steadily (Figure 4.5).
  - Fiscal restraint raised public saving and complemented retained-earnings–driven corporate saving.

### Macroeconomic outcomes
- Investment and growth:
  - Brazil: investment was less sustained and fell sharply after the commodity cycle ended (Figure 4.6); with compressed tradable margins, investment concentrated in construction, real estate, and services and was financed mainly through large capital inflows and rapid domestic credit growth.
  - Peru: more moderate appreciation coincided with less compression of tradable profitability and a longer-lasting expansion; much investment growth occurred in tradable sectors such as mining and manufacturing.
  - China: exchange-rate stability supported sustained expansion of tradable capacity, high retained earnings, investment, and saving.
- External balances and saving:
  - Brazil: saving rose somewhat early in the boom but stagnated and later declined as appreciation eroded exporters’ local-currency profitability; current account shifted from a small surplus in the early 2000s to a deficit by 2008 (Figure 4.10).
  - Peru: saving rose sharply early in the boom, investment increased after 2006, and the current account moved into surplus early in the boom and later narrowed as investment accelerated.

### Interpretation
- Under dominant-currency pricing, domestic-currency export income—and hence exporters’ local profitability—drives saving, investment, and growth, not dollar export revenues per se.
- Given observed real-exchange-rate paths, the profitability channel describes how export booms translate into corporate saving and investment; real-exchange-rate movements are shaped by policies and structural features (foreign-exchange intervention, fiscal positions, wage-setting, capital flows), so the framework does not treat the exchange rate as primitive nor claim exclusivity of this channel.

---

### 4.2 China after 2007 — continued evidence
- Beginning in 2006, China’s real exchange rate appreciated sharply, reducing export prices in real local-currency terms (Figure 4.7).
- Consequences:
  - Growth in local-currency export income slowed markedly, and export volumes decelerated.
  - Per-capita real investment and GDP growth both slowed sharply after 2007 (Figure 4.8).
  - Industrial profits surged during the period of exchange-rate stability and rapid export expansion but declined sharply after 2007 as appreciation compressed exporters’ margins (Figure 4.9).
- These aggregates mirror the profitability dynamics linking local-currency export income to national saving and the current account.

---

### 5 Local-currency export income and national saving — empirical evidence

### Mechanism emphasized
- The link between exports and saving operates through profitability and its spillovers: higher profitability in tradables raises corporate retained earnings, tax revenues, and household income, thereby increasing national saving.
- Corporate sector is central: corporate saving moves closely with corporate profits.

### China: quantitative patterns (2000s)
- Saving-to-GDP ratio rose from about 38.8 percent in 2002 to 48.6 percent by 2007 (Figure 5.1).
- Corporate sector was the main trigger: following WTO accession, a massive export boom combined with a broadly stable renminbi led to sharply accelerated real domestic-currency export income (Figure 5.2).
- Corporate saving moves almost one-for-one with corporate profits: when profitability rises, retained earnings rise in parallel (Figure 5.3).
- Sectoral contributions to the rise in national saving since 2000:
  - About a quarter of the rise came from corporate saving,
  - half from government saving,
  - and a sixth from household saving (Figure 5.4).
- Five-year changes:
  - Five-year changes in national saving closely tracked five-year changes in real local-currency export income (Figure 5.5). Change in export income is measured in percent of five-year lagged GDP.

### Cross-country diagnostic (select statistics from Figure 5.5)
- China: R² = 0.76 for the relationship between five-year change in constant local-currency export income (percent of 5-year lagged GDP) and five-year change in saving-to-GDP ratio.
- Peru: R² = 0.94 for the same relationship.
- Brazil: R² = 0.59 for the same relationship.

---

*Source: wpiea2026009-source-pdf - 3.3 From distribution to national saving (IMF).*

### 5.2  The virtuous cycle

### 5.2  The virtuous cycle

### Mechanism overview
- Higher saving can finance capacity expansion and higher future exports, creating a virtuous cycle where export income, profitability, and saving reinforce one another so long as the real exchange rate remains stable or competitive.
- When the currency appreciates sharply, export margins compress, profitability declines, and the cycle reverses.
- Under dominant‑currency pricing, exchange‑rate behavior determines whether global price shocks translate into higher domestic profitability and sustained saving growth.

### Cross-country patterns and illustrative comparisons
- The feedback loop between export profitability and saving appears beyond China; Brazil and Peru during the 2000s commodity boom illustrate divergent outcomes despite similar dollar export price increases.
  - In Peru, the real exchange rate remained broadly stable, allowing local‑currency export income and national saving to continue rising.
  - In Brazil, real appreciation offset dollar‑price gains, compressing exporters’ margins and halting the increase in saving.
- Five‑year changes in national saving closely track five‑year changes in real local‑currency export income for Chile, Argentina, Mexico, India, Czechia, and Poland, with R2 values between 0.46 and 0.87.

### Empirical decomposition and aggregated measure
- The five‑year change in the saving‑to‑GDP ratio is regressed on five‑year changes in:
  - (i) dollar export prices,
  - (ii) export volumes,
  - (iii) the real exchange rate.
- Each component enters with the expected positive sign: higher export prices, larger export volumes, and real depreciations all raise saving.
- Because the three elements move together, they are summarized by real local‑currency export income (X_LC_t ≡ P$_X,t S_t Q_t P_t), which combines export prices, volumes, and the real exchange rate into one measure of exporters’ purchasing‑power income.
- Log identity: Δ log X_LC_t ≈ Δ log P$_X,t + Δ log Q_t + Δ log R_t.

### Key regression results (Table 5.1)
- Dependent variable: Δ5 (S/Y)
- Coefficients (β, standard errors in parentheses):
  - Δ5 REER: 0.078*** (0.009)
  - Δ5 P$(real)X: 0.080*** (0.010)
  - Δ5 QXPOP: 0.058*** (0.006)
  - Constant: −1.943*** (0.272)
- Observations: 321
- R2: 0.339; Adjusted R2: 0.333
- Significance notation: * p<0.1; ** p<0.05; *** p<0.01

### Aggregate elasticity and robustness (Table 5.2)
- Regressing five‑year changes in the saving‑to‑GDP ratio on five‑year changes in X_LC (as a share of lagged GDP) yields:
  - Coefficient on Δ5 Local‑currency export income: 0.27*** (standard errors reported by column; e.g., (0.02) in column (1))
  - Interpretation: a one‑percentage‑point‑of‑GDP increase in exporters’ real local‑currency income is associated with roughly a 0.27‑percentage‑point rise in the national saving rate.
- When export income is measured in dollars instead of local currency, the coefficient falls by more than half, indicating that domestic purchasing power matters more for saving than dollar values.
- Table 5.2 reported specifications also show:
  - Δ5 Dollar export income: 0.11*** in USD‑only specification (column (2)), but negligible or negative when included with local‑currency measure.
  - Δ5 Real GDP per capita (USD): 0.10*** in GDP‑only specification (column (3)), but smaller when included with local‑currency export income.
- Pooled elasticity summarizes a common mechanism while allowing for heterogeneity across countries due to corporate retention behavior, fiscal absorption, and distribution of profits.

### Out‑of‑sample validation: China’s saving dynamics (Section 6.1)
- Excluding China and re‑estimating yields the same coefficient: 0.27 (standard error 0.02) on five‑year changes in real local‑currency export income.
- Table 6.2: Predicted vs. Actual Changes in China’s Saving Rate
  - Period 2002–2007:
    - ΔX_LC (% of lagged GDP): 42.5
    - Predicted ΔSaving (pp): +9.6
    - Actual ΔSaving (pp): +9.7
    - Prediction Error (pp): −0.1
  - Period 2007–2012:
    - ΔX_LC (% of lagged GDP): 6.0
    - Predicted ΔSaving (pp): −0.2
    - Actual ΔSaving (pp): −0.2
    - Prediction Error (pp): 0.0
- The cross‑country elasticity derived from 41 economies reproduces China’s ten‑point swing to within one‑tenth of a percentage point.
- Empirical narrative for China:
  - 2002–2007: national saving rose from 38.8 to 48.5 percent of GDP (a 9.7 percentage‑point increase); corporate profits rose from roughly 5 percent of GDP in 2002 to over 12 percent by 2007.
  - After 2007: real appreciation compressed local‑currency value of exports; industrial profits fell from their 2007 peak; national saving moderated.

### Natural experiment: Argentina’s 2002 devaluation (Section 6.2)
- The convertibility collapse in early January 2002 led the peso to depreciate by roughly 75 percent in real terms within six months.
- Under dominant‑currency pricing, dollar export prices changed little, but exporters’ receipts in pesos multiplied almost overnight.
- Observed outcomes:
  - Real local‑currency export income per capita rose from index 100 in 2001 to roughly 250 by 2003 (a 150 percent increase in two years).
  - National saving rate jumped from 17 percent of GDP in 2001 to 25.9 percent in 2002—an 8.9 percentage‑point increase within a single year.
- Three validating features:
  - Immediate response: saving rose in the same year as the devaluation, consistent with a profitability channel through current‑income distribution.
  - Quantities barely changed: main shock was the surge in local‑currency value per unit exported.
  - Persistence mirrored exchange‑rate behavior: saving and local‑currency export income remained elevated while the real exchange rate remained depreciated; both declined when appreciation resumed after 2007.

### Comparative policy episodes: Peru versus Brazil (Section 6.3)
- Both countries faced similar external commodity price tailwinds in the 2000s but diverged due to exchange‑rate and fiscal policy differences.
- Peru:
  - Maintained broadly stable real exchange rate and conservative fiscal stance.
  - National saving rate climbed from about 17 percent of GDP in 2002 to 29 percent by 2008.
  - Investment followed with a lag, concentrated in tradable sectors, financed largely through retained earnings.
- Brazil:
  - Experienced substantial real appreciation—around 64 percent between 2003 and 2011.
  - Procyclical fiscal expansion absorbed much of the windfall.
  - National saving rate remained near 20 percent of GDP; investment concentrated in nontradables and financed more through credit expansion and capital inflows.
  - Exchange rate numeric example: the exchange rate went from 100 in 2002 to 36 in 2011.
- Sectoral implications:
  - Peru: tradable industries sustained investment and employment growth.
  - Brazil: manufacturing’s share of exports fell from about 85 percent in the early 2000s to roughly 50 percent by 2020, consistent with weaker tradable profitability and a Dutch‑disease pattern operating through margin dynamics.

### Why saving tracks real local‑currency income (Section 6.4)
- Saving responds specifically to export income measured in real local currency (X_LC), not to dollar export income (X_USD) or overall GDP growth.
- Joint regression results (column 4 of Table 6.2):
  - Coefficient on ΔX_LC: 0.29 (t‑statistic 9.1)
  - Coefficient on ΔX_USD: −0.01 (t‑statistic −0.3, insignificant)
- When X_LC and real GDP growth are included together (column 5), coefficient on X_LC remains 0.25 while GDP growth falls to 0.04.
- Interpretation under dominant‑currency pricing:
  - Dollar export income reflects world‑market value but not domestic purchasing power.
  - Real depreciation with stable dollar receipts raises local‑currency profitability and saving even without higher volumes or prices.
  - Real appreciation can leave dollar receipts higher while exporters’ local‑currency margins and national saving do not increase.
- Fiscal restraint amplifies the saving response by preventing windfall absorption through public spending.

*Source: wpiea2026009-source-pdf - 5.2  The virtuous cycle.*

### 6.5  Timing, Reverse Causality, and Direction of Effect

### 6.5 Timing, Reverse Causality, and Direction of Effect

### Timing and identification of reverse causality
- The supply-side channel that would generate reverse causality is: higher saving → higher investment → expanded tradable-sector capacity → higher export volumes and local-currency export income. The chapter stresses this channel operates over extended horizons, not within a single five-year period.
- Empirical evidence rejects a lagged saving→export-income pathway:
  - Five-year changes in X_LC and the saving rate for China, Peru, and Brazil move closely together with correlations of 0.87, 0.94, and 0.76, respectively.
  - Distributed-lag regression: when the five-year-lagged change in X_LC is added to the baseline specification, the contemporaneous coefficient remains 0.27 (t = 12.3) while the lagged term is statistically zero (−0.00, t = −0.01). The R2 is unchanged at 0.33.
- Conclusion: saving responds to current changes in export profitability, not to export income from five years earlier; contemporaneous timing rules out reverse causality through slow capacity expansion.

### Evidence on the investment-transmission channel
- Cross-country panel relationship between saving and investment:
  - A one-percentage-point-of-GDP increase in national saving is associated with a 0.45-percentage-point rise in investment (R2 = 0.17).
- Relationship from investment to export income:
  - Regressing the five-year change in real local-currency export income (as a percent of five-year-lagged GDP) on the five-year change in the investment-to-GDP ratio yields an R2 near zero (Figure 6.2).
  - Figure 6.2 reports the line y = 7.44 + 0.49x with R² = 0.06 for the plotted observations, but the text emphasizes that investment explains almost none of the variation in export income over the relevant horizon and that countries with large export booms lie off the regression line.
- Interpretation: variations in saving explain only part of the variation in investment, and investment explains almost none of the variation in export income over five-year intervals—evidence inconsistent with a saving→investment→export-income causal chain.

### Natural experiments and contemporaneous responses
- Argentina 2002:
  - The 2002 devaluation, triggered by financial collapse unrelated to prior saving, produced an immediate surge in X_LC within the same year.
  - National saving rate jumped from 17 percent of GDP in 2001 to 26 percent in 2002.
  - The response was contemporaneous, not multi-year, inconsistent with a capacity-expansion transmission.
- China 2002–2007:
  - Exchange-rate stability achieved by reserve accumulation and capital controls prevented appreciation despite rising saving; stable exchange rates enabled pass-through from dollar export receipts to local-currency profitability rather than being a consequence of saving dynamics.

### Mechanism: profitability under dominant-currency pricing and policy transmission
- Under dominant-currency pricing (DCP), exchange-rate movements immediately alter exporters’ local-currency margins; devaluation or stable rates during export booms raise profits, retained earnings, and saving contemporaneously.
- Exchange-rate and fiscal policies jointly determine how dollar export receipts translate into local-currency profitability and national saving:
  - When currencies remain stable and fiscal balances are maintained, export windfalls accrue to producers and translate into higher saving.
  - When currencies appreciate and governments expand spending, windfalls are absorbed through higher consumption.
- The estimated elasticity reported in the chapter is 0.28; it is interpreted as an average effect across diverse policy regimes rather than a universal constant.
- Policy heterogeneity (corporate retention rates, fiscal absorption propensities, household saving behavior) explains divergent outcomes across episodes; the profitability mechanism is robust across 42 countries and eight five-year periods.

### Summary: multiple lines of evidence validating the profitability mechanism
Five complementary lines of evidence support the direction of effect from export profitability (measured in local currency) to national saving:
- Out-of-sample prediction: a coefficient estimated from 41 countries predicts China’s ten-percentage-point saving surge and subsequent reversal to within 0.3 percentage points.
- Natural experiment: Argentina’s 2002 devaluation produced an immediate surge in X_LC and a contemporaneous doubling of the saving rate.
- Comparative policy episodes: Peru and Brazil faced identical external commodity booms but divergent exchange-rate and fiscal policies produced divergent saving outcomes (Peru: stable exchange rate and fiscal restraint → high saving; Brazil: appreciation and fiscal expansion → saving nearly unchanged).
- Differential responses to export income measures: saving responds strongly to local-currency export income (X_LC) but weakly to dollar export income; when both measures enter jointly, only X_LC remains significant.
- Contemporaneous timing: export income and saving move together within five-year periods with no lags, ruling out reverse causality through investment and capacity expansion.

*Source: 6.5 Timing, Reverse Causality, and Direction of Effect (extracted from the provided IMF chapter).*

### Bibliography

### Bibliography

### Key cited works
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- Amsden, Alice H. (1989), Asia’s next giant: South korea and late industrialization. Oxford University Press.
- Berman, Nicolas, Philippe Martin, and Thierry Mayer (2012), “How do different exporters react to exchange rate changes?” Quarterly Journal of Economics, 127, 437–492.
- Bernanke, Ben S. (2005), “The global saving glut and the U.S. current account deficit.” Brookings Papers on Economic Activity, 2005, 67–123. Publisher: Brookings Institution Press.
- Corden, W. Max and J. Peter Neary (1982), “Booming sector and de-industrialisation in a small open economy.” Economic Journal, 92, 825–848.
- Frohm, Erik (2021), “Dominant currencies and the export supply channel.” ECB Working Paper Series 2580, European Central Bank, Frankfurt am Main.
- Gao, Qin, Sui Yang, Fuhua Zhai, and Yake Wang (2017), “Social policy reforms and economic distances in china, 2002–2013.” CHCP Working Paper 2017-22, Centre for Human Capital and Productivity (CHCP), The University of Western Ontario, London, Ontario.
- Gelb, Alan H (1988), Oil windfalls: Blessing or curse? Oxford university press.
- Goldberg, Linda S. and Cedric Tille (2008), “Vehicle currency use in international trade.” Journal of International Economics, 76, 177–192.
- Gopinath, Gita (2015), “The international price system.” In Handbook of international economics, vol. 4 (Gita Gopinath, Elhanan Helpman, and Kenneth Rogoff, eds.), 379–436, Elsevier.
- Gopinath, Gita, Emine Boz, Camila Casas, Federico J. Díez, Pierre-Olivier Gourinchas, and Mikkel Plagborg-Møller (2020), “Dominant Currency Paradigm.” American Economic Review, 110, 677–719.
- Gopinath, Gita, Oleg Itskhoki, and Roberto Rigobon (2010), “Currency choice and exchange rate pass-through.” American Economic Review, 100, 304–336.
- Gopinath, Gita and Jeremy C. Stein (2018), “Banking, trade, and the making of a dominant currency.” Quarterly Journal of Economics, 133, 753–810.
- Hausmann, Ricardo, Jason Hwang, and Dani Rodrik (2007), “What you export matters.” Journal of Economic Growth, 12, 1–25.
- Koike, Yasutaka and Takumi Mori (2025), “Productivity and misallocation dynamics under dominant currency paradigm.”
- Krugman, Paul (1987), “The narrow moving band, the dutch disease, and the competitive consequences of mrs. Thatcher: Notes on trade in the presence of dynamic scale economies.” Journal of Development Economics, 27, 41–55.
- Lin, Karen Jingrong, Xiaoyan Lu, Junsheng Zhang, and Ying Zheng (2020), “State-owned enterprises in China: A review of 40 years of research and practice.” China Journal of Accounting Research, 13, 31–55.
- Nookhwun, Nuwat, Jettawat Pattararangrong, and Phurichai Rungcharoenkitkul (2025), “Exchange rate effects on firm performance: a NICER approach.” BIS Working Papers 1266.
- Obstfeld, Maurice (1982), “Aggregate spending and the terms of trade: Is there a Laursen-Metzler effect?” The Quarterly Journal of Economics, 97, 251–270. Publisher: MIT Press.
- Restuccia, Diego and Richard Rogerson (2017), “The causes and costs of misallocation.” Journal of Economic Perspectives, 31, 151–174.
- Rodrik, Dani (1995), “Getting interventions right: How south korea and taiwan grew rich.” Economic Policy, 10, 53–107.
- Rodrik, Dani (2008), “The real exchange rate and economic growth.” Brookings Papers on Economic Activity, 39, 365–412.
- Xu, Guangdong and Michael Faure (2019), “Financial Repression in China: Short-Term Growth But Long-Term Crisis.” Loyola of Los Angeles International and Comparative Law Review, 42, 1–40.

### Appendix A — Data and Construction of Core Variables
- Data sources:
  - Annual national accounts and international databases, including the UN National Accounts and the World Bank’s World Development Indicators (WDI), provide time series on exports, consumption, GDP, prices, exchange rates, and population.
  - Exports, consumption, and GDP are obtained from the UN National Accounts in local currency and U.S. dollars, and in both nominal and constant (real) terms.
  - Population data are taken from the WDI.
- Price and deflator construction:
  - Consumer price indices (CPIs) are constructed as the ratio of nominal to constant consumer expenditure from the UN National Accounts.
  - Export price indices are the ratio of nominal to real exports.
  - The U.S. CPI, P_US_t, is constructed in the same way.
- Export income measures (exact formulas preserved):
  - Real local-currency export income:
    - X_LC_t = X_LC,nom_t / P_t. (A.1)
  - Real dollar export income:
    - X_USD_t = X_USD,nom_t / P_US_t. (A.2)
  - P_t and P_US_t denote the domestic and U.S. consumer price indices, respectively.
  - Per-capita export income: divide X_LC_t and X_USD_t by population from the WDI.
- Exchange rates (exact formulas preserved):
  - Nominal exchange rate S_t (domestic currency per U.S. dollar):
    - S_t = GDP_LC,nom_t / GDP_USD,nom_t. (A.3)
  - CPI-based real exchange rate:
    - R_t = S_t * P_US_t / P_t. (A.4)
  - Note: construction corresponds to a consumption-deflator-based real exchange rate.

### Appendix B — Additional Data Sources and Series Codes (selected)
- World Bank (WDI) series codes:
  - Saving-to-GDP ratio: NY.GDS.TOTL.ZS.
  - Investment-to-GDP ratio: NE.GDI.TOTL.ZS.
  - GDP per capita, PPP (relative to U.S.): NY.GDP.PCAP.PP.KD.
  - Price level (relative to U.S.): PA.NUS.PPPC.RF.
- Other sources and specific series/codes are listed for variables used in figures and tables (UN National Accounts, IMF WEO database, Haver, CEIC, OECD TiVA).

### Appendix C — List of countries included (regressions in section 5)
- Africa: Egypt, Morocco, South Africa.
- Asia: Bangladesh, China, India, Indonesia, Israel, Japan, Pakistan, Philippines, Korea, Thailand, Turkey.
- Europe: Austria, Belgium, Czechia, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Poland, Portugal, Romania, Spain, Sweden, Switzerland, United Kingdom.
- North America: Canada, Mexico, United States.
- Oceania: Australia, New Zealand.
- South America: Argentina, Brazil, Chile, Colombia, Peru.

### Appendix D — The Profitability Channel under Dominant-Currency Pricing
- Core mechanism:
  - Under dominant-currency pricing (DCP), emerging-market exports are typically priced in dollars; exporters receive dollar revenues determined by export quantities and the world price in dollars.
  - Whether dollar windfalls convert into higher real local-currency income and profitability depends on exchange-rate behavior:
    - If the exchange rate is stable, dollar receipts largely convert one-for-one into higher local-currency export income and wider margins.
    - If the exchange rate appreciates, dollar receipts convert into fewer units of local currency and local-currency profitability rises much less.
  - Exchange-rate movements thus function as a distribution mechanism allocating export windfalls between exporters (higher margins when exchange rate is stable) and consumers (cheaper imports when exchange rate appreciates).
- Implications for saving:
  - Firms typically save a large share of additional income through retained earnings; households consume a larger share.
  - When exchange rate is stable during a dollar export boom, income shifts toward high-saving firms, raising the national saving rate.
  - When the exchange rate appreciates, a larger share goes to low-saving consumers, producing a weaker saving response.
  - This mechanism concerns the saving rate (changes), not merely the level of saving.
- Distinction from other pricing regimes:
  - Producer-currency pricing (PCP): adjustment occurs primarily through quantities rather than margins.
  - Local-currency pricing (LCP): pass-through depends on bilateral exchange-rate movements and is not anchored in the dollar.
  - The empirical pattern—saving tracking real local-currency export income rather than dollar export receipts—is consistent with a DCP profitability channel.
- Spillovers:
  - Higher margins raise corporate saving via retained earnings and may affect other sectors via employment, wages, and spillovers.
  - Fiscal policy can influence how much of the windfall is saved versus absorbed.

### Appendix E — Dutch Disease as a Profitability Mechanism under DCP
- Conceptual link:
  - Under DCP, export prices are sticky in dollars; real-exchange-rate movements primarily affect exporters’ local-currency profitability rather than export quantities.
  - The profitability channel links export booms to saving and investment and explains sectoral reallocations described as “Dutch disease.”
  - Real appreciation compresses local-currency margins in tradables, weakening investment incentives in tradables and shifting activity toward nontradables.
- Brazil (2000s commodity boom):
  - Profitability: Manufacturing exporters faced weaker local-currency margins despite booming world prices.
  - Sectoral outcomes: Manufacturing’s share in total exports fell from about 85 percent in the early 2000s to around 50 percent by the 2020s, with steep declines in autos and machinery.
  - Interpretation: Appreciation shifted part of the commodity windfall toward domestic purchasing power and absorption, while eroding profitability and investment incentives in manufacturing.
- Peru (contrast):
  - Profitability: Real local-currency export income increased alongside dollar export prices, limiting margin compression in tradables.
  - Sectoral outcomes: Manufacturing and agricultural exports continued to expand, while mining investment surged.
  - Interpretation: More moderate real-exchange-rate movements preserved profitability and supported broader-based export growth.
- Synthesis:
  - Under DCP, “Dutch disease” can be viewed as a sectoral manifestation of the profitability channel linking export booms to saving and investment.
  - Larger appreciations compress local-currency margins in tradables and can be associated with deindustrialization and weaker tradable investment; more moderate movements support broader-based export growth.
- Note: Figures E1–E3 illustrate pass-through differences for Brazil and Peru (per-capita export receipts in US dollars and local currency, share of manufacturing in exports, vehicle production and registrations).

### Appendix F — Alternative Explanations for China’s Saving Surge
- Observed pattern:
  - China’s national saving-to-GDP ratio rose sharply in the early 2000s and declined after 2007.
- Structural explanations evaluated:
  - Financial repression:
    - Between 2000 and 2007, key features of financial repression changed little; interest-rate liberalization stalled after 2004.
    - Slow-moving institutional conditions are inconsistent with the rapid run-up in saving during 2000–2007.
  - State-owned enterprises (SOEs):
    - The relative importance of SOEs did not rise over this period; SASAC in 2003 unified existing ownership rather than enlarging it.
    - SOE share in output and assets remained broadly stable.
  - Social safety nets:
    - Coverage expanded between 2002 and 2007; reforms broadened social insurance and assistance programs.
    - An erosion of safety nets cannot explain the timing of the saving surge.
- Profitability channel (DCP) explanation:
  - With a broadly stable exchange rate in the early 2000s and rising dollar export prices, local-currency export income—corporate profits and retained earnings—surged, lifting national saving.
  - After 2007, real appreciation compressed margins and saving fell.
  - This mechanism matches both the speed and magnitude of observed movements.
- Cross-country validation:
  - Panel evidence across 42 economies shows five-year changes in real local-currency export income systematically predict five-year changes in national saving rates.
  - Dollar-measured export income and real GDP growth have much weaker explanatory power.
  - Excluding China yields an out-of-sample prediction that closely reproduces China’s 2002–07 saving surge and its 2007–12 reversal.
- Conclusion:
  - Structural factors explain why China’s saving rate is high but are too inert to account for the sharp cycle in the 2000s.
  - The DCP profitability channel, responsive to exchange-rate movements, explains the timing and magnitude of China’s saving surge and decline.

### Appendix G — Robustness: Adjusting for Imported-Input Intensity
- Purpose:
  - Verify that main results are robust to accounting for imported-input intensity (domestic-value-added, DVA, share in exports).
- Findings:
  - Re-estimating panel regressions for the smaller sample with available DVA data yields coefficients virtually identical to baseline full-sample regression.
  - Introducing DVA-weighted regressors (DVA share * Δ5 local-currency export income and DVA share * Δ5 dollar export income) produces mechanically larger coefficients for DVA-weighted local-currency export income (scaling by a ratio between zero and one reduces variance), but the economic result is unchanged: saving responds to the portion of export income accruing to domestic producers.
- Data note:
  - Data on the share of foreign value added in gross exports are available from the OECD for the years 1995-2022.
- Selected regression results (exact values preserved):
  - Table G.1 (restricted sample, excluding HUN, MYS, SVK):
    - Δ5 Local-currency export income coefficient: 0.253*** (column 1), with Observations = 245, R2 = 0.313, Adjusted R2 = 0.310.
    - Δ5 Dollar export income coefficient: 0.097*** (column 2).
    - Δ5 Real GDP per capita (USD) coefficient: 0.085*** (column 3).
    - Constants and significance levels as reported.
  - Table G.2 (full sample, using DVA-weighted variables):
    - DVA share * Δ5 Local-currency export income coefficient: 0.327*** (column 1), with Observations = 257, R2 = 0.340, Adjusted R2 = 0.338.
    - DVA share * Δ5 Dollar export income coefficient: 0.135*** (column 2).
    - Δ5 Real GDP per capita coefficient: 0.085*** (column 3).
    - Constants and significance levels as reported.

*Content adapted from the PDF chapter: Bibliography and Appendices A–G.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2026/english/wpiea2026009-source-pdf.pdf_