Currency exchange and competitiveness. The case of the footwear industry in León

Abstract

In economics international competitiveness mean the ability of the production supply of a country to maintain or increase their business in foreign markets. There are various elements, economic, social and political-administrative influencing such dynamic capacity. Monetary policy, for example, effectively intervenes in determining interest rates and, in conjunction with fiscal policy, facilitates a low inflation environment. In turn, fiscal policy alone plays a role in the development and management of a country's industrial growth as well as income redistribution, the latter crucial element in strengthening the internal market and the establishment of a balanced social development. In this study we analyze the evolution of the exchange rate of the Mexican peso and its impact on the balance of payments. We demonstrate that there has been a permanent policy of our monetary authorities that has maintained and exchange rate at which our currency has been overvalued, with a negative impact on our trade balance. We explain that the overvaluation has been the result of a policy of high interest rates in order to obtain and renegotiate the public debt. We note that although there is a decreasing tendency in overvaluation as an annual average, the exchange rate of our currency is subject to significant variations throughout the year. We focus, as a case study, in the impact that has had our overvalued currency in the footwear industry in our country and especially in Leon.