Exchange rate misalignment and export diversification in developing countries

• Undervaluation does not foster manufactured export diversification.
• Undervaluation affects the share of manufactures in total exports.
• Robustness tests confirm.

The impact of exchange rate misalignment on export diversification in developing countries is highly debated and the empirical evidence is conflicting. However, no deep investigation of such an impact has been provided so far. This paper uses the different explanations to this lack of consensus to investigate the conditions under which misalignment could affect export diversification. While we found some support to the effect of undervaluation on the share of manufactures in total exports, no support is found for an impact of misalignment (neither over nor under valuation) on exports diversification within manufactures. The conclusion resists numerous robustness checks.