There may be a causal link from exchange rates to productivity, as well as (or instead of) the opposite direction of causation (from productivity to RERs) given by the BS-hypothesis model. Michael E. Porter's The Competitive Advantage of Nations says that currency depreciations can reduce growth, and that 'overvalued' currencies can contribute to domestic productivity growth by 'forcing' efficiency improvements in the tradables sector (by exposing it to international competition at unfavourable terms of trade). In fact, Singapore gave "Competitive Appreciation" as the official reason for the high SGD policy. (Lu & Yu 1999). Other mechanisms through which RERs can affect productivity growth have been advanced, such as the idea that structural transitions caused by exchange rate volatility have a disruptive effect on the real economy. There is some econometric evidence that the causality from exchange rates to productivity is more significant than the reverse, i.e. the BS-effect. (For instance, Strauss, Jack (1999), "Productivity Differentials, the Relative Price of Nontradables and Real Exchange Rates", Journal of International Money and Finance, 18 (3): 383–409, doi:10.1016/S0261-5606(99)85003-7.)
