Exchange Rate Parity for Trade and Development: Theory, Tests, and Case Studies

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November 2005



Exchange Rate Parity for Trade and Development: Theory, Tests, and Case Studies extends recent theories of incomplete markets to investigate empirically the appropriate balance between market and state in trade relations between developed and developing countries. Yotopoulos concludes that government intervention in foreign exchange and trade is necessary in developing countries in the early stages of development and inevitably decreases as development progresses. More specifically, free currency markets are shown to have an inherent distortion that leads under-developed countries to misallocate resources systematically. Rationing of foreign exchange prevents a "soft-currency distortion" that commonly afflicts developing countries and can turn comparative-advantage trade into competitive-devaluation trade, with severe losses of income and welfare. It is found that the level of under-development narrowly circumscribes and conditions the extent to which free-market, free-trade, laissez-faire policies can be beneficial to developing countries, which is contrary to the mainstream policy paradigm as currently applied. The analysis and tests draw on empirical research in 70 countries to confirm the usefulness and validity of the theoretical framework. The book concludes with extended case studies of Japan, Taiwan, the Philippines, and Uruguay and with relevant policy recommendations.


Part I. A Review of the Terrain: 1. Introduction; 2. Trade and development: the contours of the landscape; 3. Incomplete markets and the 'New Development Economics'; Part II. Theory and Empirical Analysis: 4. Market incompleteness in an open-economy LDC; 5. The relationship between real and nominal exchange rates; 6. Empirical investigation of real exchange rates: tradability and relative prices; 7. An endogenous growth model of incomplete markets in foreign exchange; 8. Are devaluations possibly contractionary? A quasi-Australian model with tradables and nontradables; Part III. Successes and Failures in Development: Good/Bad Economics and Governance; 9. Japan: overvaluation without rent-seeking; 10. The Philippines: failure in policy and politics; 11. Financial integration and the refractory role of intervention: Uruguay and Taiwan; 12. Summary, conclusions and policy recommendations; Bibliography.


'I thoroughly enjoyed reading this book and found it most stimulating. What a pleasure it is to read careful empirical work by an author who worries about what his data mean ... I find the basic analysis interesting and quite convincing in positive terms.' Alan Winters, International Trade Division, The World Bank
EAN: 9780521022620
ISBN: 0521022622
Untertitel: Revised. Sprache: Englisch.
Erscheinungsdatum: November 2005
Seitenanzahl: 344 Seiten
Format: kartoniert
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