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

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

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Pan A. Yotopoulos
Cambridge University Press
Edition: Illustrated, 10/27/1995
EAN 9780521482165, ISBN10: 052148216X

Hardcover, 344 pages, 22.9 x 15.2 x 2.4 cm
Language: English

This book extends recent theories of incomplete markets to investigate empirically the appropriate balance between the market and the state in the trade relations between developed and developing countries. The conclusion is that in an ideal world government intervention in foreign exchange and trade is necessary in developing countries in the early stages and inevitably decreases as development occurs. 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. Yotopoulos finds that the level of underdevelopment narrowly circumscribes and conditions the extent to which free-market, free-trade, laissez-faire can be beneficial, contrary to the mainstream policy paradigm as currently applied. The analysis and tests draw on empirical research from seventy countries and four extended country studies to confirm the usefulness and validity of the theoretical framework.

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

‘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