Stabilization and Economic Growth in Developing Countries (Invited Lecture)

1987 ◽  
Vol 26 (3) ◽  
pp. 341-361
Author(s):  
Mohsin S. Khan
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Aggregate Demand ◽  
Domestic Demand ◽  
Balance Of Payments ◽  
Fiscal Policies ◽  
Demand Side ◽  
Aggregate Level

The need for stabilization typically arises when a country experiences an imbalance between domestic aggregate demand and aggregate supply, which is reflected in a worsening of its external payments position and an increase in the rate of inflation. To combat these twin problems, policies are required that restrain domestic demand and, at the same time, expand the production of tradeable goods, thereby easing the balance of payments constraint. Policies to influence the aggregate level or rate of growth of domestic demand and absorption, generally labelled as "demand side policies", include the whole range of monetary and fiscal measures, while the shifting of resources towards the production of tradeables involves altering the country's real exchange rate through devaluation. In general, monetary and fiscal policies and exchange rate action are considered an integral, if not an indispensable component of any stabilization programme.

scholarly journals Real Exchange Rate, Effective Demand, and Economic Growth

2019 ◽  
Vol 4 (1) ◽  
pp. 1-31
Author(s):  
Francisco Martínez-Hernández
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Aggregate Demand ◽  
Aggregate Consumption ◽  
Export Sector ◽  
Short Run ◽  
Main Components ◽  
Stock Flow

This paper seeks to assess the effects of an undervalued currency on economic growth. Based on a reformulation of Rodrik’s undervaluation index, our econometric results suggest that real exchange rate undervaluation has, to differing degrees, been able to enhance the economic growth of developed and developing countries. Nevertheless, when we disaggregate the main components of aggregate demand for different clusters of developed and developing countries using the Stock Flow Consistent approach (SFC), we find that in general, an undervalued currency has expansionary and contractionary effects in the short-run, specifically via the export sector and the level of aggregate consumption, respectively. This paper also estimates the effects of an undervalued currency on the level of investment and the trade balance.

scholarly journals New Structuralism and the balance-of-payments constraint

2019 ◽  
Vol 7 (4) ◽  
pp. 517-536 ◽  
Author(s):  
Gabriel Porcile ◽  
Guiliano Toshiro Yajima
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Income Elasticity ◽  
Aggregate Demand ◽  
Positive Function ◽  
Balance Of Payments ◽  
Long Run ◽  
Innovation And Diffusion ◽  
International Convergence ◽  
Pattern Of Specialization

Structuralists and Post-Keynesians share the perspective that in the long run economic growth is shaped by the income elasticity of exports and imports, and that such elasticities are a positive function of the degree of diversification and technological intensity of the pattern of specialization. Since the mid 1970s, New Structuralists began to stress the role of two sets of variables in driving the pattern of specialization: a stable and competitive real exchange rate, and the relative intensity of innovation and diffusion of technology in the center and periphery. In this paper we modify the balance-of-payments-constrained growth model to include these two sets of variables. The model provides a mechanism that ensures the validity of the original Thirlwall perspective, namely that adjustment to the balance-of-payments-constrained equilibrium takes place through changes in the rate of growth of aggregate demand rather than through changes in relative prices. In addition, it shows that a macroeconomic policy aimed at sustaining a competitive real exchange rate is a necessary complement to an active industrial policy for fostering international convergence.

Managing real exchange rate for economic growth: Empirical evidences from developing countries

2018 ◽  
Vol 41 (4) ◽  
pp. 598-619
Author(s):  
Lúcio Otávio Seixas Barbosa ◽  
Frederico G. Jayme ◽  
Fabricio José Missio
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Real Exchange Rate

scholarly journals Aggregate demand and the slowdown of Brazilian economic growth in 2011-2014

Nova Economia ◽  
2015 ◽  
Vol 25 (spe) ◽  
pp. 803-833 ◽  
Author(s):  
Franklin Serrano ◽  
Ricardo Summa
Keyword(s):  
Economic Growth ◽  
Aggregate Demand ◽  
Domestic Demand ◽  
Balance Of Payments ◽  
Sharp Decline ◽  
Sharp Fall ◽  
Financial Conditions ◽  
External Constraint ◽  
The Government ◽  
Made In

Abstract: This paper looks in detail at the sharp slowdown in the Brazilian economy for the years 2011-2014. We argue that the slowdown is overwhelmingly the result of a sharp decline in domestic demand, rather than a fall in exports and even less any change in external financial conditions. The sharp fall in domestic demand, in turn, is shown to be a result of deliberate policy decisions made by the government and was not necessary, i.e., it was not made in response to some external constraint such as a balance-of-payments problem.

scholarly journals Real Exchange Rate and Competitiveness of National Economy

2019 ◽  
Vol 11 (2) ◽  
pp. 91-106
Author(s):  
A. V. Bozhechkova ◽  
D. V. Petrova
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Method Of Moments ◽  
Empirical Investigation ◽  
Raw Materials ◽  
Generalized Method Of Moments ◽  
Factor Productivity ◽  
Cis Countries

The article presents the results of empirical investigation devoted to assessing the degree of impact of real exchange rate on economic growth and the dynamics of total factor productivity for various groups of countries, including the CIS countries, countries exporting raw materials, developing countries targeting inflation, in the period 1990-2017 years, using the system generalized method of moments.

Carry Trade, Exchange Rates, and the Balance-of-Payments

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Nelson H. Barbosa-Filho
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Foreign Debt ◽  
Balance Of Payments ◽  
Forward Rate ◽  
Spot Rate ◽  
Financial Constraint ◽  
Carry Trade ◽  
The Real

Abstract This paper presents a partial equilibrium model that integrates interest rate arbitrage with the balance-of-payments constraint to determine the real exchange rate. The sequential logic is the following: (i) carry-trade determines the term premium, with the spot rate showing greater volatility than the forward rate, (ii) uncovered interest rate parity determines the spot rate based on the real exchange rate consistent with a financial constraint, defined as a stable ratio of foreign reserves to foreign debt; and (iii) the trade balance consistent with the financial constraint determines the long-run real exchange rate for a given ratio of domestic to foreign income.

scholarly journals The Impact of Real Exchange Rate Undervaluation on Economic Growth: Evidence from Panel Cointegration Approach

2020 ◽  
Author(s):  
Mehdi Seraj ◽  
Cagay Coskuner ◽  
Seyi Saint Akadiri ◽  
Negar Bahadori
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Developing Economies ◽  
Panel Cointegration ◽  
Least Square ◽  
Ordinary Least Square ◽  
Developed Economies ◽  
Periodic Data ◽  
The Impact

Abstract This study revisited Dani Rodrik (2008) work on real exchange rate undervaluation and economic growth by using the Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS). This research, to the best of authors' knowledge, is the first to use FMOLS and DOLS approach to empirically evaluate Rodrik work on the real exchange rate and economic growth using a Panel periodic data (six sets of five years) of 82 countries throughout 1990 to 2018. We used the Balassa Samuelson method to estimate the predicted real exchange rate and real exchange rate undervaluation. Finally, the study is in support of Rodrik conclusion that, real exchange undervaluation has a significant impact on the economic growth of the developing economies and statistically insignificant in the developed economies.

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