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Import Protection, Capital Inflows, and Real Exchange Rate Dynamics

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Abstract

This paper focuses on the effect of import protection on the response of the real exchange rate to capital flows. The central hypothesis is that barriers to imports blunt the expenditure and production shifting effects of changes in relative prices, and hence the ability of the real exchange rate to equilibrate the economy in response to international capital flows. Employing a cross-section approach, the study focuses on three broadly similar countries but with very different levels of protection: Argentina, Australia, and Canada. The empirical results are consistent with the central hypothesis.

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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VI (2003)
Issue (Month): (May)
Pages: 177-203

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Handle: RePEc:cem:jaecon:v:6:y:2003:n:1:p:177-203

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Keywords: import protection; real exchange rate;

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  1. Sebastian Edwards, 1987. "Exchange Rate Misalignment in Developing Countries," UCLA Economics Working Papers, UCLA Department of Economics 442, UCLA Department of Economics.
  2. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
  3. Larry A. Sjaastad, 1981. "La Reforma Arancelaria en Argentina. Implicancias y Consecuencias," CEMA Working Papers: Serie Documentos de Trabajo., Universidad del CEMA 27, Universidad del CEMA.
  4. McKinnon, Ronald I., 1982. "The order of economic liberalization: Lessons from Chile and Argentina," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 17(1), pages 159-186, January.
  5. Devereux, John & Connolly, Michael, 1996. "Commercial policy, the terms of trade and the real exchange rate revisited," Journal of Development Economics, Elsevier, Elsevier, vol. 50(1), pages 81-99, June.
  6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  7. Larry A. Sjaastad, 1998. "Why PPP Real Exchange Rates Mislead," Journal of Applied Economics, Universidad del CEMA, Universidad del CEMA, vol. 0, pages 179-207, November.
  8. Reinhart, Carmen & Khan, Mohsin, 1995. "Capital Flows in the APEC Region," MPRA Paper 8200, University Library of Munich, Germany.
  9. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  10. Rodriguez, Carlos Alfredo, 1989. "The external effects of public sector deficits," Policy Research Working Paper Series, The World Bank 299, The World Bank.
  11. Sjaastad, Larry A., 1998. "On exchange rates, nominal and real," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(3), pages 407-439, June.
  12. Larry A. Sjaastad, 1991. "Debt, Deficits, And Foreign Trade," Economic Papers, The Economic Society of Australia, The Economic Society of Australia, vol. 10(3), pages 64-75, 09.
  13. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
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Cited by:
  1. Kenneth W. Clements & Renee Fry, 2006. "Commodity Currencies and Currency Commodities," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 06-17, The University of Western Australia, Department of Economics.

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