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Economic Integration, Sectoral Diversification, and Exchange Rate Policy in a Developing Economy

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  • Gabriel Srour
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    Abstract

    The paper develops a simple three-sector model of a developing country with nominal wage rigidity, in which one sector is thought of as the primary sector and the other two are sectors in which the country can diversify. The paper then analyzes the relationship between the market structure of the nonprimary sectors and equilibrium adjustments to shocks in the primary sector. In particular, the paper examines under what conditions the country should promote one nonprimary sector over another. Among other things, it argues that developing countries should promote those sectors that are more integrated with the outside world

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/60.

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    Length: 31
    Date of creation: 01 Apr 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/60

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    Related research

    Keywords: Developing countries; Economic models; Production; Prices; Trade; Price elasticity; Demand elasticity;

    This paper has been announced in the following NEP Reports:

    References

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    1. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
    2. C. John McDermott & Paul Cashin & Alasdair Scott, 1999. "Booms and Slumps in World Commodity Prices," IMF Working Papers 99/155, International Monetary Fund.
    3. Giancarlo Corsetti & Paolo Pesenti, 2002. "Self-Validating Optimum Currency Areas," NBER Working Papers 8783, National Bureau of Economic Research, Inc.
    4. Obstfeld, Maurice, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," Center for International and Development Economics Research, Working Paper Series qt6796n8s0, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    5. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability," IMF Working Papers 01/68, International Monetary Fund.
    6. David Bowman & Brian M. Doyle, 2003. "New Keynesian, open-economy models and their implications for monetary policy," International Finance Discussion Papers 762, Board of Governors of the Federal Reserve System (U.S.).
    7. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
    8. Malcolm D. Knight, 1998. "Developing Countries and the Globalization of Financial Markets," IMF Working Papers 98/105, International Monetary Fund.
    9. Hali J. Edison & Michael W. Klein & Luca Ricci & Torsten Sloek, 2002. "Capital Account Liberalization and Economic Performance: Survey and Synthesis," NBER Working Papers 9100, National Bureau of Economic Research, Inc.
    10. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
    11. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April.
    12. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
    13. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    14. Hong Liang & C. John McDermott & Paul Cashin, 1999. "How Persistent Are Shocks to World Commodity Prices?," IMF Working Papers 99/80, International Monetary Fund.
    15. Michael B. Devereux & Charles Engel, 1998. "Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange-Rate Regime," NBER Working Papers 6867, National Bureau of Economic Research, Inc.
    16. Knight, Malcolm, 1998. "Developing Countries and the Globalization of Financial Markets," World Development, Elsevier, vol. 26(7), pages 1185-1200, July.
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    Cited by:
    1. Gabriel Srour, 2006. "The Implications of Trade Barriers for Sectoral Diversification and Macroeconomic Stability in Developing Economies," IMF Working Papers 06/50, International Monetary Fund.

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