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The Implications of Trade Barriers for Sectoral Diversification and Macroeconomic Stability in Developing Economies

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  • Gabriel Srour
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    Abstract

    The paper examines the implications of lower trade barriers for sectoral diversification and macroeconomic stability in developing economies with a large primary goods sector. It shows that lower trade barriers can have ambiguous effects on macroeconomic stability. It shows also that diversification, in the form of equal distribution of resources between nonprimary sectors, may be counterproductive. In fact, investment in the nonprimary sector with lower trade barriers unambiguously enhances macroeconomic stability in a developing economy that is subject to substantial primary shocks.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18855
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/50.

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    Length: 26
    Date of creation: 01 Feb 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/50

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    Related research

    Keywords: Developing countries; Economic models; Export diversification; Trade restrictions; trade barriers; economic integration; exchange rate policy; elasticity of substitution; open economy; commodity prices; volume of trade; world prices; foreign trade; world market; international finance; trade shocks; domestic economy; domestic demand; political economy; domestic price; domestic consumption; exchange rates; globalization; trade openness; country of origin; trade theory; optimum currency areas; market liberalization; domestic goods; capital markets; world price; net exporter; aggregate consumption; net exports; terms of trade;

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    References

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    1. Maurice Obstfeld, 2003. "International Macroeconomics: Beyond the Mundell-Fleming Model," International Finance, EconWPA 0303006, EconWPA.
    2. Jordi Gali & Tommaso Monacelli, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," NBER Working Papers 8905, National Bureau of Economic Research, Inc.
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    5. Corsetti, Giancarlo & Pesenti, Paolo, 2002. "Self-Validating Optimum Currency Areas," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3220, C.E.P.R. Discussion Papers.
    6. 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.
    7. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, Elsevier, vol. 53(2), pages 421-444, April.
    8. 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.
    9. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    10. David Bowman & Brian M. Doyle, 2003. "New Keynesian, open-economy models and their implications for monetary policy," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 762, Board of Governors of the Federal Reserve System (U.S.).
    11. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices," IMF Working Papers, International Monetary Fund 01/68, International Monetary Fund.
    12. Francis E. Warnock, 1998. "Idiosyncratic tastes in a two-country optimizing model: implications ; of a standard presumption," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 631, Board of Governors of the Federal Reserve System (U.S.).
    13. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
    14. Gabriel Srour, 2004. "Economic Integration, Sectoral Diversification, and Exchange Rate Policy in a Developing Economy," IMF Working Papers, International Monetary Fund 04/60, International Monetary Fund.
    15. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
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    Cited by:
    1. KAMGNA, Severin Yves, 2007. "Diversification économique en Afrique centrale : Etats des lieux et enseignements
      [Economic diversification in central Africa]
      ," MPRA Paper 9602, University Library of Munich, Germany.

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