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Devaluation, Relative Prices, and International Trade: Evidence From Developing Countries

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  • Ms. Carmen Reinhart

Abstract

Devaluation is an integral part of adjustment in many developing countries, particularly relied upon by countries facing large external imbalances. A devaluation can only reduce trade imbalances if it translates to a real devaluation and if trade flows respond to relative prices in a significant and predictable manner. However, a recent strand in the empirical trade literature has questioned the existence of a stable relationship between trade flows and its traditional determinants. This paper re-examines the relationship between relative prices and imports and exports in a sample of 12 developing countries.

Suggested Citation

  • Ms. Carmen Reinhart, 1994. "Devaluation, Relative Prices, and International Trade: Evidence From Developing Countries," IMF Working Papers 1994/140, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1994/140
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    More about this item

    Keywords

    WP; developing country export; relative price; income elasticity; utility function; import demand; Trade balance; Imports; Exports; Personal income; Price elasticity; Africa; Asia and Pacific;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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