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A General Equilibrium Analysis Of Foreign Exchange Shortages In A Developing Economy

In: Modeling Developing Countries' Policies in General Equilibrium

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  • Kemal Dervis
  • Jaime de Melo
  • Sherman Robinson

Abstract

An acute shortage of foreign exchange has been a recurring problem for many developing economies. In the development planning literature, the problem is usually discussed within the framework of the ‘two-gap’ or ‘multi-gap’ models developed and elaborated during the sixties. These models assume fixed input–output coefficients and limited possibilities for export expansion. As a result, a foreign exchange shortage becomes an almost absolute constraint on growth in that even if domestic savings were available in sufficient amounts to allow an increase in investment, the absence of the required complementary foreign exchange makes such an increase impossible. The neoclassical answer to this ‘structuralist’ view has always been to stress the role of relative prices and, in particular, exchange rate adjustment as a means of overcoming any foreign exchange shortage. Stated simply, this view treats the alleged foreign exchange gap as only reflecting an overvalued real exchange rate. If the exchange rate is allowed to clear the foreign exchange market, there can be no foreign exchange gap…

Suggested Citation

  • Kemal Dervis & Jaime de Melo & Sherman Robinson, 2015. "A General Equilibrium Analysis Of Foreign Exchange Shortages In A Developing Economy," World Scientific Book Chapters,in: Modeling Developing Countries' Policies in General Equilibrium, chapter 4, pages 71-86 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789814494816_0004
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    1. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Measuring distortions to agricultural incentives, revisited," World Trade Review, Cambridge University Press, vol. 7(04), pages 675-704, October.
    2. Kym Anderson, 2018. "From taxing to subsidizing farmers in China post-1978," China Agricultural Economic Review, Emerald Group Publishing, vol. 10(1), pages 36-47, February.
    3. Kym Anderson & Anna Strutt, 2016. "Impacts of Emerging Asia on African and Latin American Trade: Projections to 2030," The World Economy, Wiley Blackwell, vol. 39(2), pages 172-194, February.
    4. Javier Ferri & Antonio G. GÛmez-Plana & Joan MartÌn-Montaner, "undated". "International inmigration and mobility across sectors: an exploration of alternative scenarios for Spain," Studies on the Spanish Economy 124, FEDEA.
    5. Kym Anderson, 2013. "Agricultural price distortions: trends and volatility, past, and prospective," Agricultural Economics, International Association of Agricultural Economists, vol. 44(s1), pages 163-171, November.
    6. Anderson, Kym & Kurzweil, Marianne & Martin, William J. & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Methodology for Measuring Distortions to Agricultural Incentives," Agricultural Distortions Working Paper Series 48326, World Bank.
    7. Kym Anderson & Anna Strutt, 2012. "Agriculture and Food Security in Asia by 2030," Macroeconomics Working Papers 23309, East Asian Bureau of Economic Research.
    8. Gómez-Plana, Antonio G. & Latorre, María C., 2014. "When multinationals leave: A CGE analysis of the impact of divestments," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-41.
    9. Anderson, Kym, 2009. "Krueger/Schiff/Valdés Revisited: Agricultural Price and Trade Policy Reform in Developing Countries since 1960," CEPR Discussion Papers 7601, C.E.P.R. Discussion Papers.
    10. Adams, F. Gerard & Park, I., 1995. "Measuring the impact of AFTA: An application of a linked CGE system," Journal of Policy Modeling, Elsevier, vol. 17(4), pages 325-365, August.
    11. Joseph LiPuma & Scott Newbert & Jonathan Doh, 2013. "The effect of institutional quality on firm export performance in emerging economies: a contingency model of firm age and size," Small Business Economics, Springer, vol. 40(4), pages 817-841, May.
    12. Anderson, Kym & Croser, Johanna L. & Sandri, Damiano & Valenzuela, Ernesto, 2009. "Agricultural Distortion Patterns Since the 1950s: What Needs Explaining?," Agricultural Distortions Working Paper Series 50305, World Bank.
    13. Oscar Bajo-Rubio & Antonio G. GÛmez-Plana, "undated". "Reducing social contributions on unskilled labour as a way of fighting unemployment: An empirical evaluation for the case of Spain," Studies on the Spanish Economy 107, FEDEA.
    14. Bajo-Rubio, Oscar & Gomez-Plana, Antonio G., 2005. "Simulating the effects of the European Single Market: A CGE analysis for Spain," Journal of Policy Modeling, Elsevier, vol. 27(6), pages 689-709, September.
    15. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," OECD Economics Department Working Papers 70, OECD Publishing.
    16. Sébastien Dessus, 1991. "Plans d'ajustement et disponibilité des facteurs de production importés," Économie et Prévision, Programme National Persée, vol. 97(1), pages 127-132.
    17. Kym Anderson & Johan Swinnen, 2008. "Distortions to Agricultural Incentives in Europe's Transition Economies," World Bank Publications, The World Bank, number 6502, November.
    18. Antonio Gómez Gómez-Plana & Pedro Pascual Arzoz, 2011. "Fraude fiscal e IVA en España: incidencia en un modelo de equilibrio general," Hacienda Pública Española, IEF, vol. 199(4), pages 9-52, December.
    19. Óscar Bajo Rubio & Antonio Gómez Gómez-Plana, 2000. "The Role of Country Size and Returns to Scale in Empirical Assessments of Economic Integration: The Case of Spain," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0005, Departamento de Economía - Universidad Pública de Navarra.
    20. Antonio G. GÛmez-Plana & Oscar Bajo-Rubio, "undated". "Algunos efectos del mercado ˙nico europeo sobre la economÌa espanola: Un an·lisis a travÈs de un modelo de equilibrio general aplicado," Studies on the Spanish Economy 213, FEDEA.
    21. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2004. "Reducing Social Contributions for Unskilled Labor as a Way of Fighting Unemployment: An Empirical Evaluation for the Case of Spain," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(2), pages 160-160, August.

    More about this item

    Keywords

    Applied General Equilibrium Models; Trade Policy; Computable General Equilibrium; Archetypes;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F00 - International Economics - - General - - - General
    • F01 - International Economics - - General - - - Global Outlook
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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