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Social Exchange Rates, Mercosur And Economic Development

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  • Ferreira, Leo da Rocha

Abstract

The path towards a common market requires an alignment of macroeconomic policies. In the case of the MERCOSUL member countries, the observed disparities in the exchange, tax and monetary policies constitute major imbalances and impede future international economic integration. Apart from residual differences on trade policies among the member countries, macroeconomic policy disparities also reflect populism and the resulting lack of political will and mutual commitment with the regional goals. There is general professional agreement that, under a fixed exchange rate regimen with trade protection, the social exchange rate exceeds the official and/or market rate. Accordingly, the adoption of an exchange regimen with flexible exchange rates certeris paribus should significantly reduce the difference between the official exchange or market rate and the social exchange rate. The general purpose of this paper is to evaluate the impact of the changes of exchange policies in Brazil against the backdrop of the MERCOSUR economic integration process. To do this, an appropriate measure for the social exchange rate is developed and estimated. This measure also has an immediate practical relevance, as it is suitable for use in the economic analysis of investment projects in Brazil. By using a model of opportunity cost for foreign exchange to estimate the social exchange rate, the study concludes that there was no relevant alteration in the order of economic activities according to the degree of effective protection. The exchange policy changes effects will only be felt in the medium and long run, but their reflections can already be clearly perceived through the declining tendency of the social exchange rate.

Suggested Citation

  • Ferreira, Leo da Rocha, 2003. "Social Exchange Rates, Mercosur And Economic Development," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25880, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae03:25880
    DOI: 10.22004/ag.econ.25880
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    References listed on IDEAS

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    1. Edmar Bacha & Lance Taylor, 1971. "Foreign Exchange Shadow Prices: A Critical Review of Current Theories," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(2), pages 197-224.
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