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

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  • Gabriel Srour

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

Suggested Citation

  • Gabriel Srour, 2004. "Economic Integration, Sectoral Diversification, and Exchange Rate Policy in a Developing Economy," IMF Working Papers 04/60, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/60
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
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    4. Giancarlo Corsetti & Paolo Pesenti, 2002. "Self-validating optimum currency areas," Staff Reports 152, Federal Reserve Bank of New York.
    5. Malcolm D. Knight, 1998. "Developing Countries and the Globalization of Financial Markets," IMF Working Papers 98/105, International Monetary Fund.
    6. Maurice Obstfeld, 2001. "International Macroeconomics: Beyond the Mundell-Fleming Model," NBER Working Papers 8369, National Bureau of Economic Research, Inc.
    7. Paul Cashin & C. John McCDermott, 2002. "The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability," IMF Staff Papers, Palgrave Macmillan, vol. 49(2), pages 1-2.
    8. 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.).
    9. 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 1-2.
    10. 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.
    11. 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.
    12. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
    13. Cashin, Paul & McDermott, C. John & Scott, Alasdair, 2002. "Booms and slumps in world commodity prices," Journal of Development Economics, Elsevier, vol. 69(1), pages 277-296, October.
    14. 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.
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    16. 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.
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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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