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The Exchange Rate, Diversification, and Distribution in a Modified Ricardian Model with a Continuum of Goods

  • Razmi, Arslan

    (Asian Development Bank Institute)

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    Several recent empirical and theoretical studies have revived interest in the relationship between the level of the exchange rate and economic development. This paper develops a dynamic model based on the Ricardian framework with a continuum of goods to consider the issue from a somewhat different perspective. While directly suppressing the real wage could also lead to diversification, what makes nominal devaluation a particularly useful tool is that it makes it possible to expand domestic profits while limiting internal distributional conflict and the ensuing negative effects on development.

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    Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 337.

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    Length: 30 pages
    Date of creation: 03 Jan 2012
    Date of revision:
    Handle: RePEc:ris:adbiwp:0337
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    1. Blecker, Robert A, 1989. "International Competition, Income Distribution and Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 13(3), pages 395-412, September.
    2. repec:ebd:wpaper:133 is not listed on IDEAS
    3. Cadot, Olivier & Carrère, Céline & Strauss-Kahn, Vanessa, 2007. "Export Diversification: What’s behind the Hump?," CEPR Discussion Papers 6590, C.E.P.R. Discussion Papers.
    4. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
    5. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
    6. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
    7. Simon Johnson & Jonathan D. Ostry & Arvind Subramanian, 2007. "The Prospects for Sustained Growth in Africa: Benchmarking the Constraints," NBER Working Papers 13120, National Bureau of Economic Research, Inc.
    8. Arslan Razmi & Martin Rapetti & Peter Skott, 2011. "The Real Exchange Rate and Economic Development," UMASS Amherst Economics Working Papers 2011-08, University of Massachusetts Amherst, Department of Economics.
    9. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 243-287.
    10. Simon Johnson & Jonathan D Ostry & Arvind Subramanian, 2010. "Prospects for Sustained Growth in Africa: Benchmarking the Constraints," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 119-171, April.
    11. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
    12. Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Oxford University Press, vol. 32(2), pages 273-288, March.
    13. Imbs, Jean & Wacziarg, Romain, 2000. "Stages of Diversification," CEPR Discussion Papers 2642, C.E.P.R. Discussion Papers.
    14. Brenton, Paul & Newfarmer, Richard, 2007. "Watching more than the Discovery channel : export cycles and diversification in development," Policy Research Working Paper Series 4302, The World Bank.
    15. Rodrik, Dani, 1998. "Where Did all the Growth Go? External Shocks, Social Conflict and Growth Collapses," CEPR Discussion Papers 1789, C.E.P.R. Discussion Papers.
    16. Freund, Caroline & Pierola, Martha Denisse, 2008. "Export surges : the oower of a competitive currency," Policy Research Working Paper Series 4750, The World Bank.
    17. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
    18. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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