Real Exchange Rates and the International Mobility of Capital
This paper demonstrates that the terms of trade are determined by the equalization of profit rates across international regulating capitals, for socially determined national real wages. This provides a classical/Marxian basis for the explanation of real exchange rates, based on the same principle of absolute cost advantage which rules national prices. Large international flows of direct investment are not necessary for this result, since the international mobility of financial capital is sufficient. Such a determination of the terms of trade implies that international trade will generally give rise to persistent structural trade imbalances covered by endogenously generated capital flows which will fill any existing gaps in the overall balance of payments. It also implies that devaluations will not have a lasting effect on trade balances, unless they are also attended by fundamental changes in national real wages or productivities. Finally, it implies that neither the absolute nor relative version of the Purchasing Power Parity hypothesis (PPP) will generally hold, with the exception that the relative version of PPP will appear to hold when a country experiences a relatively high inflation rate. Such patterns are well documented, and in contrast to comparative advantage or PPP theory, the present approach implies that the existing historical record is perfectly coherent. Empirical tests of the propositions advanced in this paper have been conducted elsewhere, with good results.
|Date of creation:||05 Apr 1999|
|Date of revision:|
|Note:||Type of Document - Acrobat; prepared on IBM PC; to print on PostScript; pages: 23; figures: included|
|Contact details of provider:|| Web page: http://220.127.116.11|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nakatani, Takeshi, 1980. "The Law of Falling Rate of Profit and the Competitive Battle: Comment on Shaikh," Cambridge Journal of Economics, Oxford University Press, vol. 4(1), pages 65-68, March.
- Ken Froot & Kenneth Rogoff, .
"Perspectives on PPP and Long-Run Real Exchange Rates,"
32027, Harvard University OpenScholar.
- Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
- Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1989.
" Real Exchange Rates and Macroeconomics: A Selective Survey,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 91(2), pages 401-32.
- Rudiger Dornbusch, 1988. "Real Exchange Rates and Macroeconomics: A Selective Survey," NBER Working Papers 2775, National Bureau of Economic Research, Inc.
- Shaikh, Anwar, 1980. "Marxian Competition versus Perfect Competition: Further Comments on the So-Called Choice of Technique," Cambridge Journal of Economics, Oxford University Press, vol. 4(1), pages 75-83, March.
- Bienenfeld, Mel, 1988. "Regularity in Price Changes as an Effect of Changes in Distribution," Cambridge Journal of Economics, Oxford University Press, vol. 12(2), pages 247-55, June.
- Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
- Anwar Shaikh & Rania Antonopoulos, 1998.
"Explaining long term exchange rate behavior in the United States and Japan,"
- Anwar M. Shaikh & Rania Antonopoulos, 1998. "Explaining Long-Term Exchange Rate Behavior in the United States and Japan," Economics Working Paper Archive wp_250, Levy Economics Institute.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9904002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.