An exploration of the interdependencies betweeen the real exchange rate and the size of the tradable sector in a small open economy

Fernando Zarzosa Valdivia, Eric J. Pentecost

Resumen


The complex interdependences between the real exchange rates and the size of the tradable goods sector have not been fully explored in the existing literature. This article aims to full this gap by developing a neo-classical Australian general equilibrium model to further explore these linkages and to explain the impact of total factor productivity, factor endowments, terms of trade and debt services (net of transfers and/or aid flows) on the equilibrium real exchange rate and the size of the tradable sector. Measuring changes in the allocation of resources by changes in the share of tradable goods in GDP, we show that in addition to the well-known spending and resource movement effects, that there are four further separately identifiable effects, which we refer to as the extraordinary profit effect, the traded price effect, the expenditure movement effect and the debt substitution effect. The relative strengths of these additional effects help to determine the size of the tradable goods sector and hence the economic structure of a small open economy.

Palabras clave


STRUCTURAL REAL EXCHANGE RATES; TRADABLE GOODS SHARE IN GDP; PRODUCTIVITY; TERMS OF TRADE; RESOURCE MOVEMENT EFFECT; SPENDING EFFECT; EXTRAORDINARY PROFITS EFFECT; TRADED PRICE EFFECT; DEBT SUBSTITUTION EFFECT AND EXPENDITURE MOVEMENT EFFECT

Texto completo:

PDF (English)

Referencias


Aguirre, A., & Calderon, C. (2005). “Real exchange rate misalignments and economic performance”. Documentos de Trabajo No. 315, Banco Central de Chile, 1–49.

Akinci, O. (2011). “A note on the estimation of the atemporal elasticity of substitution between tradable and non-tradable goods”. manuscript, Columbia University.

Alberola, E. (2003). “Misalignment, liabilities dollarization and exchange rate adjustment in Latin America”. Banco de España Research Paper No. WP-0309.

Araujo, E., Araújo, E., Peres, S. C., & Punzo, L. F. (2021). “An investigation into shapes and determinants of deindustrialization processes: Theory and evidence for developed and developing countries (1970–2017)”. EconomiA, 22(2), 129-143.

Asea, P. K., & Corden, W. M. (1994). “The balassa-samuelson model: An overview”. Review of International Economics, 2(3), 191–200.

Asea, P. K., & Mendoza, E. G. (1994). “The balassa-samuelson model: A general-equilibrium appraisal”. Review of International Economics, 2(3), 244–267.

Balassa, B. (1964). “The purchasing-power parity doctrine: a reappraisal”. Journal of Political Economy, 72(6), 584–596.

Balvers, R. J., & Bergstrand, J. H. (2002). “Government expenditure and equilibrium real exchange rates”. Journal of International Money and Finance, 21(5), 667–692.

Baumol, W. J., & Bowen, W. G. (1966). Performing arts: the economic dilemma. New York: Twentieth Century Fund.

Bjørnland, H. C., Thorsrud, L. A., & Torvik, R. (2019). “Dutch disease dynamics reconsidered”. European Economic Review, Vol. 119, 411–433.

Brahmbhatt, M., Canuto, O., & Vostroknutova, E. (2010). “Dealing with Dutch disease”. Economic Premises, World Bank Group.

Calderon, C. (2002). “Real exchange rates in the long and the short run: A panel co-integration approach”. Working Paper 153, Central Bank of Chile.

Cerda, R. (2001). “Capital flows, oppennes and real exchange rate variability”. Working Paper 2015, Catholic University of Chile.

Chang, K.-F., Lin, J.-X., & Lin, S.-M. (2021). “Revisiting the Dutch disease thesis from the perspective of value-added trade”. Resources Policy, Vol. 72, 102103.

Connolly, M., & Deveraux, J. (1995). “The equilibrium real exchange rate: Theory and evidence for Latin America”. In Stein, J. L., & Reynolds Allen, P. Fundamental determinants of exchange rates (pp. 154-81). Oxford: Oxford University Press.

Corden, W. M. (1984). “Booming sector and Dutch disease economics: survey and consolidation”. Oxford Economic Papers, 36(3), 359-380.

(Reprinted in 1992 by the International Trade Theory and Policy Handbook. Cheltenham, UK; Northampton, MA, USA: Edward Elgar Publishing).

Corden, W. M., & Neary, J. P. (1982). “Booming sector and de-industrialisation in a small open economy”. The Economic Journal, 92(368), 825–848.

De Gregorio, J., & Wolf, H. C. (1994). “Terms of trade, productivity, and the real exchange rate”. Working Paper 4807, National Bureau of Economic Research.

Demir, F., & Razmi, A. (2021). “The real exchange rate and development theory, evidence, issues and challenges”. Journal of Economic Surveys, 36(2), 386-428.

Devarajan, S. (1999). “Estimates of real exchange rate misalignment with a simple general equilibrium model”. In Hinkle, L. E., & Montiel, P. J. (eds.). Exchange rate misalignment: concepts and measurements for developing countries (pp. 359–80). Oxford: Oxford University Press.

Devarajan, S., Lewis, J., & Robinson, S. (1991). “External shocks, purchasing power parity, and the equilibrium real exchange rate”. Development Discussion Paper No. 385, Harvard Institute for International Development, Harvard-University.

Dixit, A. K., & Stiglitz, J. E. (1977). “Monopolistic competition and optimum product diversity”. The American Economic Review, 67(3), 297–308.

Dornbusch, R. (1989). “Real exchange rates and macroeconomics: A selective survey”. The Scandinavian Journal of Economics, 91(2), 401–432.

Edwards, S. (1986). “Terms of trade, exchange rates and labor markets adjustment in developing countries”. NBER Working Papers 2110, National Bureau of Economic Research.

Edwards, S. (1989). Real exchange rates, devaluation, and adiustment. Exchange rate policy in developing countries. Cambridge: MIT Press.

Fardmanesh, M. (1990). “Terms of trade shocks and structural adjustment in a small open economy: Dutch disease and oil price increases”. Journal of Development Economics, 34(1-2), 339–353.

Galindo, A., Izquierdo, A., & Montero, J. M. (2001). “Real exchange rates, dollarization and industrial employment in Latin America”. Research Paper 0601, Banco de España.

Galstyan, V., & Lane, P. R. (2009). “The composition of government spending and the real exchange rate”. Journal of Money, Credit and Banking, 41(6), 1233–1249.

García, P. (1999). “Income inequality and the real exchange rate”. Working paper 54, Banco Central de Chile.

García-Cicco, J., & Kawamura, E. (2015). “Dealing with the Dutch disease: Fiscal rules and macro-prudential policies”. Journal of International Money and Finance, Vol. 55, 205–239.

Gubler, M., & Sax, C. (2012). “Skill-biased technological change and the real exchange rate”. Working Paper 2012/08, Faculty of Business and Economics, University of Basel.

Guzman, M., Ocampo, J. A., & Stiglitz, J. E. (2018). “Real exchange rate policies for economic development”. World Development, Vol. 110, 51–62.

Ismail, K. (2010). “The structural manifestation of the ‘Dutch disease’: the case of oil exporting countries”. Working Paper WP/10/103, International Monetary Fund.

Krugman, P. R. (1988). “Deindustrialization, reindustrialization, and the real exchange rate”. Working Paper 2586, National Bureau of Economic Research.

Lama, R., Medina, J. P., et al. (2012). “Is exchange rate stabilization an appropriate cure for the Dutch disease”. International Journal of Central Banking, 8(1), 5–46.

Lartey, E. K. (2008). “Capital inflows, resource reallocation and the real exchange rate”. International Finance, 11(2), 131–152.

Magud, N., & Sosa, S. (2010). “The missing link between Dutch disease, appreciation, and growth”. IMF Working Paper 271, International Monetary Fund.

Mahbub Morshed, A., & Turnovsky, S. J. (2004). “Sectoral adjustment costs and real exchange rate dynamics in a two-sector dependent economy”. Journal of International Economics, 63(1), 147–177.

Mejalenko, J. (2015). “Un modelo de ciclo real para una economía pequeña y abierta: Uruguay frente al aumento de precios agropecuarios”. Mimeo.

Montiel, P. J. (1999). “Determinants of the long-run equilibrium real exchange rate: an analytical model”. In Hinkle, L. E., & Montiel, P. J. (eds.) Exchange rate misalignment: concepts and measurement for developing countries (pp. 264–290). Oxford: Oxford University Press.

Montiel, P. J. (2011). Macroeconomics in emerging markets. Cambridge University Press.

Neary, J. P., & Purvis, D. D. (1982). “Sectoral shocks in a dependent economy: Long-run adjustments and short-run accomodation”. The Scandinavian Journal of Economics, 84(2), 229–253.

Neary, J. P., & Purvis, D. D. (1983). “Sectoral shocks in a dependent economy: Long-run adjustment and short-run accommodation”. In Calmfors, L. (eds.). Long-Run Effects of Short-Run Stabilization Policy (pp. 97–121). London: Palgrave Macmillan.

Nulle, G. M., & Davis, G. A. (2018). “Neither Dutch nor disease? — natural resource booms in theory and empirics”. Mineral Economics, 31(1), 35–59.

Obstfeld, M. and Rogoff, K. (2004). “The unsustainable us current account position”. In revised paper prepared for the NBER conference on G-7 current account imbalances: sustainability and adjustment, July.

Pentecost, E. J., & Zarzosa Valdivia, F. (2016). “Structural real exchange rate and unemployment interdependencies in Argentina”. Revista de Economía y Estadística, 52(1), 57–86.

Rajan, R. G., & Subramanian, A. (2011). “Aid, Dutch disease, and manufacturing growth”. Journal of Development Economics, 94(1), 106–118.

Razmi, A., Rapetti, M., & Skott, P. (2009). “The real exchange rate as an instrument of development policy”. Economics Department Working Paper Series, University of Massachusetts Amherst.

Rodrik, D. (2006). “Industrial development: stylized facts and policies”. Harvard University, Massachusetts. Mimeo (also as draft for the “Industrial Development for the 21st Century”, U.N.DESA Publication).

Rodrik, D. (2008). “The real exchange rate and economic growth”. Brookings Papers on Economic Activity, 2008(2), 365–412.

Sachs, J. D. & Warner, A. (1995). Natural resource abundance and economic growth. Working Papers 5398, National Bureau of Economic Research.

Sachs, J. D., & Warner, A. M. (2001). “The curse of natural resources”. European Economic Review, 45(4-6), 827–838.

Salter, W. E. (1959). “Internal and external balance: the role op price and expenditure effects”. Economic Record, 35(71), 226–238 (Reprinted in: Deepak, L. (ed.). Development economics (Vol. IV. The International Library of Critical Writing in Economics). Cheltenham, UK; Northampton, MA, USA: Edward Elgar Publishing.

Samuelson, P. A. (1964). “Theoretical notes on trade problems”. The Review of Economics and Statistics, 46(2), 145–154.

Schmitt-Grohé, S., & Uribe, M. (2021). “Reviving the salter-swan small open economy model”. Journal of International Economics, Vol. 130:103441.

Soto, R., & Elbadawi, I. (2008). “Theory and empirics of real exchange rates in developing countries”. Working Paper 324, Institute of Economy, Catholic University of Chile.

Swan, T. (1955). “Longer runs problems of balance of payments, readings in international economics”. In Caves, R. E., & Johnson, H. G. (eds.). Readings in international economics: selected by a committee of the American Economic Association. London: Allen and Unwin.

Thierfelder, K., & Robinson, S. (2002). “Trade and tradability: Exports, imports, and factor markets in the salter-swan model”. TMD discussion paper 93, International Food Policy, Research institute.

van der Ploeg, F. (2011a). “Fiscal policy and Dutch disease”. International Economics and Economic Policy, 8(2), 121–138.

van der Ploeg, F. (2011b). “Natural resources: curse or blessing?”. Journal of Economic Literature, 49(2), 366–420.

Williamson, J. (2008). “Do development considerations matter for exchange rate policy?” Series on Central Banking, Analysis, and Economic Policies, no. 12, pages 475–489.

Zarzosa Valdivia, F. (2008). “Real exchange rate movements, Dutch disease and functional and sectoral income distribution”. In Tondl, G. Trade, Integration and Economic Development. The EU and Latin America (pp. 81-109). Dordrecht: Springer.




DOI: https://doi.org/10.46553/cecon.40.103.2022.p77-116

Enlaces de Referencia

  • Por el momento, no existen enlaces de referencia


Licencia Creative Commons
Esta obra está bajo una Licencia Creative Commons Atribución-NoComercial-CompartirIgual 4.0 Internacional.