Exchange Rate Parity for Trade and Development
Subtitle: Theory, Tests, and Case Studies
Publisher: Cambridge University Press
Published: October 27, 1995
Language: eng
Format: Hardcover
Number of pages: 343
ISBN-13: 9780521482165
Subjects: International trade; Politics/International Relations; Economics - Macroeconomics; Monetary Theory; Business & Economics; Business / Economics / Finance; Business/Economics; Foreign exchange rates; Economics - Theory; Foreign Exchange; Business & Economics / Macroeconomics; Foreign exchange rates--Developing countries; Commercial policy; Developing countries; Economic Development
First sentence: For all the efforts that have gone into the economic development of less-developed countries (LDCs) in the last half-century, there have been but a half-dozen unqualified successes, almost all in East Asia.
Description: Exchange Rate Parity for Trade and Development: Theory, Tests, and Case Studies extends recent theories of incomplete markets to investigate empirically the appropriate balance between market and state in trade relations between developed and developing countries. Yotopoulos concludes that government intervention in foreign exchange and trade is necessary in developing countries in the early stages of development and inevitably decreases as development progresses.

More specifically, free currency markets are shown to have an inherent distortion that leads under-developed countries to misallocate resources systematically. Rationing of foreign exchange prevents a "soft-currency distortion" that commonly afflicts developing countries and can turn comparative-advantage trade into competitive-devaluation trade, with severe losses of income and welfare.

It is found that the level of under-development narrowly circumscribes and conditions the extent to which free-market, free-trade, laissez-faire policies can be beneficial to developing countries, which is contrary to the mainstream policy paradigm as currently applied.

The analysis and tests draw on empirical research in 70 countries to confirm the usefulness and validity of the theoretical framework. The book concludes with extended case studies of Japan, Taiwan, the Philippines, and Uruguay and with relevant policy recommendations.