The Open Economy: Tools for Policymakers in Developing Countries

by Rudiger Dornbush, F. Leslie Helmers

Overview

This important book is a teaching manual, in nontechnical language, on policymaking in developing countries. Written at the request of the Economic Development Institute of the World Bank, the papers focus on policy instruments, their use and constraints, and provide case studies of economic policy in Argentina, Brazil, Indonesia, Korea, and Mexico to illustrate basic problems and possible solutions.

Product Details

ISBN-13:	9780195207095
Publisher:	Oxford University Press, USA
Publication date:	06/28/1988
Series:	EDI Series in Economic Development Series
Edition description:	New Edition
Pages:	424
Product dimensions:	6.13(w) x 9.13(h) x 1.22(d)

About the Author

Massachusetts Institute of Technology

World Bank (retired)

Table of Contents

	Preface	ix
1.	Introduction	1
1.	Policy Issues and the Main Policy Tools	2
2.	Country Studies	7
3.	Not Policy Miracles	9
	Note	9
2.	The Real Exchange Rate	10
1.	The Real Exchange Rate as the Price of Foreign Exchange	11
2.	Analysis of the Real Exchange Rate	12
3.	Expenditure Reducing and Expenditure Switching	16
4.	Floating and Fixed Exchange Rates	19
5.	Effects of Changes in the Real Exchange Rate	26
	Notes	32
Part I.	Policy Issues and the Main Policy Tools
3.	Balance of Payments Issues	37
1.	An Overview of Linkages	37
2.	Basic Accounting Concepts	42
3.	Policy Instruments	45
4.	Determinants of Growth	49
5.	Some Mistakes To Be Avoided	51
	Notes	52
4.	External Shocks and Domestic Policy Responses	54
1.	Anatomy of External Shocks	54
2.	Policy Response to External Shocks	64
3.	Additional Problems	74
4.	Conclusions	78
5.	Overvaluation and Trade Balance	80
1.	Effects of Overvaluation	80
2.	Definitions of the Real Exchange Rate	82
3.	Effects of Disturbances	86
4.	Goods, Factor, and Asset Markets	91
5.	Country Experiences	96
6.	Exchange Rate Rules	101
7.	Undervaluation	104
	Notes	107
6.	Devaluation and Inflation	108
1.	Exchange Rate Arrangements	108
2.	Exchange Rate Indicators	114
3.	How Does Devaluation Work?	117
4.	Assets Market Problems	121
5.	Devaluation and High Inflation	122
	Notes	127
7.	Multiple Exchange Rates, Capital Controls, and Commercial Policy	128
1.	Overview of Policy Alternatives	129
2.	Multiple Exchange Rates and Trade Taxes	132
3.	Quantitative Restrictions	140
4.	Capital Controls	144
5.	Dual Exchange Rates	148
6.	Conclusions	154
Appendix 1.	Jamaica in the 1970s	155
Appendix 2.	Capital Flight	157
Appendix 3.	Black Markets for Foreign Exchange	158
	Selected Bibliography	160
	Notes	163
8.	Exchange Reserves as Shock Absorbers	165
1.	Reserve Composition	167
2.	Purpose of Holding Reserves	172
3.	The Norm for the Reserve Stock	175
4.	Speed of Adjustment	178
5.	Conclusions	182
	Glossary	184
	Selected Bibliography	185
	Notes	185
9.	External Borrowing and Debt Management	187
1.	History of Capital Movements	188
2.	The First Oil Price Shock	196
3.	The Second Oil Price Shock	202
4.	Coping with the Debt Crisis	205
5.	Prospects for New Capital Flows	210
6.	Policy Lessons	217
Appendix	Debt Dynamics	220
	Selected Bibliography	221
	Notes	222
10.	Opening Up: Liberalization with Stabilization	223
1.	Sequence of Liberalization Measures	224
2.	Liberalization of Trade	230
3.	Liberalization of Financial Markets	237
4.	Stabilization from High Inflation	239
	Selected Bibliography	246
	Notes	247
11.	Policymaking and Economic Policy in Small Developing Countries	249
1.	Some Simple Demographic Facts	250
2.	Demography's Hidden Curse	251
3.	Professionalism	254
4.	The Lessons of Experience	256
	Notes	263
Part II.	Country Studies
12.	Argentina	267
1.	Foreign Terms of Trade and Commercial Policies	271
2.	Short-Term Cycles and the External Sector	275
3.	The Real Exchange Rate for Exports	277
4.	Speculation and Hyperinflation	282
	Notes	283
13.	Brazil	285
1.	From Coffee Valorization to External Debt	285
2.	Indexation Issues	288
3.	Balance of Payments Policies	295
4.	Conclusions	304
	Selected Bibliography	306
14.	Indonesia	307
1.	Historical Overview	307
2.	A Tale of Three Devaluations	317
3.	Trade Policy	324
4.	Conclusions	328
Appendix	The Real Exchange Rate and the Index of International Competitiveness	329
	Notes	333
15.	Korea	336
1.	Exports as an Engine of Growth	337
2.	Disadvantages of the Strategy	341
3.	Conclusions	345
	Selected Bibliography	346
	Notes	347
16.	Mexico	348
1.	From 1935 to 1982	348
2.	Industrialization and Trade Policy	355
3.	Exchange Rates from the Mid-1920s to 1982	358
4.	Budget Deficits and Inflation	362
5.	Recent Policies	364
	Selected Bibliography	368
	Notes	369
	Appendixes
A.	Sources of Current Data	373
B.	National Accounting Identities	375
1.	Gross Domestic Product and Gross National Product	375
2.	The Balance of Payments Equation	380
3.	Examples of the Basic Balance of Payments Equation	384
	Notes	390
C.	Real-Exchange-Rate Indexes	392
D.	Effective Protection	398
	Index	405

Editorial Reviews

"Outstanding in its demonstration of the policy relevance of open economy macroeconomics."—Thomas A. McGahagan, University of Pittsburgh at Johnstown

"Well-written and provide[s] very good material for undergraduate courses in international economics or international political economy....A most useful compilation."—The Economic Journal

"A good book...as an introduction to conventional theory of open economy for developing countries."—Studies in Comparative International Development

From the Publisher