A model of exports and investment in an open developing economy
By: Jha, Rajiv.
Material type:
ArticlePublisher: 2006Description: p.820-25.Subject(s): Investment | Exports/Imports
In:
Economic and Political WeeklySummary: The paper develops a model that privileges exports as the key element of demand; not only do export permit the exploitation of scale economies by enlarging the size of the market served by domestic producers but also lead to the effective use of the relatively abundant factor, i.e. labour. The development literature has further emphasised the fact that exports are instrumental in inducing investment because of the incentive they provide to introduce new techniques through additions to the capital stock. the model introduces somewhat different export and investment, which stimulates growth. However, the commodity composition of a developing economy's export implies that exports are a function of the real exchag e rate. An increase in the real exchange rate (depreciation), while stimulating exports and thus growth, however, leads to an erosion of the real wage share because of a price rise through imports. The steady state can be interpreted as a balance of these two forces - an exchange rate depreciation leads to growth through an increase but simultaneously causes a cutback in government expenditure to maintain a floor wage share, impeding the growth process. - Reproduced.
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Articles
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Indian Institute of Public Administration | Volume no: 41, Issue no: 9 | Available | AR69469 |
The paper develops a model that privileges exports as the key element of demand; not only do export permit the exploitation of scale economies by enlarging the size of the market served by domestic producers but also lead to the effective use of the relatively abundant factor, i.e. labour. The development literature has further emphasised the fact that exports are instrumental in inducing investment because of the incentive they provide to introduce new techniques through additions to the capital stock. the model introduces somewhat different export and investment, which stimulates growth. However, the commodity composition of a developing economy's export implies that exports are a function of the real exchag e rate. An increase in the real exchange rate (depreciation), while stimulating exports and thus growth, however, leads to an erosion of the real wage share because of a price rise through imports. The steady state can be interpreted as a balance of these two forces - an exchange rate depreciation leads to growth through an increase but simultaneously causes a cutback in government expenditure to maintain a floor wage share, impeding the growth process. - Reproduced.
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