The Exchange Rate, Diversification, and Distribution in a Modified Ricardian Model with a Continuum of Goods

Arslan Razmi
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Arslan Razmi: Asian Development Bank Institute

No 337, ADBI Working Papers from Asian Development Bank Institute

Abstract: Several recent empirical and theoretical studies have revived interest in the relationship between the level of the exchange rate and economic development. This paper develops a dynamic model based on the Ricardian framework with a continuum of goods to consider the issue from a somewhat different perspective. While directly suppressing the real wage could also lead to diversification, what makes nominal devaluation a particularly useful tool is that it makes it possible to expand domestic profits while limiting internal distributional conflict and the ensuing negative effects on development.

Keywords: economic development; exchange rate (search for similar items in EconPapers)
JEL-codes: F12 F16 O24 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2012-01-03
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Persistent link: http://EconPapers.repec.org/RePEc:ris:adbiwp:0337

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