On Shadow Pricing Labour and Foreign Exchange

Edward Tower and Garry G Pursell

Oxford Economic Papers, 1987, vol. 39, issue 2, 318-32

Abstract: A simple model is built to shadow-price labor in foreign exchange numeraire and foreign exchange in utility numeraire, first by assuming that ex change-rate or nominal wage adjustment is the mechanism by which fore ign exchange is allocated, then assuming that sector-specific taxes a nd/or subsidies on consumption, international trade, and/or productio n are the mechanisms used. In the process, the authors show how to us e effective rates of protection in calculating these shadow prices, p rovide a proof of the proposition of M. F. G. Scott, and resolve the meaning of a formula designed by Bela Balassa to describe the shadow prices of both foreign exchange and primary factors of production. Copyright 1987 by Royal Economic Society.

Date: 1987
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