On the Effect of Devaluation during Stabilization Programs in LDCs

Samuel A Morley

The Review of Economics and Statistics, 1992, vol. 74, issue 1, 21-27

Abstract: This paper is a cross-section study of the effect of real devaluations on capacity utilization during stabilization programs in LDCs. It finds that such devaluations had a significant negative effect on output as predicted in many recent papers. This was not because devaluation caused a rise in aggregate saving but more because of a sharp contraction in investment. External factors, such as terms of trade and the capacity to import, had a significant positive impact while monetary and fiscal policy played only a minor role. Copyright 1992 by MIT Press.

Date: 1992
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