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Heterodox vs Orthodox Adjustment in Venezuela:An Assessment of the effects of the restriction on imports using a CGE model

Ramón E. Key-Hernández and Claudina Villarroel

No 8660, EcoMod2015 from EcoMod

Abstract: This article aims to simulate the effects of an orthodox adjustment (in place) vs one unorthodox adjustment (counterfactual), assessing the external component to both types of programs. In the case of the heterodox adjustment it refers to adjustment via quantitative restriction on imports (setting quantities). For the orthodox adjustment it refers to an adjustment of the exchange rate (setting prices).The model includes 10 activities: agriculture, oil and refining, mining, manufacturing, electricity, construction, trade, transport and communications, financial services, and other services. To model the effects of import restrictions, a condition of complementarity is introduced in a standard CGE model as Hosoe et al. (2010). The income generated by this restriction is assigned to the corporate sector. 1.If the government's goal is to reduce the trade deficit / increase the trade surplus orthodox adjustment via prices proves to be more efficient than heterodox adjustment via quantities. This is in terms of lower loss of global economic activity and loss of consumer utility. 2.The adjustment via quantities (restriction on imports) is not sustainable over time because have the following effects: drop in tax revenues and stagnating exports. 3.The adjustment via prices (exchange rate adjustment) generates the foundations of the post-recovery over time because it produces: increased tax revenues and boosting exports.

Keywords: Venezuela; General equilibrium modeling; Developing countries (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-int
Date: 2015-07-01
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Handle: RePEc:ekd:008007:8660