Project Appraisal and Foreign Exchange Constraints: A Simple Exposition

Charles R. Blitzer, Partha Dasgupta and Joseph Stiglitz

No 2165, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In an earlier paper, we showed that the value of shadow prices depends on how the government contemplates re- equilibrating the economy to the perturbation associated with any project, except in the extreme case where the government has chosen all policy instruments optimally. Only under restrictive conditions will relative shadow prices for traded goods equal relative international prices. We develop here a general methodology for calculating shadow prices, which expresses the prices as a weighted average of domestic and international prices. The formulae provide the conditions under which the border price rule is valid. For instance, so long as there are non-traded goods, even if the government leaves tariffs unchanged (so that relative domestic prices of traded goods remain unchanged), unless the government completely neutralizes the induced change in domestic income, there will be changes in the prices of non-traded goods. These will preclude the use of the border price rule.

Date: 1987-02
Note: PE
References: Add references at CitEc
Citations:

Published as Economic Journal, Vol. 91, no. 361 (1981): 58-74.

Downloads: (external link)
http://www.nber.org/papers/w2165.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2165

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2165

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().