Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model

Rafael Ribeiro () and Gilberto Tadeu Lima John S. L. McCombie
Authors registered in the RePEc Author Service: Gilberto Tadeu Lima and John Stuart Landreth McCombie

No 2015_01, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: This paper sets out a formal model to account for the net effect of an exchange rate devaluation on both income elasticities of demand for export and imports and, consequently, on the long-term balance-of-payments constrained growth rate. Such model shows how the exchange rate impacts on the home country non-price competitiveness via changes in the variables which reflect the economic structure such as the income distribution and technological change. It is built upon two basic hypotheses. Firstly, it assumes technological improvements impact positively on the income elasticity of demand for exports and negatively on the income elasticity of demand for imports. Secondly, it assumes here that changes in income distribution have an ambiguous impact on the income elasticities ratio. The model shows that the net impact of a currency devaluation on growth is ambiguous and depends on several structural features.

Keywords: Exchange rate; income distribution; technical change; balance-of-payments constrained growth. (search for similar items in EconPapers)
JEL-codes: E25 O33 O40 (search for similar items in EconPapers)
Date: 2015-02-06
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (3)

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Journal Article: Exchange Rate, Income Distribution and Technical Change in a Balance-of-Payments Constrained Growth Model (2016)
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