On Mixed Strategies for Development

11 Pages Posted: 2 Jul 2003

See all articles by Andrew McKay

Andrew McKay

University of Bath - Department of Economics; University of Nottingham - Centre for Research on Economic Development and International Trade (CREDIT)

Chris Milner

University of Nottingham - School of Economics

Abstract

The paper investigates whether mixed trade strategies of import substitution and export promotion, if permanently or temporarily applied, can generate pro-tradables movements in the real exchange rate. Static and dynamic general-equilibrium modeling with a nontradables sector and alternative types of tradables is used to explore real exchange rate responses to uniform and nonuniform trade policy interventions. The paper shows that uniform, permanent interventions are neutral, having no impact on the equilibrium real exchange rate. The real exchange rate effect of temporary uniform interventions is, however, in general ambiguous when prices and incomes are fully endogenized. The breakdown of Lerner symmetry or of neutrality following uniform temporary interventions does not mean that intended promotion of tradables necessarily results in a pro-tradables movement in the real exchange rate.

Suggested Citation

McKay, Andrew and Milner, Chris, On Mixed Strategies for Development. Review of Development Economics, Vol. 6, pp. 303-313, 2002. Available at SSRN: https://ssrn.com/abstract=330784

Andrew McKay (Contact Author)

University of Bath - Department of Economics ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

University of Nottingham - Centre for Research on Economic Development and International Trade (CREDIT) ( email )

School of Economics
Nottingham, NG7 2RD
United Kingdom

Chris Milner

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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