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Playing Monopoly with the DevilDollarization and Domestic Currencies in Developing Countries$
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Manuel Hinds

Print publication date: 2006

Print ISBN-13: 9780300113303

Published to Yale Scholarship Online: October 2013

DOI: 10.12987/yale/9780300113303.001.0001

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The Unfulfilled Promises in Trade and Growth

The Unfulfilled Promises in Trade and Growth

(p.53) Chapter 3 The Unfulfilled Promises in Trade and Growth
Playing Monopoly with the Devil

Manuel Hinds

Yale University Press

This chapter presents the argument that real devaluations fail to deliver on their promises in terms of fostering the growth of exports and economic activity in general in the developing countries, and suggests that devaluations have contradictory effects on the growth of exports and the economy in developing countries. They reduce the costs of tradable producers by reducing the real wages; yet, at the same time, they increase those costs through their effects in the rate of interest, the maturity of the loans, and many other variables crucial for an efficient economic performance. The net impact of devaluations cannot be determined theoretically. It depends on which of these effects are stronger. The evidence shows that, in most cases, most of the time, the negative effects are stronger—to the extent that the sign of the relationship implied by the statement “devaluations increase the competitiveness of countries” is reversed.

Keywords:   devaluations, exports, loans, developing countries, economy

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