ECON 361 4.0 Notes

ECON 361 4.0 Notes - Cardoso Ch. 4 ISI & Trade...

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Cardoso Ch. 4 ISI & Trade Liberalization Exchange and trade restrictions - such as multiple exchange rates, protective tariffs, import licenses, quotas, and export taxes -all served to limit trade flows and to reserve local markets for domestic producers. Goal through that was to provide a training ground for industry, which might eventually compete internationally. Development policies that pay little attention to trade imbalances are unsustainable . Latin America relied heavily on tariffs and non-tariffs as local industry failed to become competitive in world market. External Policies-Openess Measures : A country’s propensity to trade depends on its size-Small countries produce fewer goods & rely on exports to pay for essential imports. Bigger countries tend to be more self sufficient Ex: Brazil & Mexico are two of the least countries open to trade. Has a highly protected A country’s propensity to trade also depends on a country’s exchange rate policy, its import Real exchange rate=nominal rate deflated by the ratio between domestic prices and foreign prices. -Increase in real exchange rate denotes a real appreciation-implies local currency of one dollar buys fewer hours of labor in an assembly plant or in the fields. (Products cost more and country loses price competitiveness. -Reduction in real exchange rates denotes a real depreciation and increase in competitiveness. (increase in r.e.r. strengthens local currencies relative to the dollar & thus weakens competitiveness.) Nominal exchange rates=generate real devaluation and increase competitiveness. If inflation surpasses nominal devaluation more rapidly, the local currency will continue to
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This note was uploaded on 01/24/2011 for the course ECON 361 taught by Professor Meyer during the Fall '10 term at George Mason.

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ECON 361 4.0 Notes - Cardoso Ch. 4 ISI & Trade...

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