Polterovich, Victor and Popov, Vladimir (2003): Accumulation of Foreign Exchange Reserves and Long Term Growth.
Download (752kB) | Preview
Cross-country regressions, reported in this paper for 1960-99 period, seem to suggest that the accumulation of foreign exchange reserves (FER) contributes to economic growth of a developing economy by increasing both the investment/GDP ratio and capital productivity. We offer the following interpretation of these stylized facts: (1) FER accumulation causes real exchange rate (RER) undervaluation that is expansionary in the short run and may have long term effects, if such devaluations are carried out periodically and unexpectedly; (2) RER undervaluation allows to take full advantages of export externality and triggers export-led growth; (3) FER build up attracts foreign direct investment because it increases the credibility of the government of a recipient country and lowers the dollar price of real assets. A three-sector model of endogenous economic growth (including a consumer good sector, investment good sector and an export trade sector) is suggested to demonstrate how undervaluation may improve social welfare. Concepts of FER accumulation trajectories and equilibrium trajectories are introduced. It is demonstrated that small udervaluation of the equilibrium exchange rate may be wealth improving.
|Item Type:||MPRA Paper|
|Original Title:||Accumulation of Foreign Exchange Reserves and Long Term Growth|
|Keywords:||foreign exchange reserves' accumulation; economic growth|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development|
|Depositing User:||Victor Polterovich|
|Date Deposited:||18. Jan 2010 10:49|
|Last Modified:||11. Mar 2015 11:05|
Barro, R. (1997). Determinants of Economic Growth. A Cross Country Empirical Study. The MIT Press. Cambridge, Mass.
Beine, M., Benassy-Quere, A., Lecourt, C. (2002). Central Bank Intervention and Foreign Exchange Rates: New Evidence from the FIGARCH Estimations. – Journal of International Money and Finance, Vol. 21 (2002), pp. 115-144.
Braun, A.(1994) How large is the optimal inflation tax? Journal of Monetary Economics, 34, 201-204.
Bruno, Michael, and Easterly, William (1995), Inflation Crises and Long-Run Growth. Unpublished. World Bank.
Bruno, Michael (1995), Does Inflation Really Lower Growth? - Finance & Development, September 1995.
Buffie, E. (1986) Devaluation, investment and growth in LDCs. Journal of Development Economics, 20: 361-380.
Calvo, G., Reinhart, C., and Vegh, C. (1995). Journal of Development Economics, Vol. 47, 1995, pp. 97-133.
Dollar, David (1992), Outward-oriented developing economies really do grow more rapidly: evidence from 95 LDCs, 1976-1985. – Economic Development and Cultural Change, Vol. 40, No. 3, April 1992, pp.523-44.
Dynnikova, O., Sosunov, K., Tsyganova, N. (2002). Empirical Model of Joint Determination of Real GDP and Real Exchange Rate in Russia. Mimeo.
Easterly, William (1999). The Lost Decades: Explaining Developing Countries Stagnation 1980-1998. World Bank, 1999
Easterly, William (2001). The Elusive Quest for Growth. Economists’ Adventures and Misadventures in the Tropics. MIT Press, Cambridge, Mass.
Economic Survey of Europe, 2001, No.1
Edwards, S. (1989) Real exchange rates, devaluation and adjustment. MIT Press, Cambridge, Massachusetts.
Engel, Ch. (2001). Optimal Exchange rate Policy: The Influence of Price Setting and Asset Markets. – Journal of Money, Credit and Banking, Vol. 33, No.2, (May 2001, Part 2), pp. 518-41.
Ethier (1991). The economics
Froot, K.and Rogoff, K. (1995). Perspectives on PPP and Long-Run Real exchange Rates. – In: Handbook of International economics, Vol. III, Ed. By G. Grossman and K. Rogoff. Elsevier Science B.V., 1995
Grafe, C., Wyplosz, C. (1997), "The Real Exchange Rate in Transition Economies". Paper presented at the Third Dubrovnik Conference On Transition Economies in Dubrovnik, Croatia, June 25-28, 1997.
Grennes, T. International economics. Prentice-Hall Inc., NJ, 1984.
Halpern L. and Wyplosz, C. (1997), Equilibrium Exchange Rates in Transition Economies. IMF Staff Papers, Vol. 44, No. 4 (December), pp. 430-61.
Hölscher, J. (1997). “Economic Dynamism in Transition Economies: Lessons from Germany.” Communist Economies and Economic Transformation 9 (2): 173–181.
Illarionov, A. (1998). “How the Russian Financial Crisis Was Organized.” Voprosy Ekonomiky 11–12. In Russian.
Kamin, S., Rogers, J. (2000). Output and Real Exchange Rate in Developing Countries: An Application to Mexico. – Journal of Development Economics, Vol. 61 (2000), pp. 85-109.
Kenny, Ch., Williams, D. (2000), What Do We Know About Economic Growth? Or, Why Don’t We Know Very much? – World Development, Vol. 29, No.1, pp. 1-22.
Krugman, P., Obstfeld, M. International Economics. Theory and Policy. Third edition, Harper Collins College Publishers, NY, 1994.
Krugman P., L.Taylor (1978). Contractionary effects of devaluation. Journal of International Economics, 8: 445-456.
Lucas, R.E. (1996). Nobel Lecture: Monetary Neutrality. Journal of Political Economy, 104, N.4, 669-682.
Magee S. P. (1994). The political Economy of Trade Policy. In : Greenway
Montes, M., Popov, V. (1999), The Asian Crisis Turns Global. Institute of Southeast Asian Studies, Singapore, 1999.
Morley, S. (1992) On the effect of devaluation during stabilization programs in LDCs. Review of Economics and Statistics, LXXIV.P21-7.
Obstfeld, M. (1982) Aggregate spending and the terms of trade: is there a Laursen-Metzler Effect? Quarterly Journal of Economics, 97(2): 251-270.
Obstfeld, M. and Rogoff, K. (1996) Foundations of International Macroeconomics. The MIT Press, Cambridge, Massachusetts
Phelps, E.S. (1973) Inflation in the Theory of Public Finance. Swedish Journal of Economics, 75, 37-54.
Polterovich, Victor (1998), Institutional Traps and Economic Reforms. Working Paper # 98/004. New Economic School, Moscow, 1998
Pomfret, R. (1997), Growth and Transition: Why has China’s Performance Been So Different?, Journal of Comparative Economics, Vol. 25, No 3, December 1997. Pp. 422-440.
Popov, V. (1998a). “Investment in Transition Economies: Factors of Change and Implications for Performance.” Journal of East-West Business 4: 1–2.
Popov, Vladimir (1998b). Will Russia Achieve Fast Economic Growth? By - Communist Economies and Economic Transformation, Vol. 10, No. 4, 1998a, pp.421-49.
Rodrik, Dani (1986). “Disequilibrium” Exchange Rate as Industrialization Policy. Journal of Development Economics,23, 89-106.
Rodrick, D. (1996). Institutions and Economic Performance in East and South East Asia. In Round Table Conference: The Institutional Foundations of Economic Development in East Asia. Tokyo, December 1996, pp. 391-429.
Romer, Paul M. (1990). Endogenous Technology Change. Journal of Political Economy, 98 (October, Part 2), 71-102.
Sachs, J. and Warner, A. (1996), Achieving Rapid Growth in the Transition Economies of Central Europe. Harvard Institute for International Development, January 1996.
Shmelev, N. (1998). “The Crisis Inside the Crisis.” Voprosy Ekonomiky, No. 10. In Russian.
Shmelev, N., and V. Popov. (1989). The Turning Point: Revitalizing the Soviet Economy. New York: Doubleday.
Turnovsky, Stephen J. (2000), Methods of Macroeconomic Dynamics. Cambridge, Massachusetts: MIT Press, 671 pp.
WDI – World Development Indicators (1998-2001). World Bank.
Van Wijnbergen, S.(1986) Exchange rate management and stabilization policies in developing countries. Journal of Development Economics, 23: 227-248.
Дынникова (2001). Макроэкономические перспективы укрепления рубля и валютная политика. В сб. «Инструменты макроэкономической политики для России», 108-132.
Мовшович С.М. (2000). Общественные потери от налогов и инфляции. ЭММ, т.36, вып.4.