Dynamic Paths of Economic Openness Experiments in Latin America: A Small Intertemporal CGE Model

Mercado, Ruben (1995): Dynamic Paths of Economic Openness Experiments in Latin America: A Small Intertemporal CGE Model.

Abstract

What might be the dynamic consequences of abrupt economic openness policies under a fixed exchange rate regime for a “typical” Latin American country? In this essay, I specify, calibrate and simulate a small dynamic intertemporal computable general equilibrium model to explore some scenarios related to the implementation of that type of policies. In Section 1, I review the main characteristics of a “typical” Latin American economy in terms of production structure, consumption and saving behavior, and fiscal and balance of trade features. In Section 2, I build a small intertemporal CGE with a forward-looking modem investment sector as its “dynamic core”. In Section 3 I present the model parameterization and a base case solution. In Section 4 I perform some computational policy experiments, showing how abrupt economic openness under a fixed exchange rate regime and anticipated foreign lending constraints may result, if overall productivity gains do not materialize in time, in a short-term investment boom followed by an exchange rate regime crisis. Finally, in Section 5 I present some concluding remarks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Computable General Equilibrium - Latin America - Economic Openess Experiments
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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