Developmental
Macroeconomics
New developmentalism as a
growth strategy
Luiz Carlos Bresser-Pereira,
Jose Luis Oreiro, and
Nelson Marconi
Routledge
R Taylor k Francis Croup
LONDON AND NEW YORK
Contents
List offigures
List of tables
Preface
PARTI
Growth and constraints
1 Theoretical traditions and the method
Not neoclassical 4
Differences from Keynesian and development economics 6
The method 10
Summary 11
xv
xvi
xvii
1
3
2 Some definitions and productive sophistication
A Classification of countries 13
Productive sophistication and wages 14
The "Lewis turning point" 16
Summary 18
12
3 Demand-led growth
Supply-determined growth 21
Growth determined by aggregate demand 24
Development and technicalprogress 27
Investment and technical progress 28
Summary 29
20
4 Foreign constraint
Capacity constraint and distribution of income 31
Foreign constraint and exchange rate 32
31
xii Contents
Fall in the equilibrium growth rate 34
Elasticities as endogenous variables 36
Summary 38
5 Value and price of the exchange rate
Exchange-rate regime 41
The long-term equilibrium of the exchange rate 43
Value and price of foreign currency 44
Which of the three equilibriums? 46
Summary 48
40
6 Overvaluation and access to the markets
Tendency to overvaluation 50
An overview of the causes of overvaluation 53
Summary 54
49
7 The Dutch disease
The concept of the Dutch disease 57
Two equilibrium exchange rates 59
The severity of the Dutch disease 62
Extended concept of the Dutch disease 63
The Dutch disease and deindustrialization 65
Why not specialize in commodities? 68
The Dutch disease and the natural resource curse 70
56
8 Domestic, not foreign savings
Foreign savings 75
Foreign savings and exchange rate appreciation 76
Rate of substitution of foreign for domestic savings 78
Summary 82
74
9 Inflation, interest, and exchange rate appreciation
Some comments on the theory of inflation 84
Exchange rates, inßation, and real wage 86
Rational expectations and inflation 90
Exchange rate anchor policy 92
High interest rate levels and appreciation 94
Carry trade causing appreciation 96
Budget deficits and overappreciation 97
Summary 97
84
10 Balance-of-payment crises
Neoclassical explanations 101
Foreign savings andfinancial crises 105
Summary 109
11 The closing of the model
The Keynesian—structuralist model of growth 112
Dutch disease and deindustrialization 112
Excessive capital inflows 114
Exchange rate overvaluation and falling behind 115
What about the supply constraints? 116
An alternative graphic closing 118
Summary 120
PART II
Policymaking
12 Wage, export, or balanced-led?
Domestic-led strategy 125
Balanced strategy 126
Export-led strategy 127
Export-led strategy as a transition 128
Reducing inequalities without reducing the profit rate 130
Summary 133
13 Neutralizing the Dutch disease
Neutralization 136
Who pays for the neutralization? 139
Second-best forms of neutralization 140
Difficulties 143
Financial consequences of neutralization 145
Summary 147
14 Exchange rate policy
The triangle of impossibilities 151
Fixorfloat? 152
Exchange rate policy 154
Summary 155
xiv Contents
15 The transition to a high-development regime
Breaking the low-growth equilibrium 156
Reindustrialization 158
Recovery of real wages 160
Investment and domestic savings 161
Summary 162
156
16 Political economy of the once-and-for-all devaluation
Why would workers accept a reduction in wages? 165
Preference for immediate consumption 168
Summary 170
164
17 Comparing and summing up
Development strategy 171
Macroeconomic policy 175
171
References
Index
180
185