Terms of Trade, Exchange Rates and Labor Markets Adjustment in Developing Countries / Sebastian Edwards.

Format:

Book

Author/Creator:

Edwards, Sebastian.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2110.

NBER working paper series no. w2110

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1986.

Summary:

This paper uses three models of a small open economy to analyze the effects of terms of trade and exchange rate changes (i.e. devaluations) on labor market adjustment. First, a three goods (exportables, importables, non-tradables), four factors model is developed and used to investigate how an exogenous worsening of the intern.ationa1 terms of trade affect labor allocation and wages. Second, a more traditional three goods, two factors model is used, and its results are compared to those of the first case. The analysis is carried out under alternative assumptions regarding wage flexibility: full flexibility, economy-wide (real) wage rigidity, and sector specific real wage rigidity. Finally, a three final goods model with imported intermediate inputs is used to investigate the effects of devaluations on aggregate and sectoral employment. Here the conditions under which a devaluation will be contractionary (i.e. will result in a reduction of employment) are determined.

Notes:

Print version record

December 1986.