Table of Contents

Employment, Growth and Development

Employment, Growth and Development

A Post-Keynesian Approach

New Directions in Modern Economics series

Edited by Claude Gnos, Louis-Philippe Rochon and Domenica Tropeano

This topical book addresses unemployment in Europe, the wrong-headed reliance on NAIRU to formulate policy, distributional conflicts and financial factors, as well as problems faced in developing countries with respect to exchange rate policy, central banking, challenges to growth, and international financial flows. In the first part of the book the chapters deal with issues related to employment policies, economic growth and development while the second part is dedicated to development and growth issues in open-economy developing countries.

Chapter 8: Exchange Rate Policy in Developing Countries: The East Asian Experience

Mohamed Aslam

Subjects: economics and finance, post-keynesian economics


Mohamed Aslam INTRODUCTION Since the 1970s, currency has became a ‘commodity’ and is heavily traded in the foreign exchange market. The movement of value of a currency vis-à-vis other national currencies is becoming more volatile and it frequently distorts macroeconomic stability, mainly in the case of developing countries. The exchange rate is determined in the international currency market rather than supply and demand in the international goods market. The movement of the exchange rate is substantially affected by non-fundamental factors. The expansion of foreign portfolio capital flow is one of the prime factors causing (wild) movement or creating volatility in the exchange rate. The rapid development and expansion of the international capital markets including derivatives and the integration of capital markets at the regional or international level have produced dramatic exchange rate volatility. It is widely accepted that trading and speculation in currency and derivative markets and international portfolio investments are the main causes of exchange rate volatility. For many developing countries, the exchange rate is one of the measures for maintaining or increasing export competitiveness. The export sector largely contributes to economic growth, employment and macroeconomic stability. Globalization of the financial market has created a dilemma particularly for the developing countries in safeguarding the state of their macroeconomy. Opening up capital accounts and liberalization of the domestic capital market to external influences has actually exacerbated the current account of balance of payments rather than bringing a real benefit to economic welfare. Most developing countries do not have capabilities...

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