Essays in Honor of Lance Taylor
Edited by Amitava Krishna Dutt
Chapter 7: The macroeconomic role of speculative assets under import compression and financial repression
7. The macroeconomic role of speculative assets under import compression and ﬁnancial repression Jørn Rattsø* 1 INTRODUCTION Taylor (1991, ch. 6) discusses four historical episodes when output stagnation has been combined with expanding speculative ﬁnance. He oﬀers a framework to understand them as a result of regressive income redistribution. Income concentration tends to squeeze output through demand. My interest in this issue relates to observations in Sub-Saharan Africa during ‘socialism’ in the 1980s, notably in Zimbabwe. Stagnation coincided with booming domestic markets for housing and land, and both seemed to be linked to the foreign exchange constraint. The African socialism looks like history now. But it is still of interest to understand how regulations work. And stagnation and speculative ﬁnance have not disappeared with liberalization anyway. The paradox of combined stagnation and boom is addressed in a model including portfolio adjustment and import rationing. The study can be seen as integrating Taylor’s understanding of speculation into a model of import rationing and supply constraint. The economic performance of the region in this period is associated with a foreign exchange constraint, the result of foreign debt accumulation, import dependency and export stagnation. A comprehensive empirical literature documents the role of these factors in explaining the economic stagnation. Wheeler (1984) and Helleiner (1990) show how the foreign exchange situation has inﬂuenced the performance of the whole region. Country studies emphasizing the import constraint include Chhibber et al. (1989), Green and Kadhani (1983) and Davies and Rattsø (1993) on Zimbabwe,...
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