Development Economics and Structuralist Macroeconomics
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Development Economics and Structuralist Macroeconomics

Essays in Honor of Lance Taylor

Edited by Amitava Krishna Dutt

Lance Taylor is widely considered to be one of the pre-eminent development economists in the world and is known for his work on development planning, macroeconomics of development, stabilization policy, and the global economy. He has also been the major force behind structuralist economics, which is seen by many to be a major alternative to orthodox development economics and policy prescriptions. The essays in this volume, written by well-known scholars in their own right, make contributions to each of these areas while honoring the contributions made by Lance Taylor.
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Chapter 7: The macroeconomic role of speculative assets under import compression and financial repression

Jørn Rattsø


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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