The Trade Liberalization And Exchange Rate Determination In A Small Open Economy

Date

1987

Author

Kumcu, Ercan

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In a two-commodity-small open economy model, this paper addresses the issue of exchange rate determination in the process of trade liberalization; i.e., a reduction in export subsidies as well as a reduction in import taxes. It is shown that the response of the exchange rate to trade liberalization attempts will depend, among other things, upon the initial state of the trade policy; the state favoring the exportables industry versus the state favoring the import-competing industry. Under plausible circum stances with which countries going through the phase of trade liberalization can identify themselves, the exchange rate does not have to be accommodating both exportables and importables sectors in the process of trade liberalization.

URI

https://hdl.handle.net/11511/110569

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Department of Economics, Article