Darryl McLeod

Terms of trade fluctuations and economic growth in developing economies

Abstract The effect of terms of trade fluctuations on capital accumulation is investigated in a simple open economy stochastic growth model. Imported inputs make domestic capital more productive, but export prices are uncertain. The models output process has a random walk component so even transient price shocks have permanent effects on output levels. The size of the random walk component depends on the countrys trade share, the supply response of exports and other structural parameters. Also, more variable export prices generally reduce expected domestic investment. These results are consistent with the estimated variance ratios and impulse response functions for a number of LDCs.

The openness-inflation puzzle revisited

Dynamic panel estimates show the negative relation between trade openness and inflation found by Romer (Quarterly Journal of Economics, (VIII, 869–903, 1993) but questioned by Terra (Quarterly Journal of Economics, (XIII, 641–48, 1998) became more robust in the 1990s, both among high income OECD and developing countries. Trade openness was also associated with less variable inflation during the 1990s and had a stronger disinflation effect in economies with floating exchange rates.

Declining Inequality in Latin America: Some Economics, Some Politics

Latin America is known to have income inequality among the highest in the world. That inequality has been invoked to explain low growth, poor education, macroeconomic volatility, and political instability. But new research shows that inequality in the region is falling. In this paper, we summarize recent findings on the decline in inequality across the region, analyze how the type of political regime (populist, social democratic, right of center) matters to the sustainability of the decline, and investigate the relationship between changes in inequality and changes in the size of the middle class in the region. We conclude with some questions about whether and how changes in income distribution and in middle-class economic power will affect the politics of distribution in the future.

Capital account liberalization and inflation

Abstract Evidence from over 100 countries suggests a strong link between capital account openness and lower inflation. In particular, widespread capital account liberalization during the early 1990s appears to have contributed to the world-wide disinflation observed during that decade. Alternative indices of capital account openness, including those of Quinn and Toyoda [Measuring International Financial Openness and Closure, Department of Political Science, Georgetown University, Washington, DC, 1996, mimeo] yield similar results.

Inequality and Poverty Under Latin America’s New Left Regimes

Inequality and poverty fell sharply in many Latin American countries during a decade in which voters in ten countries chose left-leaning leaders. Are these developments related? Using data for 18 Latin American countries, this paper presents econometric evidence that social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes’ efforts were more effective. The left populists regimes such as Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to “normal” levels (as estimated by fixed effects). Conversely, inequality and poverty in Brazil and Chile fell to historic lows. Moreover, overall terms of trade shocks were more favorable to Argentina and Venezuela, so part of the drop in inequality can be attributed to commodity price booms.

Gains from trade, stability and profits: A comment on Chichilnisky's ‘Terms of trade and domestic distribution: export-led growth with abundant labour’

Abstract This paper develops further the stability and comparative static properties of a model of North– South trade due to Chichilnisky. Chichilnisky established that, in a perfectly competitive market, an increase in the exports of a labor-intensive good by a labor-abundant developing country may make the exporter worse off: we give sufficient conditions for this to benefit the Northern importer as well. An expansion of labor-intensive exports thus leads to a net transfer of welfare from the exporting to the importing country. We then investigate alternative approaches to stability analysis in constant returns models, and show that under most reasonable definitions of stability, these results occur at a Walrasian stable competitive equilibrium.

Resources, Trade and Debt: The Case of Mexico

The paper studies a two-region economy, with two sectors and three factors of production: oil, capital and labor. The South exports oil in exchange for industrial goods from the North. There is a net capital inflow to the South. This equals the difference between its export revenues and import costs, and represents the Souths indebtedness. This overseas borrowing finances the development of the oil sector: increased borrowing leads to higher oil supplies, to new levels of consumption and a new distribution of income in the South, as well as to new levels of exports from the North. The paper studies the macro impacts of changes in the value of the debt on both the borrowing and the lending regions. The results are illustrated by simulations with data for the U .S .A. And Mexico.