Financial flows and the New Developmentalism
Brazilian Journal of Political Economy, Vol. 38 No. 1 (2018), Jan-Mar / 2018, Pages 115-124
New Developmentalism has focused its attention on trade problems created, to a large measure, by the divergences between the exchange rate that keeps the current account of the balance of payments balanced and what it calls industrial equilibrium exchange rate, the rate that would preserve the competitiveness of manufacturing firms operating at the state-or-art frontier. ND acknowledges that these rates may be disturbed by financial flows, but the role of capital account movements may be underestimated. The paper argues that financial flows have indeed been underestimated, which may make more difficult to devise efficacious policies to correct the problem of currency overvaluation.
JEL Classification: F31; O11; O14.
Keywords: New Developmentalism Exchange Rates Interest Rate Parity Theory