Undervalued poor countries exchange rates

Chris Burford cburford at gn.apc.org
Sun Aug 26 07:41:27 PDT 2001


At 17/08/01 09:30 -0700, Brad DeLong wrote:

Responding to a thread entitled


>Re: A long way to go still ....

started off by Ian with an article from the FT of the previous day which said:


>The champions of liberal markets are in full retreat. There is only one
>way they can make themselves heard again over the angry shouts of the
>protesters. They must stop making the case for globalisation - and start
>fighting the cause of better globalisation.

Brad:


>The world structure of relative prices is stacked against them. Because
>current exchange rates for poor countries are far below
>purchasing-power-parities, it requires a *huge* proportional sacrifice in
>terms of current consumption to produce even a small domestically-financed
>investment effort.
>
>This is one of the biggest of the vicious circles that keeps poor
>countries poor.

Yes, my impression too. Any illustrative data of what we are talking about?

Above all *why* are the exchange rates for poor countries far below purchasing power parities?

Is this an effect of something else?

Chris Burford



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