NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Deindustrialization, Reindustrialization, and the Real Exchange Rate

Paul R. Krugman

NBER Working Paper No. 2586
Issued in May 1988
NBER Program(s):   ITI   IFM

This paper models an economy in which it is costly to move resources between the tradeable and nontradeable sectors. The economy is subject to capital flows that are unpredictable and are perceived as having only limited persistence. The model shows that both the fact that capital flows are perceived as temporary and uncertainty per se act to limit the responsivesness of resource reallocation to real exchange rate movements. In turn, this reluctance of factors to move widens the range of real exchange rate variation, so that larger movements of the real exchange rate are needed to accommodate transitory, unpredictable capital flows than would be required to accommodate persistent, predictable flows of the same magnitude. The model also shows that large capital inflows that lead to real exchange rate appreciation large enough to induce resource reallocation will typically be followed by a depreciation of the real exchange rate to below its original level.

download in pdf format
   (188 K)

email paper

This paper is available as PDF (188 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2586

Published: Published as "Differences in Income Elasticities and Trends in Real Exchange Rates", EER, Vol. 33, no. 5 (1989): 1031-1046.

Users who downloaded this paper also downloaded these:
Krugman w5473 Domestic Distortions and the Deindustrialization Hypothesis
Krugman w2424 Adjustment in the World Economy
Krugman w1957 Industrial Organization and International Trade
Krugman w0356 International Trade and Income Distribution: A Reconsideration
Krugman w2587 Market-Based Debt-Reduction Schemes
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us