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...

Chronic inflation and the importance of the exchange rate as a nominal anchor for the domestic price level have led some Latin American countries to consider returning to a fixed dollar exchange rate. John Welch and Darryl McLeod examine the costs and benefits of real exchange rate movements and...

Maintaining a weak real exchange rate is a widely recommended growth strategy, in part because of the success of Asian exporters, most recently China. Simulations of a simple two-sector open economy growth model based on Matsuyama (1992) suggest that a weaker real exchange rate can lead to a...

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...