Successful economic development to a large extent derives from the mobilization of underemployed resources. Demand policy can play an important role. It is critical, however, to consider balance of payments constraints and to ensure an expansion of investment in the modern sector. A combination...

Recent empirical studies have found a robust correlation between competitive exchange rates and economic growth in developing economies. This paper presents (i) a formal model to help explain these findings and (ii) econometric evidence on the relation between investment and the real exchange...

Growth is endogenous in small open economies with substantial hidden or open unemployment, even under constant returns to scale. Growth promoting policies, however, have implications for the balance of trade, and two instruments are needed in order to achieve targets for both the growth rate and...