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A Note on Monetary and Non-Monetary Analyses of LDCs Balance of Payments Problems

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  • IQBAL ZAIDI

    (Department of Economics, Princeton University)

Abstract

Although balance of payments problems have been pervasive in the developing economies, there is little agreement amongst economists as to the causes and the cures for these problems. This paper focuses upon two models of the balance of payments: the two-gap model and the monetary approach to the balance of payments (MAEP). The two-gap model describes the chronic excess demand for foreign exchange in the developing economies as structural in origin, and implies that monetary cures for it do not seem to be relevant. MAEP, on the other hand, describes balance of payments deficits as reflecting disequilibrium in the money market and hence must be treated as a monetary phenomenon, requiring the use of tools and concepts of monetary theory. Balance of payments disequilibrium involves an inflow or outflow of international money, and the behaviour of monetary authorities is regarded as crucial to any sensible study of the balance of payments.

Suggested Citation

  • Iqbal Zaidi, 1978. "A Note on Monetary and Non-Monetary Analyses of LDCs Balance of Payments Problems," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 17(3), pages 345-354.
    • Handle: RePEc:pid:journl:v:17:y:1978:i:3:p:345-354
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