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Price Competition and the Fallacy of Composition in Developing Country Exports of Manufactures: Estimates of Short-Run Growth Effects

Author

Listed:
  • Arslan Razmi

    (University of Massachusetts Amherst)

  • Robert Blecker

    (American University)

Abstract

This paper studies whether intra-developing country price competition has significant effects on the short-run growth rates of developing countries that are specialized in manufactured exports. Regression estimates using the generalized method of moments (GMM) applied to annual panel data for 17 developing countries in 1983-2004 show that these countries exhibit a “fallacy of composition,” in the sense that a real depreciation relative to competing developing country exporters increases the home country’s growth rate in the short run. The results also suggest that real depreciations for these developing countries relative to the industrialized countries are contractionary. JEL Categories: F43, O19, O14, F14

Suggested Citation

  • Arslan Razmi & Robert Blecker, 2005. "Price Competition and the Fallacy of Composition in Developing Country Exports of Manufactures: Estimates of Short-Run Growth Effects," UMASS Amherst Economics Working Papers 2005-18, University of Massachusetts Amherst, Department of Economics, revised Sep 2006.
    • Handle: RePEc:ums:papers:2005-18
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    Keywords

    Export-led growth; fallacy of composition; terms of trade; manufactured exports; contractionary devaluations; competitive devaluations.;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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