Foreign exchange constraints and developing countries

Abstract

This paper presents a model of developing countries in which a foreign exchange constraint and imported intermediates are central features. The model is used to carry out different scenarios with respect to developing countries' economic performance in the 1990s. A baseline simulation shows that the real annual growth rate of per capita GDP for sub-Saharan Africa is zero or even negative during the 1990s; for the Asian and Latin American countries it will exceed 2.5%. Alternative scenarios assess the effects on developing countries' economic growth of higher economic growth in the industrial countries, an increase in total factor productivity growth in industrial countries, and an increase in ODA donations.