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An analysis of the informal sector and alternative closure rules in two computable general equilibrium models: The Peruvian heterodox experience
Abstract
This dissertation examines Peru's experience with heterodox economics under Alan Garcia through the use of two computable general equilibrium models. The models are part of the structuralist tradition, but differ with respect to the role of foreign exchange and the closure rule, and correspond to different years during Garcia's tenure. Output is disaggregated into 18 domestic goods and an imported good. The domestic goods are produced by 18 formal and 6 informal processes and the integration of informal activity into a macro model is the major theoretical innovation of this dissertation. Formal and informal processes are differentiated by their social relations of production and the models have three classes: formal sector workers, informal sector producers and capitalists. The distinctive production technologies and economic motivation between formal and informal processes mean these activities have different economic implications which depend upon the economic regime. The effect of informal activity on the adjustment process is traced through both models and the effect of macro policy on these activities is examined. In addition, the dissertation also seeks to explain the initial success and subsequent demise of the heterodox package through a series of comparative static simulations where prices, output, and other key variables are determined endogenously. The first set of simulations shows how the heterodox package reactivated the domestic economy, but produced a foreign exchange constraint. The second set of simulations illustrates how these same policies become ineffective once the foreign exchange constraint emerges. The final two simulations examine devaluation in both models and show that the stagflationary effects of devaluation only hold in the demand determined model. The generally positive results of devaluation and the ineffectiveness of heterodox policy in the foreign exchange constrained model suggest that the importance of this regime change was not understood by policy makers in Peru. Using these results, the dissertation argues that the failure to modify the heterodox package in the face of this new macro environment was directly responsible for the collapse of the heterodox experiment in Peru.
Subject Area
Economics
Recommended Citation
Kelley, Bruce Robert, "An analysis of the informal sector and alternative closure rules in two computable general equilibrium models: The Peruvian heterodox experience" (1990). Doctoral Dissertations Available from Proquest. AAI9110164.
https://scholarworks.umass.edu/dissertations/AAI9110164