Razmi, Arslan

Job Title

Associate Professor, Department of Economics

Last Name

Razmi

First Name

Arslan

Discipline

Economics

Expertise

Development economics
History of economic thought
International trade
Open economy macroeconomics
Political economy

Show all metadata

Search Results

Now showing 1 - 10 of 16

The Real Exchange Rate and Economic Development
(2011-05) Razmi, Arslan; Rapetti, Martin; Skott, Peter
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 rate. The model emphasizes the existence of (hidden) unemployment as a source of endogenous growth, even under constant returns to scale. Growth promoting policies, however, affect the external balance, and two instruments are needed in order to achieve targets for both the growth rate and the trade balance. The real exchange rate can serve as one of those instruments. The implications of the model for the relation between real exchange rates and the rate of capital accumulation find support in our econometric analysis.
Sustained Exchange Rate Misalignment and Economic Development
(2022) Martins, Guilherme Klein; Razmi, Arslan
Employing propensity score reweighting and event-based strategies, we provide evidence that sustained real exchange rate (RER) misalignments have significant effects on economic development: positive on GDP per capita and capital stock in the case of undervaluation, and negative on the capital stock in the case of overvaluation. Moreover, a large set of structural parameters are tested, and the results point to some structural changes during and after these episodes: real undervaluations increase investment and the share of intermediate and capital goods imported, and decrease the shares of consumption, wages, the services sector, and consumption goods imported. Overvaluations cause a reduction in investment, and an increase in the share of the services sector, and of commodities and natural-resources in exports. We also find evidence that these effects are heterogeneous by income level. Our approaches to analyzing sustained misalignments help us address endogeneity and heterogeneity concerns, mismeasurement issues, identify causal channels, and incorporate issues relating to expectations and other mechanisms that play an important role in structural transformation.
Sustained Investment Surges
(2017) Libman, Emiliano; Montecino, Juan Antonio; Razmi, Arslan
Existing empirical studies have focused on determinants of investment. We focus instead on episodes of accelerated capital stock growth that last eight years or longer. We find that episodes are relatively common, even in low growth regions, but more so in middle income and Asian countries. After identifying 175 such episodes between 1950-2014, we employ probit analysis to explore their characteristics. Turning points in investment tend to be preceded by undervalued real exchange rates, macroeconomic stability (low inflation), and net capital outflows (especially portfolio outflows). We also find strong evidence for a negative correlation with the capital to output ratio and per capita GDP, and a positive correlation with a human capital index. Investment surges appear to be associated with accelerated structural change in the economy.
Growth and Distribution in Low Income Economies: Modifying Post Keynesian Analysis in Light of Theory and History
(2015) Razmi, Arslan
Growth in low-income developing economies with large sectors characterized by underemployment is unlikely to be wage-led in the traditional neo-Kaleckian sense of the term. Output and employment in the sectors of the economy producing non-tradable output could be demand-led, however, and policies directly aimed at more equitable distribution in these sectors could boost long-run growth. Some of the fast growing Asian economies may have been examples of wage-led growth in this rather different sense of the term. Over time, re-distributive measures in the traditional sector, such as land reforms, could lead to faster wage and output growth across the economy.
Is the Nature of the Demand Regime Relevant Over the Medium Run? Revisiting Distributional Issues in a Portfolio Framework Under Different Exchange Rate Regimes
(2015) Razmi, Arslan
Is growth in capitalist economies wage-led or profit-led? Empirical studies have found conflicting results for different countries and periods. Possible reasons may include the endogeneity of distributional shares, differences in the monetary policy/exchange rate regimes across countries, and divergence between macro behavior in the short- and medium-runs. I theoretically explore these possibilities using a portfolio balance framework to keep track of asset stocks and wealth effects over time. With fixed exchange rates, the Central Bank’s need to intervene in the asset market via official reserve transactions results in assigning a crucial role to the current account in constraining accumulation and output. The binding nature of this constraint vanishes with flexible exchange rates. Regardless of the exchange rate regime, the most important message that emerges is that, once we impose plausible constraints on dynamic behavior, the demand regime ceases to determine the effect of redistribution on the steady state levels of utilization, profit rates, capital, and wealth.
Political Economic Drivers of Real Exchange Rate Levels
(2022) Ugurlu, Esra Nur; Razmi, Arslan
Voluminous theoretical and empirical research shows that real exchange rate (RER) undervaluation could be conducive to economic development. Why do countries then often avoid the pursuit of policies that facilitate undervaluation or even intentionally pursue RER overvaluation? We address this question by investigating the economic/structural, institutional/political, and policy factors that explain the within-country variation in RER undervaluation in a baseline panel of 68 developing and 39 developed countries between 1988 and 2012 using OLS and GMM estimators. Our results indicate that the sectoral structure of the economy, functional distribution of income, the dependence of exports on imported inputs, the degree of central bank independence, balance sheet vulnerabilities, and technological sophistication are important determinants of RER levels. Our key results are robust to using alternative measures, estimation techniques, different samples, and additional control variables.
Correctly Analyzing the Balance of Payments Constraint on Growth
(2013) Razmi, Arslan
The BPCG model provides an interesting hypothesis regarding economic growth. The main implication is that world demand places a constraint on individual country performance. I discuss this implication and argue that tests of the BPCG model have essentially been tests of the hypothesis that trade is balanced over the long run; a plausible hypothesis but one that need not hold mainly due to demand-side constraints. I then discuss the role of relative prices and investment, point out logical inadequacies in the traditional BPCG framework, and suggest an alternative theoretical framework to investigate its robustness. Our theoretical and empirical explorations contribute to reconciling evidence supporting the BPCG hypothesis with recent work that consistently finds an important role for the level of the real exchange rate and investment, independently of world demand growth.
Imposing a balance of payment constraint on the Kaldorian model of cumulative causation
(2011-10) Razmi, Arslan
We combine two strands of Post Keynesian growth theory by imposing a balance of payments constraint on a Kaldorian cumulative causation model. The effects of external and internal shocks, and the degree to which cumulative causation comes into play depends on the exchange rate and capital account regimes. Exports act as the only exogenous drivers of growth only under a regime of fixed exchange rates and in the absence of relative price effects. Under flexible exchange rates, by contrast, it is internal demand that serves as the only exogenous driver of of growth. Moreover, regardless of the type of shock, the presence of cumulative causation does not boost growth, although it may render growth more sustainable.
Environmental Macroeconomics: Simple Stylized Frameworks for Short-Run Analysis
(2013) Razmi, Arslan
Environmental economics has mostly focused on micro issues pertaining to welfare and efficiency analysis. I develop a general framework to address short-run issues both for a closed economy and for an open one where emission permits are globally traded. Fiscal policy and emission permit issuance can both be used as short-run stabilization tools in a closed economy although the former is ineffective in a small open economy. In a large open economy, issuing emission permits in excess of international agreements remains an effective instrument, although it acts as a beggar-thy-neighbor policy, highlighting the crucial role of global monitoring on macroeconomic grounds.
The exchange rate, diversification, and distribution in a modified Ricardian model with a continuum of goods
(2010-09) Ramzi, Arslan
Several recent empirical and theoretical studies have revived interest in the relationship between the level of the exchange rate and economic development. This paper develops a dynamic model based on the Ricardian framework with a continuum of goods to consider the issue from a somewhat different perspective. In the short run, a devaluation can boost profits in spite of real wage rigidity. Moreover, the resulting diversification can offset the negative consequences for the trade balance of higher employment and profitability at home. Over the longer run, and in the presence of learning-by-accumulation, the initial boost to profits and investment induced by a devaluation could enable a country to gain a permanent foothold in new sectors at a higher real wage. While directly suppressing the real wage could also lead to diversification, what makes nominal devaluations a particularly useful tool is that these make it possible to expand domestic profits while limiting internal distributional con.ict and the ensuing negative effects on development.