How likely is trade liberalization to produce efficiency gains in the presence of imperfect competition, scale economies, and higher-than-average wages in the modern sectors -- all common features of developing economies? These features create a potential conflict to the extent that traditional...

This article considers the countries' responses to the commodity and oil price shocks of the 1970s in the light of their inability to use the nominal exchange rate as a tool of macroeconomic adjustment. Using a two-sector model, it shows that there exist instruments that permit the real exchange...