Dvoskin Feldman 2018c

Review of Keynesian Economics, Vol. 6 No. 3, Autumn 2018, pp.
369–386
Income distribution and the balance of

payments: a formal reconstruction of some
Argentinian structuralist contributions
Part II: Financial dependency*
Ariel Dvoskin
CONICET–CEED/IDAES, Ciudad Autónoma de Buenos Aires, Argentina
Germán David Feldman

CEED/IDAES, Ciudad Autónoma de Buenos Aires, Argentina
In this two-part paper, we explore the interaction between income distribution and the bal-
ance of payments, by assessing the contributions of three Argentinian exponents of the
Latin American Structuralist School: Adolfo Canitrot, Oscar Braun and Marcelo Diamand.
With this aim, we introduce a two-sector model inspired by the classical tradition. While
Part I discussed the role of ‘technical dependency’, Part II examines the implications of
‘financial dependency’. That is, the influence exerted on the profit rate of peripheral econ-
omies by the international profit rate. The main conclusion is that this new phenomenon
reinforces the negative consequences of technical dependency on the economy’s capacity
to grow, and further restricts workers’ possibilities of bargaining for higher real wages.
Keywords: balance of payments, income distribution, financial dependency, Latin

American structuralism
JEL codes: B22, B31, E2, E3
1 INTRODUCTION
In Dvoskin and Feldman (2018), we developed an analytical framework inspired by

the classical tradition (exogenous distribution) to investigate the interaction between
income distribution and the balance of payments, through the works of three Argenti-
nian Structuralist scholars: Adolfo Canitrot, Oscar Braun and Marcelo Diamand. The
model allowed us to represent the implications of ‘technical dependency’, namely the
inelastic demand for imported means of production required to produce final industrial
goods. In the historical context of the 1950s and 1960s, this phenomenon constitutes a
major obstacle to sustained growth in Latin American economies. This problem man-
ifests itself in the recurrent balance-of-payments crises that afflicted the region during
* We would especially like to thank the editors of the journal and two anonymous referees
for their highly valuable comments and suggestions in an earlier version of this article. All the
remaining errors are ours.
© 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd
The Lypiatts, 15 Lansdown Road, Cheltenham, Glos GL50 2JA, UK
and The at
Downloaded from Elgar Online William Pratt House,
07/26/2018 9 Dewey Court,
01:43:19PM Northampton MA 01060-3815, USA
by katie.smith@e-elgar.co.uk
via Katie Smith
370 Review of Keynesian Economics, Vol. 6 No. 3
those years, with negative consequences on output and employment, and regressive
effects on income distribution.
As we have opportunely discussed, our framework is open to different distributive clo-
sures. Under the historical conditions discussed in Part I, signed by low capital mobility
across countries, it was equally plausible to assume a given real wage or a given rate of
profits, even though Argentina’s institutional conditions (powerful labour unions)
strongly suggested going for the first alternative. The fact is that this closure loses
much of its plausibility from the 1970s onwards, when the US decided to abandon
the fixed parity of the dollar with gold, and moved towards a currency regime of
free-floating, prompting the collapse of the monetary rules of the Bretton Woods system.
And, together with the worldwide expansion of floating exchange rates, a process of
strong financial deregulation took place, leading to the progressive elimination of
barriers to international capital flows. From then on, capital flows would acquire greater
relevance to explain the behaviour of the balance of payments, prompting cycles of
relaxation and strengthening of the external constraint in developing economies.
The implication is that the negative consequences of technical dependency, while still
present, are reinforced by a new phenomenon, ‘financial dependency’, which, following
Tavares (2000), we can resume with as a strong influence of the international rate of
profits on the domestic rate, in particular when the former is determined by the monetary
authority of the central country that issues world money, typically the US Federal
Reserve. Therefore, in this second contribution, we use the same analytical framework
to study the implications of financial dependency in light of the works by these same
scholars, but in this case during the post-Bretton Woods era. As we shall see, within
this new institutional context, the real wage is the variable that will endogenously adjust
to give consistency to the price system.
Part II is structured as follows. In Section 2 we re-adapt the model developed in Part
I to account for the post-Bretton Woods era. In Section 3, we examine those works that
explore the consequences of financial dependency which operate through the trade
flows, while in Section 4 we assess those contributions that emphasize the mechanisms
which work through capital flows. Section 5 resumes the argument and presents the
main conclusions of this two-part work.
2 A TWO-SECTOR MODEL UNDER FINANCIAL DEPENDENCY
This section re-adapts the main features of the two-sector model, developed in
Dvoskin and Feldman (2018), to account for the interaction between income distribu-
tion and the balance of payments under the specific institutional conditions of financial
dependency.
There are two industries in the economy: an agricultural sector (A) and an industrial
sector (I). The two commodities distinguish themselves by two main features: com-
modity A, on the one hand a1) only uses domestic inputs and a2) is produced both
for domestic and world markets. Commodity I, on the other hand, i1) uses imported
inputs in its production and, i2) cannot compete abroad and, hence, is only domesti-
cally consumed. Features a1) and i1) are represented by the following two equations:
psA ¼ wlA ð1 þ rÞ (1)
pSI ¼ ðwlI þ bEpM Þð1 þ rÞ; (2)
Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

via Katie Smith
Income distribution and the balance of payments – Part II: Financial dependency 371
while equations (3) and (4) express both commodities as tradable goods:
pdA ¼ EpA (3)
pdI ¼ EpI ð1 þ τÞ: (4)
psj , pdj and pj stand, respectively, for the supply price (or cost of production) of com-
modity j = A, I, its demand price (the maximum value consumers are willing to pay
for each commodity), and its internationally given price. And w, r, E, pM , lj , b and τ
are, respectively, the nominal wage rate, the rate of profits, the nominal exchange
rate, the international price of the imported input M, the unitary coefficients of labour
of commodity j, the unitary requirement of the imported input in the production of I
and the import tariff (on the need of τ, see below).
The four equations have eight unknowns: E; r; w; psA , psI , pdA , pdI ; τ. The first degree
of freedom can be eliminated by fixing the nominal wage rate:
w ¼ w: (5)
To eliminate the second degree of freedom, consider the implications of ‘financial

dependency’. In terms of the distributive closure, this means fixing the rate of profits
from outside the system by the international rate of profits, r :
r ¼ r : (6)
The last two degrees of freedom are eliminated by considering the remaining specifi-
cities of the productive structure of Latin American countries (that is, the pattern of
specialization) summarized by the abovementioned features a2) and i2).
Notice that for each pair (w, r) there is a corresponding level of exchange rate
that allows sector j ¼ A; I to compete in international markets. This level is obtained
by equalizing the respective supply and demand prices for each commodity under
conditions of free trade. For sector A this level, EA , is obtained from conditions
(1) and (3):
wlA ð1 þ rÞ
EA ¼ ; (A)
pA
while for commodity I, the level EI is obtained from conditions (2) and (4), with
τ¼0:
wlI ð1 þ rÞ
EI ¼ : (B)
pI − bpM ð1 þ rÞ
The values EA and EI are the minimum levels of the exchange rate that allow each
sector to earn a given rate of profits. The left-hand side of Figure 1 illustrates condi-
tions (A) and (B).
In general, there will be only one rate of profits ^r ; such that EA ¼ EI ¼ E ^ and the
two sectors will coexist. When, for instance, the effective rate, r , is higher than ^r , then
EA < EI . This means that, for given money wages, sector A can afford a higher w=E

via Katie Smith
r r A
A
r* I r* I
r^ r^
E^ EA* EI* E E^ EA* EI* E
–1 –1
Figure 1 Wage curve in the small open peripheral economy
ratio than sector I (which is none other than a higher real wage, ω; see below). There-
fore, unless an import tariff is imposed on the latter, the economy will fully specialize
in the production of primary commodities. In contrast, full specialization in sector I
will occur whenever r < ^r . The outer envelope of Figure 1 (right-hand side) depicts
the economically relevant E – r space. Given that a rise in E increases pdj j ¼ A; I,
and hence causes, for given money wages, a decrease in the level of real wages, the
envelope can also be interpreted as a traditional ω − r curve for the small open periph-
eral economy.
Now, the abovementioned features a1) and i1) imply that, in general, r > ^r and
hence EA < EI . This in turn means that for sector A:
psA ¼ pdA ; (7)
while for sector I, psI > EpI and hence there is a positive τ (a tariff on imports), which
ensures the following condition will be satisfied:
psI ¼ ð1 þ τÞEpI ¼ pdI : (8)
Therefore, once conditions (7) and (8) are specified, equations (1)–(8) fully determine
the eight unknowns.
Before we finish this section, a final remark is worth making. In contrast to the
basic framework presented in Part I (Dvoskin and Feldman 2018), here, we do not
have any degree of freedom left. The reason is that, as shown by condition (6), the
assumption of free capital mobility strongly suggests, for a small open peripheral
economy, that the rate of profits is the distributive variable that should be considered
as exogenously given. And therefore, given money wages, the exchange rate
emerges as an endogenous variable. This seems, indeed, to be a suitable character-
ization of the ‘rules of the game’ that prevailed after the demise of the Bretton
Woods system, particularly characterized by floating currency regimes. At any
rate, the relevant point is that, given the rate of profits by (6), the w=E ratio is endo-
genously determined and hence one can either assume a given w as in condition (5)
or, alternatively, a given E.

via Katie Smith
3 FINANCIAL DEPENDENCY AND TRADE FLOWS
3.1 Canitrot (1975; 1980; 1983)1

We have seen in Dvoskin and Feldman (2018, sec. 3) that Canitrot’s 1975 contribution
is mostly concerned with the ‘semi-closed’ economy. Yet what is perhaps the most
salient consequence of free capital mobility, in terms of income distribution in periph-
eral countries, is already drawn in that work. ‘If the economy is inserted into a world
order, and capital is mobile’, he explains,
[g]iven a rise of wages and a consequent reduction of profits, investment resources flow out
of the country, investment vanishes and unemployment expands. This is due to the fact that
the rate of profits is determined at the international level and wages, in each country, are a
residual whose magnitude depends on labour productivity and the terms of trade of goods
and services. As a result, one concludes that a permanent redistribution of income, in favour
of wages and against profits, is incompatible with capital mobility. (Canitrot 1975, p. 333)
The assertion that free capital mobility is ‘incompatible’ with a ‘permanent redistribu-
tion in favour of wages’ is perhaps too strong;2 but, in any case, we fully agree with
Canitrot that the international mobility of capital significantly constrains the capacity
of workers in peripheral economies to resist the rise in the international rate of profits.
This explains why wages in those countries must be plausibly thought of as the ‘resi-
dual’ variable during the post-Bretton Woods era.
At any rate, we must wait until the second part of ‘Discipline as the central objec-
tive of economic policy’ (Canitrot 1980), ‘Theory and practice of liberalism’ (Canitrot
1981), ‘Social order and monetarism’ (Canitrot 1982) and ‘The real wage and the
external restraint to growth’ (1983) to find a more thorough explanation of the effects
of capital mobility on real wages in peripheral economies. Let us start with the first of
these works. Here, Canitrot specially focuses on the Argentine experience from the
second half of the 1970s to the beginning of the 1980s. During this period, the
Armed Forces governed the country, and advanced deep social and economic transfor-
mations. In particular, there is a process of strong economic liberalization, both of
international trade and financial flows.
The reason adduced for the reforms is an alleged inefficiency of the industrial sec-
tor, a problem, as is further argued by the military government, that could, however,
be solved if domestic industrial production were exposed to international competi-
tion. But in Canitrot’s view this argument is ‘incomplete’ (1980, p. 917), to say
the least. It ignores or forgets that since the mid 1960s Argentina slowly, but persis-
tently, starts exporting industrial goods too; and when the military government took
power, the phenomenon ‘had reached major proportions, representing half of the
country’s exports’ (ibid., p. 919), with the consequence that the model of industrial
production, as exclusively oriented to the domestic market, ‘seemed to be progres-
sively dissolving’ (ibid., p. 919).3 ‘Neither the doctrinal foundations of the diagnosis
1. The quotations herein reproduced are translated into English by the authors except those
from Canitrot (1980).
2. For instance, if the riskless international rate of profits increases, a rise in real wages will
be possible if the net profits of enterprise decrease (this is in fact how Canitrot himself reasons in
some cases; see Part I, sec. 3.2).
3. In terms of the model, this idea can be easily illustrated: a fall of lI and/or b decreases the
supply price of I and hence tends to close the gap with the international price expressed in
domestic currency.

via Katie Smith
nor the critical judgements … are sufficient to explain its adoption [of the economic
plan]’ (ibid., p. 918).
Therefore, Canitrot continues, the real reasons for economic liberalization are dif-
ferent from those adduced by the Armed Forces. They actually aim to eliminate the
social tensions over income distribution that emerged during the 1960s and early
1970s. These tensions, which are feared to ‘destroy the prevailing social system’
(ibid., p. 919), are seen as the outcome of the ‘disruptive and dominating influence
of Peronism and the sectors it represented’ (ibid.): the working class. The low levels
of unemployment and strong labour unions during the postwar era progressively
allowed workers to gain power, and achieve substantial increases in real wages. The
restitution of the desired social ‘order’, Canitrot concludes, required ‘disciplining’
the labour force through ‘authoritarian political reforms’ (ibid.); that, among other
things, prompted considerable reductions in the level of real wages.4 The disciplinary
aspects of trade liberalization will be assessed in the following sub-section, while the
discussion of those mechanisms that operate through capital flows will be given at the
beginning of Section 4.
3.1.1 Disciplinary effects of trade liberalization

To explore the effects of trade liberalization on distribution we must eliminate the tariff
on imports of commodity I (τ). Notice that this is tantamount to revaluing the effective
exchange rate faced by industry. Under the assumption that r > ^r (see Figure 1), the
corresponding effective exchange rate implies the following relationships between
supply and demand prices:
psA ¼ EpA (7)
psI > EpI : (80 )
Therefore, the industrial sector will no longer earn the normal profit rate and will even-
tually disappear, with negative effects on industrial employment and normal output,
effects that may very likely imply, over sufficiently long periods, an erosion of the
power of trade unions, and hence a fall in the rate of industrial real wages.5 This is,
in effect, what occurred in Argentina at the end of the 1970s.
Notice, however, that this erosion of industrial wages, if persistent and severe
enough, and precisely of such a magnitude as to allow the decrease in industrial sup-
ply prices down to the new lower demand price faced by industry (which, recall, has
decreased from ð1 þ τÞEpC to EpC ), may partially reverse the trend of deindustriali-
zation.6 There is, in other words, a maximum rate of money wages in foreign cur-
rency that sector I could afford, wEI , if industrial production is to yield the normal
rate of profits, r , and, therefore, the economy can continue with the production of
4. Rapoport (2000, pp. 820–821) documents that the wage share fell from 45 per cent in 1974
to 26 per cent in 1983, when democracy was reinstalled.
5. To this effect we must add those direct extra-economic measures, brutally taken by the
Armed Forces, to dismantle trade unions: ‘The labour unions had been taken over, and their lea-
ders massively purged’ (Canitrot 1980, p. 924).
6. Partially because, while the level of industrial exports may increase, it need not compensate
for the fall in domestic absorption caused by the lower rate of real wages.

via Katie Smith
I in the long run. 7 This upper limit is endogenously determined by the equality
between supply and demand prices for I:
wI pc bpM
¼½ − : (800 )
E ð1 þ r ÞlC lC
This implies the existence of two different rates of money wages: condition (5) is still
valid, but only for the agrarian sector, while the wages in sector I are endogenously
determined by (8″).8 In this regard, Canitrot stresses:
Wages would be regulated indirectly via the market for final goods, which would, in turn, be
determined by world prices for the same products, and by the exchange rate. Industrial enter-
prises would not be free to negotiate en bloc with wage earners beyond this upper limit … .
The ideological motivations [of the economic plan] … contain the intention not only to con-
trol the behaviour of wage earners, but also to discipline the managerial class itself by orga-
nizing the economy in order to eliminate any temptation to make spurious agreements with
the lower classes. (Canitrot 1980, pp. 920–921, emphasis in the original)
Notice how Canitrot also remarks that, under financial dependency, trade liberalization
breaks with the association of interests between industrial workers and capitalists dis-
cussed in Part I (see Dvoskin and Feldman 2018, sec. 3.3.1), inaugurating a new era
in which the conflicting double nature of wages for industrial production, namely as a
cost and as a source demand, is again put at the centre of the political arena.
3.2 Braun (1973)9

We now consider a second possible manifestation of financial dependency through the
flows of trade, provided by Oscar Braun in International Trade and Imperialism (1973),
an extension of Emmanuel’s theory of ‘unequal exchange’ (see Emmanuel 1972).10
Braun accepts Emmanuel’s general framework. However, he notes that if unequal
exchange is ultimately explained by the relative level of real wages in peripheral
(‘dependent’) countries,
why then … do commodities produced in dependent countries not easily conquer imperialist
[central] markets? Why, on the contrary, do dependent countries have permanent difficulties
to equilibrate their balance of payments? (Braun 1973, p. 53)
7. In fact, Canitrot observes that higher wages could be negotiated by individual firms if they
were ready to accept a lower rate of profits; but these negotiations, as he accepts, would be
‘highly exceptional’ (Canitrot 1980, p. 921).
8. The possibility that, in order to produce and export more than one commodity, a country
must differentiate wages across sectors, is suggested by Steedman (1999, p. 272).
9. As will become clear below, this model slightly departs from the basic framework devel-
oped in Section 2: it assumes that the conditions of production of the domestic economy regulate
the international supply price of A. This is why we have decided to present Braun’s model after
Canitrot’s (1980) work, even though the former takes chronological precedent.
10. As is perhaps well known, Emmanuel argues that wage differentials among countries explain
why relative prices persistently differ from ‘prices of production’ (the values around which effec-
tive prices would gravitate if not only the rate of profits, but also wages, were homogeneous across
countries). And given that workers of industrialized central countries are able to obtain an increas-
ing wage gap with respect to workers in the periphery, terms of trade of the imperialist country will
improve. (For a detailed analysis of Emmanuel’s view, see Brewer 1990, ch. 9).

via Katie Smith
Why, in other words, is unequal exchange not eventually eliminated by competition

among capitals? Braun answers that ‘production of certain commodities is monopo-
lized by the centre’ (ibid., p. 106). This is because ‘the cost of production of capital
goods would be so high, that for practical effects its production would be impossible’
(ibid., p. 61). But then he further argues that ‘certain goods employ production meth-
ods protected by patents available in developed countries only … . Hence, at least for a
period of several years, some commodities require imported inputs to be produced’
(ibid.).
It seems clear, then, that technical dependency is still relevant for the analysis.
However, since the former is now combined with financial dependency, Braun finds
a new manifestation of the asymmetry between peripheral and central countries: the
possibility that central economies univocally determine their real wage and rate of
profits independently from one another, thus leaving the burden of the adjustment to
the real wage of peripheral economies. As we shall see, this effect will be achieved
through the introduction of trade barriers that negatively affect the terms of trade
faced by least-developed countries.
Imperialist countries can force dependent countries to sell at low prices, through the imple-
mentation of a discriminatory trade policy; by setting tariffs and other kinds of barriers on
exports from dependent countries they force them to expand their exports [from dependent
countries] at low prices in order to equilibrate their balance of payments. (Ibid., p. 27)
In the first chapter of his book, Braun has recourse to Sraffa’s (1960) framework to
examine these issues, by assuming that each country produces only one commodity
that is also exported. We must wait for the second chapter (Braun 1973, p. 72) to
find, albeit only in textual form, the development of a specific model, more suitable
to an understanding of economic reality as faced by Latin American countries,
which produce and export primary commodities, and import capital goods and inputs
of widespread use.
Let us assume only two countries: a highly developed country, that we shall call I, which can
produce all kind of commodities employing labour, capital and natural resources, and a
dependent country, that we shall call D, which besides these same inputs, for the production
of some commodities, needs imported machinery, semi-produced goods, primary goods, or
even services from the developed country. … To simplify the analysis further, let us assume
that D produces only two goods; one that does not require imported inputs and, because it is
produced at a relatively cheap cost, is both domestically consumed and exported, which we
shall call ‘primary goods’; and another good that must be produced by a fixed proportion of
imported inputs and that is domestically consumed, which we shall call ‘industrial goods’.
(Braun 1973, p. 61)
We find here the main structural features of the model summarized in Section 2. How-
ever, to formalize the distributive conflict between ‘dependent’ and ‘imperialist’ work-
ers, we should slightly depart from the basic framework, and abandon the assumption
of given international prices for the small open peripheral economy. We assume
instead, that country D can influence the international price of the agrarian commodity,
which is, in turn, consumed by the workers of the central economy. (All this can be
rationalized by assuming that the peripheral economy actually represents the whole
bloc of exporters of A11).
11. See Serrano (2013).

via Katie Smith
It is also convenient to rewrite the equations to explicitly distinguish between wages

paid in the dependent country, wd , from those paid in the imperialist economy, wi . To
simplify the analysis, we further assume that commodity I is not exposed to foreign
competition (hence we can neglect the import tariff, τ). We therefore have:
wd
pA ¼ lA ð1 þ rÞ (10 )
E
pI wd
¼ ð lI þ bpM Þð1 þ rÞ: (20 )
E E
In equation (1′), it is assumed that pA is determined by the conditions of production

and distribution of country D. For convenience, equations (1′) and (2′) are expressed
in foreign currency.
We need now to consider explicitly the conditions of production of the imported
input, M. As Braun assumes that its production in the imperialist country does not
need imported inputs from D, we may, for simplicity, assume that it is produced by
means of labour only:
pM ¼ wi lM ð1 þ r Þ; (9)
where lM is the unitary labour coefficient of commodity M and r is the given international
rate of profits. Equations (1′), (2′) and (9) are the relevant conditions to determine the six
unknowns: pA ; pEI ; pM ; wEd ; wi ; r.
We eliminate the first degree of freedom by fixing the price of the industrial good as
the numéraire.
pI
¼1 (10)
E
The second degree of freedom is eliminated by fixing the rate of money wages in the
foreign country:
wi ¼ wi : (11)
Finally, we eliminate the last degree of freedom by assuming that, due to free capital
mobility across countries, the peripheral rate of profits is given by the international
rate (Braun 1973, pp. 41–46).
r ¼ r (12)
As we shall see in a moment, this allows Braun to focus on the effects on wEd and pA of
the introduction of subsidies on commodity A by the imperialist economy.12
12. Braun (1973, pp. 65–70), additionally examines the negative effect of an import tariff on
the supply price of A. This influence is, however, assumed to work indirectly through its nega-
tive effect on the foreign demand for A. Due to the further and rather restrictive assumption of a
backward-bending supply curve of A, Braun shows how the reduction of the quantity demanded
eventually reduces the supply price. The effect of the subsidy considered in the main text is far
more general, since it does not need to assume any specific price–quantity relation.

via Katie Smith
3.2.1 Effects on income distribution

To examine the effect of the subsidy (s), let us first recall that Braun assumes that com-
modity A can also be potentially produced by the imperialist economy (‘[country] I
can produce all kinds of commodities’), although at higher prices (ibid., p. 52):
psA ðiÞ ¼ wi liA ð1 þ r Þ > pA ; (13)
where psA ðiÞ is the supply price of A in country I at the given rate of profits and liA is the
unitary labour coefficient.
Let us now define the real wage of the imperialist country in terms of commodity A:
wi
ciA ¼ : (14)
pA ðr Þ
If the imperialist country aims to increase ciA without affecting the level of r , it can
introduce a subsidy of magnitude s that allows imperialist producers to reduce their
supply price below pA . For this, s must be such that:
s > psA ðiÞ − pA0 ; (15)
where pA0 is the international price determined by the conditions of production of the
peripheral economy. Now, the new international price of A is:
pA1 ðr Þ ¼ psA ðiÞ − s: (100 )

wd
At the new lower international price, for a given E, the supply price in country D is
above the new selling price:
pA1 ðr Þ
ð1 þ r Þ > : (16)
lA wEd
In other words, domestic production cannot realize the normal rate of profits (‘the
introduction of trade barriers will affect, in the first place, the rate of profits in depen-
dent countries’, Braun 1973, p. 115), unless there is a sufficient reduction in wEd and,
hence, in the real wage. On the other hand, as seen in equation (14), the fall in the
international price of A increases the real wage in country I.
The distributive conflict between peripheral and imperialist economies is illustrated
in Figure 2, which is derived from equation (1) (left-hand side) and equation (14)
(right-hand side).
Moreover, it is important to notice that the terms of trade (ToT) worsen in the
periphery due to the decrease in the price of commodity A.
#pA
ToT ¼ (17)
pM
Notice how in Braun’s model both technical and financial dependencies interact
to determine the effect of the subsidy on the level of wd . On the one hand, technical
dependency forces country D to accept a reduced price for its exports (and to export
an increased quantity of A – see next section) to pay for its imports of commodity M.
(In contrast, through the introduction of trade barriers, country I can always induce a

via Katie Smith
r r
r* r*
wd * wd * wd * ) C i (P * )
CAi (PA0 CAi
( pA1) E ( pA0) A A1
E E
–1
Figure 2 Effect of a subsidy on income distribution in imperialist and peripheral

economies
substitution of the imports of A with domestic production, and hence exert an influ-
ence on the international price.) On the other hand, financial dependency implies that
the burden of the adjustment ultimately falls on the workers of country D. Had free
capital mobility been absent, the domestic rate of profits could have been affected
too. Little wonder that Braun asserts: ‘Dominant classes will more or less easily
pass the burden of this reduction [of r] to other social classes’ (Braun 1973, p. 115).
3.2.2 Effects on the balance of payments

In view of the effects on wd and ToT, ‘we might’, so Braun argues, ‘reconsider the
well-known phenomenon of the external constraint, or the recurrent deficits, suffered
in the balance of payments of dependent countries’ (Braun 1973, p. 117). It is, in
effect, clear, given the quantities of A exported to country I, that the fall in ToT (equa-
tion (17)) will worsen the balance of payments, and if the economy is initially in exter-
nal equilibrium, an incipient disequilibrium will emerge. In the attempt to correct these
imbalances, Braun asserts, the Government can contract the level of economic activity
and hence of imports ‘with consequent unemployment and the reduction of money
wages’ (ibid., p 66); or it may devalue the currency in order to increase exports. How-
ever, the latter alternative is not actually available, since ‘in practice, the demand for
primary commodities is inelastic to changes in prices’ (Braun 1973, p. 68).
While the threat of the argument is very similar to the dynamics addressed in
Dvoskin and Feldman (2018, sec. 2), there are two important differences that should
be noted. First, while in the case of the stop-and-go cycles it was the expansion in the
level of output in D that endogenously triggered negative effects on the external sector,
thus eventually forcing a contraction of output and employment. Now, the logic is
reversed: the tensions in the external sector, exogenously caused by the introduction
of trade barriers, force the Government of the dependent economy to contract econ-
omic activity. Second, Braun now fully accepts that these negative effects can ‘repeat
and intensify themselves’ over a period ‘indefinitely long’ (Braun 1973, p. 118);
namely, they are not restricted to the business cycle only, but rather they exert a per-
sistent negative influence on real wages in the periphery.

via Katie Smith
4 FINANCIAL DEPENDENCY AND CAPITAL FLOWS
This section explores, always in light of the works by the three authors examined here,
some of the mechanisms through which the internationally given rate of profits influ-
ences the domestic profit rate, during the post-Bretton Woods era.
4.1 Canitrot (1980, second part; 1981; 1982) and Braun (1981)
4.1.1 Disciplinary effects of financial liberalization
We shall start with some of Canitrot’s early 1980s contributions and Braun (1981),
which all turn around the second aspect of the reforms put forward by the Armed
Forces, since they took power in 1976. Namely, the complete deregulation of capital
flows (‘The economic plan of 1976 makes the freeing of capital markets one of its fun-
damental objectives’, Canitrot 1980, p. 921).
The fact is that ‘The capacity of the [domestic] Central Bank to exert monetary pol-
icy is weakened’, as Canitrot (1982, pp. 33) remarks, since the behaviour of the risk-
less interest rate, i, is now ultimately governed by the decisions of the monetary
authority of the central country that issues world money (in this case, the US Federal
Reserve, or Fed). Then, Canitrot further explains:
The interest rate in domestic currency was determined by the substitution of interest-yielding
assets in this currency … and assets in foreign currency. In short-term equilibrium, this
means that the rate of interest in pesos is equal to the sum of the international rate, in dollars,
and the expected devaluation of pesos against dollars. (Ibid.)13
Let us abstract for the moment from devaluation expectations (see the following sec-
tion). The condition described by Canitrot then implies that:
i ¼ i : (18)
And given that the riskless domestic rate of profits tends, by arbitrage between the
financial and productive spheres, to equalize the money rate, the gross rate of profits,
r, follows the pace of the international rate of interest (see Pivetti 1991):
r ¼ i ; (19)
where, for the sake of argument, it is assumed that the net profits of enterprise (μ) are
equal to zero.
Of course, it is still the case that the real wage is the residual or endogenous variable
in the price system presented in Section 2. However, since r is now argued to be ulti-
mately determined by international monetary factors, we can neatly appreciate the con-
sequences of an increase in the reference interest rate, as happened in the United States
under the command of Paul Volker at the Fed at the end of the 1970s. We may dis-
tinguish between direct and indirect effects.
The direct effect is rather straightforward: to avoid capital outflows, the rise of i
pushes the domestic interest rate upward, thereby increasing the normal rate of profits.
As a consequence, the real wage decreases. As Braun argued in this connection,
13. See also Canitrot (1981, p. 145; 1983, p. 425).

via Katie Smith
[t]he essence of the plan [of the Armed Forces] was to increase the real interest rate … .
Someone has to pay for those interests. And this explains the fall in the real wage. (Braun
1981, pp. 88–89)14
Let us now examine the indirect effects of a rise in i . In the first place, one immedi-
ately notes that external debt now arises as a new alternative to finance the current-
account deficit. This is precisely what happened in Argentina from 1978 onwards,
when the process of financial liberalization was combined with exchange-rate appre-
ciation, leading to ‘a rapid growth of external debt’ (Canitrot 1980, p. 924). As a result,
the balance of payments can now be expressed as:
BP ¼ pA XA − pM bQI − Rði Þ þ KK; (20)
where Rði Þ represents the interest payments associated with the foreign debt, and KK
are the net capital inflows. In this regard, by raising interest payments, the rise of the
international interest rate also has indirect negative effects on the real wage, through
the tightening of the external constraint in the medium run: for a given level of econ-
omic activity, the current-account balance deteriorates. Unless new sources of finance
are found, the re-establishment of external equilibrium calls for a fall of import
demand, thus a devaluation that pushes the real wage (and hence domestic absorption)
downwards.
Canitrot (1983, p. 424) asserts in this connection that, besides deindustrialization,
the negative effects that financial services on the external debt exerted on the balance
of payments largely explain the real wage fall evidenced in the 1970s.15
4.2 Canitrot (1983) and Diamand (1985)

4.2.1 The role of expectations
In the previous section, we intentionally made an abstraction from the effect that
expectations may exert on the future value of the exchange rate, as reflected in the
arbitrage condition imposed by the interest-rate parity (18). In this section, we will
analyse these effects on the basis of Canitrot (1983) and Diamand (1985). Once we
consider devaluation expectations, the interest-rate parity condition takes the following
form:
i ¼ i þ ΔEe : (180 )
ΔE e represents investors’ expected rate of devaluation, the difference between the

effective level of E and its expected level (Ee Þ. If E e is given, the lower the effective
14. Notice that Braun reasons here in terms of a given profit of enterprise μ. In fact, he continues:
‘Meanwhile, the [net] rate of profits does not increase much: the lower wages … are compensated
by higher interest charges that are paid to banks and financial entities’ (Braun 1981, p. 89).
15. ‘The fall of the real wage in the 1970s reflects the incidence of three determinants. The first
one is the interest payments on the external debt, which forces the generation of a higher current-
account surplus net of financial services, and negatively affects the real wage. The second one is
agrarian productivity. Without the important rise of agricultural supply in the last 10 years, the
current situation of the real wage would be even worse. This positive effect is compensated by
the negative effect of import de-substitution in the years of exchange rate appreciation’ (Canitrot
1983, p. 424).

via Katie Smith
exchange rate relative to the expected rate, the higher ΔE e will be. Then, the behaviour
of ΔE e can be represented as a negative function of the current exchange rate deter-
mined by the monetary authority (E),16 since revaluation leads investors to expect a
subsequent increase in E, while the opposite occurs when the effective exchange
rate is depreciated:
ΔE e ¼ f ðE e − EÞ; with f ′ ð:Þ < 0: (21)
That according to Canitrot (1983, p. 425) Ee is also the level that allows current-
account equilibrium17 (say, Eeq ) is not actually relevant, especially if, with the benefit
of hindsight, it is clear now that current-account surpluses can persist in the long run
(see Lavoie 2001) and, therefore, there is no reason for investors to expect the ten-
dency of E towards Eeq .18 What really matters for our purposes is, as Canitrot argues,
that investors’ expectations can exert a ‘veto power over income policies’.
The real wage cannot simply be determined by an agreement between workers and capital-
ists. If this agreement violates the external constraint, in the opinion of savers and other asset
holders, its validity will be exposed to the upward pressure of the exchange and interest rates.
The financial-market traders have, therefore, a veto power over income polices. (Canitrot
1983, p. 426, emphasis added)
It is easy to explore this ‘veto power’ in terms of equations (18′) and (21): let us
assume that the arbitrage condition (18′) is fulfilled. If the Fed unilaterally decides
to increase i , then
i < i þ ΔE e : (22)
The monetary authority can either increase the interest rate in order to rebalance
domestic and external returns, or devalue the domestic currency, in an attempt to
reduce the expected rate of devaluation. Nevertheless, if the authority refuses to elim-
inate the gap of returns, the demand for foreign currency by financial traders will rise;
sooner rather than later, this pressure will force an increase of the official exchange
rate, thereby reducing the magnitude of expected devaluation, ΔE e . The final outcome
of this dynamics is that, either through a rise in E or in i, the real wage decreases.
It emerges from Canitrot’s analysis that any level of the exchange rate in the
‘savers’ opinion’ that is higher than E eq (see above) can be sustained as a self-fulfilling
prophecy, as long as investors behave accordingly. However, as we discuss below,
16. As anticipated at the end of Section 2, once the level of the exchange rate is exogenously
fixed, the endogenous nature of real wages assumed throughout this work implies an endogen-
ous determination of the nominal wage. This means that condition (5) is replaced by the condi-
tion E¼E.
17. ‘Those who operate in the financial market know that both the foreign exchange reserves
of the Central Bank, and her capacity to obtain new foreign loans, are limited. Therefore, current
account deficits cannot be registered over and over again. On the other hand, they also know that
a policy of accumulation of external surpluses, based on wages and activity levels lower than
those that could be obtained eliminating the surplus, is not sustainable in the long run. As a con-
sequence, the equilibrium exchange rate they refer to is the one that renders the current account
null’ (Canitrot 1983, p. 425).
18. And in fact, Canitrot himself admits later that investors’ expectations can be influenced by
the action of monetary policy (see below). He therefore seems to deny the existence of a ‘nat-
ural’ or equilibrium level of the exchange rate, determined by purely economic factors.

via Katie Smith
since these expectations are not necessarily tied to ‘real’ (or ‘natural’) phenomena, but
rather are ‘conventional’ in nature, they can be persistently influenced by Central Bank
policy (see Aspromourgos 2007).
4.2.2 Capital controls

In effect, Canitrot (1983, p. 424) concludes that to avoid destabilizing speculative
behaviour, ‘[i]t is required to guide investors’ expectations and to discipline them’.
He suggests two complementary measures. On the one hand, the Central Bank can
attempt to modify the perceptions of traders on the expected exchange rate, though
Canitrot recognizes that ‘historically the Government has been able to exert only a
very limited indirect control over the expectation of financial traders’ (ibid.) On the
other hand, the monetary authority can ‘implement all the necessary controls to mini-
mize speculation’ (ibid.). It is clear that, by imposing capital controls, the arbitrage
condition between domestic and international interest rates is broken, so that differ-
ences in returns do not trigger, in principle, any counterbalancing force. We therefore
return to the ‘semi-closed’ economy described by Canitrot in Part I (see Dvoskin and
Feldman 2018, sec. 4).
Nevertheless, as we shall now examine through the work of Diamand (1985), direct
controls are not exempt from problems, since a parallel foreign-exchange market might
emerge. In effect, as Diamand (1985, p. 34) remarks, even with capital controls, ‘the
internal financial circuit continues to be connected to the external one through the par-
allel foreign exchange market’. This market is, in turn, linked to the official market via
export under-invoicing and import over-invoicing, thus influencing ‘the volume of
foreign exchange that enters the Central Bank’ (ibid.). If the rate of interest is consid-
erably lower than the international rate, the argument follows, a capital outflow will
eventually take place, leading to an ‘uncontrollable’ rise (ibid., p. 36) in the black-
market premium. As a consequence, exchange-rate expectations will be revised
upwards, therefore deepening capital flights, and pushing the official nominal
exchange rate upwards too. Little wonder that Diamand concludes his examination
of foreign-exchange controls with the following assertion:
Even under foreign exchange controls, the margin for reducing internal rates of interest vis-à-
vis the reference level provided by the foreign exchange market is not very large. (Ibid.)19
No doubt the black market may trigger perverse dynamics in the evolution of the offi-
cial exchange rate. To see this more clearly, let us assume the presence of capital con-
trols, and, to further simplify the problem, that the net profits of enterprise are zero.
The relevant equations differ from the basic framework of Section 2 in two respects.
First, the money wage equation (5) is replaced by the determination of E by the mone-
tary authority.
E¼E (50 )
19. Canitrot also warns about the potential risks of the parallel market, in particular the possibility
that it ‘rules’ and ‘conditions’ the official market (Canitrot 1983, p. 427). However, he is less cate-
gorical on the consequences than Diamand: ‘The black market can be fought by police actions,
but, finally, its ability to exert a gravitation force over the official market will depend on its density,
which will be an inverse function of the degree of realism, that is, of respect to the real constraints,
of the economic policy’ (ibid.).

via Katie Smith
Second, the domestic rate of profits is explicitly assumed to be determined by the

money interest rate:
r ¼ i: (60 )
This economy behaves as the ‘semi-closed’ economy of Part I. However, the real wage
is endogenously determined once the riskless rate of interest is set by the monetary
authority.
Suppose that a black market for dollars has emerged and let us follow Diamand by
assuming that the expected exchange rate is a positive and increasing function of the
existing gap between the black market (EB ) and official exchange rates:
E e ¼ E þ hðE B − EÞ; h’ ð:Þ > 0; h″ð:Þ > 0: (23)
For the sake of argument, it is initially assumed that i ¼ i (which means that expected
devaluation is zero). Thus, the expected and the effective rates coincide: Ee ¼ E. Sup-
pose now that workers negotiate a higher rate of money wages and the monetary author-
ity validates it by decreasing the money rate of interest to a level, i, with: i < i .
If this is the case, a capital outflow will occur through the action of the black market,
and E B will increase. Given the level of E by (6′), this forces E e to be revised upwards,
which further widens the existing gap between domestic and international returns: now
that E e > E, investors expect a ‘premium’ (see condition (18′)) that compensates for
the risk of devaluation. If this does not happen because the monetary authority is com-
pelled to validate the increase in the real wage, there will be a greater discrepancy
between i and i þ ΔE e , which causes a further capital outflow; hence, there is a vicious
cycle that deepens the difference between the official and parallel values of the exchange
rate. The consequent rise of export under-invoicing and import over-invoicing deterio-
rates the external constraint by accelerating the drain of foreign-exchange reserves. It
B
is plausible to assume that once a certain threshold, say E , is surpassed, the monetary
authority is forced to devalue the official exchange rate in order to stop this perverse
dynamic.
B
E B > E → ΔE > 0 (24)
We can, therefore, conceptualize the problem triggered by the ‘parallel market’ as an

over-determination of the domestic interest rate: on the one hand, it is determined by
domestic goals established by the monetary authority (in this case, the attempt to vali-
date the increase in real wages through the decrease in the reference rate, i); on the
other, through the parallel market, it is still connected to the behaviour of the capital
account of the balance of payments. The eventual devaluation, Diamand concludes, is
the expression that the balance of payments is, ultimately, the determining influence
over the domestic rate of profits under financial dependency.
5 SUMMARY AND CONCLUSIONS
Throughout this two-part paper we have examined the possible interactions between
income distribution and the balance of payments in light of the writings of three
Argentinian authors who, despite their differences, can all be considered exponents
of the Latin American Structuralist School: Braun, Canitrot and Diamand.

via Katie Smith
On the basis of a two-sector model inspired in the seminal contribution by Braun

and Joy (1968), in Part I we have explored the implications of technical dependency
under conditions of low capital mobility, as was the case during the Bretton Woods
era, which extended throughout the 1950s and 1960s. In this context it was plausible
to assume a real wage exogenously given to the price system, which subsequently
determined the rate of profits.
In Part II, we have extended the analysis to allow for the phenomenon of financial
dependency, which emerged after the liberalization of capital flows that followed the
abandonment of the Bretton Woods system. Under this new institutional framework,
we have seen that the real wage is no longer the variable that mainly influences the
behaviour of the domestic rate of profits, but that it is, rather, the international rate
of profits, determined by the monetary policy of central countries.
The contributions analysed here allow us to conclude that the interaction between
prices (and distribution) and quantities is not susceptible to a general explanation,
but, rather, depends on institutional and historical factors which must be assessed
case by case. Yet, compared to the closed economy, the interaction of a peripheral
economy with the rest of the world imposes new restrictions of a purely economic
nature, which must not be overlooked. In this regard, we have seen that when the
influence of trade flows is exclusively considered (Part I), given the growth path
of real output, only the sub-set of values of the real wage that is compatible with
a non-negative current account can be sustained in the long run, while the additional
influence exerted by financial flows across countries (Part II) reduces, even more, the
capacity of workers to reach persistent rises of the real wage – because, in this case,
the wage rate must also be compatible with the rate of profits determined at the inter-
national level.
REFERENCES
Aspromourgos, T. (2007), ‘Interest as an artefact of self-validating Central Bank beliefs’,

Metroeconomica, 58(4), 514–535.
Braun, O. (1973), Comercio internacional e imperialismo, Buenos Aires: Siglo XXI.
Braun, O. (1981), ‘La imagen y la realidad’, Tiempos modernos, 420/421, 83–94.
Braun, O. and L. Joy (1968), ‘A model of economic stagnation: a case study of the Argentine
economy’, The Economic Journal, 78(312), 868–887.
Brewer, A. (1990), Marxist Theories of Imperialism: A Critical Survey, 2nd edn, London and
New York: Routledge.
Canitrot, A. (1975), ‘La experiencia populista de redistribución de ingresos’, Desarrollo
Económico, XV(59), 331–351.
Canitrot, A. (1980), ‘Discipline as the central objective of economic policy: an essay on the econ-
omic programme of the Argentine government since 1976’, World Development, 8, 913–928.
Canitrot, A. (1981), ‘Teoría y práctica del liberalismo: política antinflacionaria y apertura econ-
ómica en la Argentina 1976–1981’, Desarrollo Económico, 21(82), 131–189.
Canitrot, A. (1982), Orden Social y Monetarismo, Ciudad de Buenos Aires: Centro de Estudios
de Estado y Sociedad.
Canitrot, A. (1983), ‘El salario real y la restricción externa de la economía’, Desarrollo Económico,
23(91), 423–427.
Diamand, M. (1985), ‘El péndulo argentino: ¿Hasta cuándo?’, Cuadernos del Centro de Estu-
dios de la Realidad Económica, 1, 1–39.
Dvoskin, A. and G.D. Feldman (2018), ‘Income distribution and the balance of payments: a
formal reconstruction of some Argentinian structuralist contributions – Part I: Technical
dependency’, Review of Keynesian Economics, 6(3), 352–358.

via Katie Smith
Emmanuel, A. (1972), Unequal Exchange: A Study of the Imperialism of Trade, New York and
London: Monthly Review Press.
Lavoie, M. (2001), ‘The reflux mechanism in the open economy’, in L.-P. Rochon and
M. Vernengo (eds), Credit, Growth and the Open Economy: Essays in the Horizontalist
Tradition, Cheltenham, UK and Northampton: Edward Elgar Publishing, pp. 215–242.
Pivetti, M. (1991), An Essay in Money and Distribution, London: Macmillan.
Rapoport, M. (2000), Historia económica, política y social de la Argentina (1880–2000),
Buenos Aires: Macchi.
Serrano, F. (2013), ‘Continuity and change in the international economic order: towards a Sraffian
interpretation of the changing trend of commodity prices in the 2000s’, in E. Levrero,
A. Palumbo and A. Stirati (eds), Sraffa and the Reconstruction of Economic Theory: Vol. 2,
London: Palgrave Macmillan, pp. 195–222.
Sraffa, P. (1960), Production of Commodities by Means of Commodities, Cambridge, UK:
Cambridge University Press.
Steedman, I. (1999), ‘Production of commodities by means of commodities and the open
economy’, Metroeconomica, 50(3), 260–276.
Tavares, M.C. (2000), ‘Subdesenvolvimento, Dominação e Luta de Classes’, in M.C. Tavares
(ed.), Celso Furtado e o Brasil, São Paulo: Fundação Perseu Abramo, pp. 129–154.

via Katie Smith

Dvoskin Feldman 2018c

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dvoskin Feldman 2018c

Uploaded by

Copyright:

Available Formats

Review of Keynesian Economics, Vol. 6 No. 3, Autumn 2018, pp.

Income distribution and the balance of

Part II: Financial dependency*

Germán David Feldman

Keywords: balance of payments, income distribution, financial dependency, Latin

JEL codes: B22, B31, E2, E3

In Dvoskin and Feldman (2018), we developed an analytical framework inspired by

2 A TWO-SECTOR MODEL UNDER FINANCIAL DEPENDENCY

psA ¼ wlA ð1 þ rÞ (1)

pSI ¼ ðwlI þ bEpM Þð1 þ rÞ; (2)

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

pdA ¼ EpA (3)

pdI ¼ EpI ð1 þ τÞ: (4)

To eliminate the second degree of freedom, consider the implications of ‘financial

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

E^ EA* EI* E E^ EA* EI* E

Figure 1 Wage curve in the small open peripheral economy

psA ¼ pdA ; (7)

psI ¼ ð1 þ τÞEpI ¼ pdI : (8)

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

3 FINANCIAL DEPENDENCY AND TRADE FLOWS

3.1 Canitrot (1975; 1980; 1983)1

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

3.1.1 Disciplinary effects of trade liberalization

psA ¼ EpA (7)

psI > EpI : (80 )

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

3.2 Braun (1973)9

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

Why, in other words, is unequal exchange not eventually eliminated by competition

11. See Serrano (2013).

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

It is also convenient to rewrite the equations to explicitly distinguish between wages

In equation (1′), it is assumed that pA is determined by the conditions of production

pM ¼ wi lM ð1 þ r Þ; (9)

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

3.2.1 Effects on income distribution

psA ðiÞ ¼ wi liA ð1 þ r Þ > pA ; (13)

s > psA ðiÞ − pA0 ; (15)

pA1 ðr Þ ¼ psA ðiÞ − s: (100 )

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

Figure 2 Effect of a subsidy on income distribution in imperialist and peripheral

3.2.2 Effects on the balance of payments

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

4 FINANCIAL DEPENDENCY AND CAPITAL FLOWS

13. See also Canitrot (1981, p. 145; 1983, p. 425).

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

BP ¼ pA XA − pM bQI − Rði Þ þ KK; (20)

4.2 Canitrot (1983) and Diamand (1985)

ΔE e represents investors’ expected rate of devaluation, the difference between the

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

ΔE e ¼ f ðE e − EÞ; with f ′ ð:Þ < 0: (21)

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

4.2.2 Capital controls

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

Second, the domestic rate of profits is explicitly assumed to be determined by the

E e ¼ E þ hðE B − EÞ; h’ ð:Þ > 0; h″ð:Þ > 0: (23)

We can, therefore, conceptualize the problem triggered by the ‘parallel market’ as an

5 SUMMARY AND CONCLUSIONS

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk

On the basis of a two-sector model inspired in the seminal contribution by Braun

Aspromourgos, T. (2007), ‘Interest as an artefact of self-validating Central Bank beliefs’,

Downloaded from Elgar Online at 07/26/2018 01:43:19PM by katie.smith@e-elgar.co.uk