The Short-Run Impact of Development on the Cost of Production

Martin Sanders

Abstract


The purpose of the present note is to illustrate that although
our knowledge of the consequences of devaluation is too limited to
warrant reliable policy recommendations, it is well within the
competence of the economist to build simple models illuminating certain
aspects of the devaluation problem. We shall concentrate on only one
aspect, the increase in costs of production which results from a price
increase of imports. The question posed is: what increases in cost of
production will occur if Pakistan decides to devalue its currency by 50
per cent? It will be shown in the next section that, on certain
assumptions, this question can be solved easily with an input-output
model. In Section II some implications of our calculations will be
given. Finally, in Section III some conclusions will be
drawn.

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DOI: https://doi.org/10.30541/v6i4pp.580-586

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