Jump to ContentJump to Main Navigation
CapitalismCompetition, Conflict, Crises$
Users without a subscription are not able to see the full content.

Anwar Shaikh

Print publication date: 2016

Print ISBN-13: 9780199390632

Published to Oxford Scholarship Online: March 2016

DOI: 10.1093/acprof:oso/9780199390632.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 15 November 2019

International Competition and the Theory of Exchange Rates

International Competition and the Theory of Exchange Rates

(p.491) 11 International Competition and the Theory of Exchange Rates

Anwar Shaikh

Oxford University Press

This chapter extends the classical argument to international competition and terms of trade (real exchange rates). Standard comparative cost theory is the foundation of almost all approaches to international trade, either in direct application or as a point of departure for theories of imperfect competition, asymmetric information, etc. It is formally shown that international competition actually leads to absolute cost advantage because international cost advantages and disadvantages are largely immune to exchange rate variation. Low cost countries will have persistent trade surpluses and the resulting net inflow of funds will increase liquidity and lower their interest rates: high cost countries will suffer trade deficits and a concomitant rise in interest rates. The interest rate differential will lead to short-term capital outflows from trade surplus countries to trade deficit countries: the former will end up as international creditors and the latter as international debtors—all through the workings of free trade.

Keywords:   international competition, absolute cost, terms of trade, interest rate, free trade

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .