Why may the use of devaluation polity to improve the balance of payments in an economy fail?
- When other countries affected by devaluation retaliate and nullify the effect.
- When the supply of export commodities in the devaluating country is inelastic, this lead to no increase in the quantity of goods demanded.
- The high marginal propensity to imported superior commodities leading to more foreign exchange expenditure
- Where there is heavy restriction on commodities from devaluating countries.
- When the devaluating country is experiencing inflation, the leads to low demand for them
- Where there is urgent need to import essential commodities such as petroleum products, machinery etc.
- When the devaluating country is not a major producer or supplier of export commodities in questions
- Lack of export promotion institutions/strategies by devaluating countries.
- Where devaluation may leads to smuggling.
- May lead to inferior cheaper substitutes in an economy.
- When there is corruption and inefficiency in implementation of devaluation policy
- Under conditions of full employment, devaluation fails to increase outputs in an economy
CATEGORIES Economics
TAGS Dr. Bbosa Science
