Imports under a Foreign Exchange Constraint

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Abstract
To assess proposed macroeconomic adjustment programs, policymakers must estimate import demand relative to the foreign exchange available. Traditional models estimate import demand as a function of relative prices (the real exchange rate) and income (gross domestic product) but omit changes in foreign exchange. In the 1980s, however, declines in foreign lending and the terms of trade and increased debt service costs reduced foreign exchange availability in most developing countries and limited import capacity.

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