Dornbusch Exchange Rate Overshooting Model

The Dornbusch overshooting model, developed by Rudiger Dornbusch in 1976, is a theoretical framework used to explain the dynamics of exchange rates. It suggests that when there is a change in monetary policy or other economic factors, exchange rates overshoot their long-run capital flows before settling back to their equilibrium levels. The model helps explain the short-term volatility of exchange rates, which can have significant implications for international trade, investment, and capital flows.

Assumptions of the Model:

The Dornbusch overshooting model is based on several key assumptions. First, it assumes that prices and wages are sticky in the short run, meaning that they do not adjust immediately to changes in economic conditions.… Read the rest

Effect of Agglomeration in Urban Economies

In order for the economy to grow, an urban area has to be positioned in an area where development exists and where there is economic growth is running. As long as economic energy is in an urban area, also the activity of urban force, it is necessary to gain a contribution to the appearance of the role of urban areas in economic growth and development. Economists are concerned about how the economic growth of their cities is increased. Mostly populated urban areas, chances of an economic opportunity exist in those areas. The majority of ideas analyze the importance of growth opportunities in an urban area.… Read the rest

Role of SMEs in Economic Development

All over the world, there is growing evidence that Small and medium-sized enterprises (SMEs) play an important role in the national economic development of any country. SMEs are becoming more and more a subject of high attention in the developing countries, countries in transition but also in the countries with developed economies.

In market economies, SMEs are the engine of economic development. Thanks to their private ownership, entrepreneurial spirit, their flexibility and adaptability as well as their potential to react to challenges and changing environments, SMEs contribute to sustainable growth and employment generation in a significant manner.

Until latest, the private sectors of many emerging economies were missing the middle level of development.… Read the rest

National Income Statistics: Meaning and Uses

What is National Income Statistics?

According to most dictionaries, national income is literally the total amount of money earned by a certain country. But in order to calculate the total funds and asset of the country, National Income Statistics are used, which are basically a set of rules, techniques and calculation to measure the total value of final goods and services produced. However, The National Income Statistics are only valid to calculate the national income of a country in a year.

The Uses of National Income Statistics

Like every other calculations, The National Income Statistics also have their own uses. The National Income Statistics are very important to the development of a certain country as it is the result of hard works done in a year to contribute in the enhancement of a certain country.… Read the rest

Circular Flow of Income in a Three-Sector Economy and National Income Calculation

There are three main sectors of economy consists of household sectors, business sectors and government sectors. Household sector provides the factors of the production such as land, labor and capital and enterprise that the producers require to produce goods and services. They also receive payments as in rent, wages, interest and profits from the business sector. It is also stated that in general, household sector consists of the greatest number of consumers among all sectors and satisfying the wants will cause consume of their climate aim. Business sector act as a part as in receiving economy resources from household sector and in exchange for consumer expenditure, they also provide household sectors goods and services.… Read the rest

Concept of Export Diversification in International Business

Earlier a country’s economic development was based either on the degree of specialization or diversification of a country’s production and trade structure. Based on Adam Smith’s concept towards the division of labor and specialization for economic growth and development to Heckscher-Ohlin Samuelson (HOS) model of international trade, countries should specialize in producing and specializing in the goods in which they have a comparative advantage. However, after the Second World War, the idea was that economic growth and development may be achieved by export diversification (not specialization). There were active efforts by the government to promote industrialization and economic growth.

Export diversification is often the primary objective of many developed countries.… Read the rest