The political economy of currency devaluation and trade balance: Italy, 1930s

The Great Depression resulted in many hardships for countries in restoring their external accounts due to a rise in protectionism. In this context, Italy provides a perfect case study showing the various provisions adopted to defend the country's gold reserves. The devaluation of the currency was one of the interventions in an attempt to rebalance a structural deficit in the trade balance, which was an important part of this problem. This study investigates the ramifications of lira devaluation on Italy's trade balance, exploring its potential effects on both foreign counterparties and the overall Italian trade dynamics. Our analysis reveals a lack of structural impacts on imports, exports, or the overall trade balance. Conversely, sanctions imposed due to the war in Ethiopia, alongside escalating political tensions, appeared to wield significant influence over Italian trade dynamics.