International Economic Journal

Published by Taylor & Francis (Routledge)
Print ISSN: 1016-8737
In this paper we examine currency substitution in Canadian money demand ls-a-vis the currencies of seven industrialized countries. A multicurrency variant of the money demand function is estimated to test for the presence and extent of this substitution. The results (except for the British pound) conform to expectations and show complementarity between currencies. It is also found that the degree of currency substitution under flexible rates exceeds that under fixed rates. We also question the validity of the tests for the presence of currency substitution which do not distinguish between exchange rate regimes. [430]
Means of Major Variables by Groups of Countries 
Basic Regressions of Economic Growth Rate, y ˙ (1960-85) 
"This paper examines the effect of government size on the growth rate of per capita output by incorporating demographic variables. Evidence from more than 86 countries suggests that the demographic variables not only affect economic growth, but also determine the size of government. Both the young and the old age dependency ratios were positively related to the size of government, while population density and population size were negatively related to the size of government. Moreover, when the demographic variables are included in the growth equations, the effect of government size on the growth rate of per capita output became insignificant rather than, as prior studies showed, significantly negative."
Descriptive Statistics by Community Size 
Number of Households and Descriptive Statistics by Migration Status 
Regression Results of Equation (1) for the Migration Status Variables 
"Migration models in the Harris-Todaro tradition imply that urban informal sector earnings are less than rural sector earnings. Examining the situation for [South] Korea, we find that both urban formal and informal sector earnings exceed earnings opportunities in rural areas, making rural-urban migration the best decision for the individual and for the Korean economy in terms of maximizing output.... The implication for policy makers is that government efforts may be better directed toward mitigating the externalities caused by over-crowding, rather than attempting to influence population movements."
"This paper develops a general equilibrium framework of a two-sector economy which incorporates illegal immigration in the presence of labor unions. It demonstrates that stricter enforcement of immigration laws, by reducing the demand for or supply of illegal aliens, benefits all legal workers in the economy. The model is used to evaluate the impact of these policy changes on national income. Results indicate that national income does not necessarily fall when immigration controls are tightened. The existence of a union mitigates the negative welfare impact of a reduction in the number of illegal immigrants."
This paper explores the economic status of the elderly in late nineteenth and early twentieth century America. It has been widely believed that reduced earnings of ageing workers in these periods were fully supplemented by increased earnings of children. The patterns of individual consumption expenditures, however, indicate that children's supports were no longer an important means of old-age security after the end of the nineteenth century. Older males who were out of the labour force were much poorer than active workers of a similar age. The retired were not as much protected by family support as active workers. This result indicates that the previous studies based mainly on active workers overstate the extent of economic progress of the entire elderly population in the industrial era. This study tends to support the conventional belief that the rise of the welfare state was a response to the emerging social problems in the era of industrialization such as unemployment, poverty, and dependence of the elderly.
R&D and high technology export in 19 OECD countries 1981-1999 
Exports of High Technology Products as a Share of Total Exports, % Relative Rank in Parentheses 
Exogenous Variables and Their Expected Impact on the Share of Exports of High-Technology Products (XHT) 
This paper analyses how increased R&D expenditures and market size influence the distribution of comparative advantage. Previous studies report ambiguous results and also refer to periods when markets where much more segmented and production factors less mobile. The empirical analysis comprises 19 OECD-countries and spans the period 1981 to 1999. It is shown how an increase in R&D-expenditures by one percentage point implies a three-percentage point increase in high-technology exports, whereas market size fails to attain significance. In addition, institutional factors influence the dynamics of comparative advantage.
The focus of this investigation is one the asymmetric effects of monetary growth Shocks in the pre-and periods of United States history. The downward Rigidity of nominal wages in the post -war period appears to be an important factor in Differentiating the slope of the aggregate supply curve over time. Accordingly, the Response of real output and price to expansionary monetary growth shocks is similar in The pre-and post-war periods. In contrast, the aggregate supply curve is flatter in the Face of negative monetary growth shocks in the post-war period, exacerbating output Contraction and moderating price deflaction. The apparent change in the asymmetric Effects of m onetary growth shocks deflation. The apparent change in the asymmetric States over time. [E30,E33,E34,E35]
The convergence of per capita GDP is usually attributed to the flow of technology from the high per capita income to the low per capita income countries. This paper examines the role of international trade in the convergence process for 19 OECD countries during the period 1950--1985. The paper finds that: a) those countries starting with lower income increased their trade openness faster than the high income economies; and b) the countries that expanded trade faster grew more rapidly. These findings and the regression results of a growth model suggest that international trade contributed significantly to the convergence of per capita GDP.[F43]
Granger Causality Test Results
Granger Causality Test Results: Geographical Trade and Growth
Sources of Irish growth are examined using a recently developed Granger causality procedure with particular focus on the role of Irish exports. As augmented production function is employed where the inclusion of variables in addition to exports ensures that different impacts on exports and output are controlled for and thus, a more accurate testing of the export-led-growth hypothesis is possible. The most important sources of Irish growth are identified as the terms of trade and demand in industrial countries i.e. external sources. Bi-directional causality is found for exports and output implying a virtuous circle of growth and exports. [F1,F4]
In this paper Granger's test is employed to examine the causal relationship between the size of the export sector and national income per capita (as well as their respective growth rates) for China for the period 1952--85. Our empirical results favour a bi-directional causal sequence between these two variables. However, these findings disappear when a similar test is used for the sub-period 1952--78. The difference in results between these two sample periods points to a change in causal relation after 1978 which coincides with the adoption of an "outward looking” strategy by the Chinese government in that same year. [124]
This paper constructs a polynomial-benchmark model to estimate gross and net capital stocks by explicitly estimating implicit retirement rates and depreciation rates. The model is applied to Korean data (1953--86) where such data as national wealth survey, national income accounts and industrial census are available. Three alternative series of capital stock estimates are generated and compared with previous estimates. It is shown that the use of a pure perpetual-inventory model or a benchmark-year method alone may introduce a significant bias in the measurement of capital stocks for developing economies. [220]
Disparities between growth rates of different countries are only in part explainable by basic factors of production. New growth theory links economic growth, e.g., to increasing returns to scale, to human capital development and stresses the important role of institutions. Our aim is to determine the growth factors for Korea by a time-series analysis applying cointegration and error-correction techniques. The results show that human capital, investment and exports enhance economic development, while inflation and government consumption exert a negative influence on growth. Additionally, the import substitution phases during the 50ies and 70ies as well as a productivity oriented wage development contribute to economic growth. [F14, 047]
Using annual data for Japan spanning the period 1959--1986, alternative reduced form equations are derived and various monetarist propositions are tested against their Keynesian alternatives. Employing specification and exogeneity tests in order to choose between restricted and unrestricted model specifications -- concerning purchasing power parity and exchange market pressure -- we find evidence of deviation from purchasing power parity. The results also indicate that the monetary approach is favored over the Keynesian alternative. Finally, the results suggest that foreign disturbances are transmitted to the exchange market pressure variable by foreign money supply growth, controlling for real foreign income growth, rather than through foreign inflation. [430]
This paper investigates the shifts in factor intensities of Korea's domestic consumption, investment and export activities as well as those of competitive import replacement during the period 1960--85. It finds significantly increasing capital intensities of these activitivies over the period 1966--85. It further investigates the shifts in the pattern of Korea's import dependency and observes an increasing trend in labor-intensive manufactures imports either for export activities or for domestic demand. The results are consistent with what we may expect from the comparative static version of Heckscher-Ohlin theory of factor proportions. [421]
This study estimates what fraction of the rise in family income inequality in the United States between 1968 and 2000 is accounted for by the change in each of the family income components, such as wages, employment, hours of work of family heads and spouses, family structure, and other incomes. The increased disparities in other incomes and labor supply account for 29% and 28%, respectively, of the rise in the difference in incomes between the top 10% and bottom 10% families. Structural changes in wages, largely regarded as the major culprit for the increase in income inequality, explain less than a quarter of the rise in the measure of family income inequality. Changing fractions of families with both husband and wife and changes in the composition of the income sources account for 11% and 16%, respectively, of the widening income gap. The relative importance of the effect of changing labor supply declined over time, while that of wage changes increased. For the upper half of the income distribution, wage changes were the dominant cause of the increase in the gap between the richest 10th and middle-income families. In sharp contrast, changes in labor supply and other incomes were the principal causes of the growing distance between the poor and middle-income families for the lower half of the income distribution.
This paper estimates how much changes in employment and hours worked for family heads and spouses contributed to the rise in the family income inequality between 1969 and 1989. Change in labor market activity of family heads accounts for half of the increase in the income gap between the top and bottom 10th families. The effect of change in work effort on the income inequality is considerably weaker where four-fifths of families in the middle of income distribution are considered. This result is robust to changes in the selection of the population. The rise in the inequality of labor market activity occurred largely within families headed by prime-age men. The rise in the percentage of families headed by female and the decline in employment rate for older family heads are relatively minor factors. [J2, E2, N3]
This paper examines the monetary and structural sources of inflation in selected Sub-Saharan African countries using data for the period 1970--1986. Monetary variables, such as the money supply and exchange rates, were combined with structural variables such as food production, exports, imports, and debt service to determine the effects on inflation. The results show that changes in the monetary factors are key in explaining inflation in the region. The paper concludes that the ongoing structural adjustment programs, with a focus on exchange rate alignments and efficiency in public finance, may be steps in the right direction. [E31]
Tests for a Unit Root in the Data.
Using data on the Canadian-U.S. dollar rate, we reexamine the monetary model of exchange-rate determination for the recent float in three ways. First, we test its long-run validity, using Johansen's multivariate cointegration techniques. Second, we examine and test the model for the presence of speculative bubble, and finally we test for parameter stability of Johansen's results using the Hansen-Johansen recursive tests. [F31]
Decomposition of private expenditure in Spain, 1970–1997 (as a proportion of total expenditure) 
Results of the SUR estimation of system (5) for the categories of current family up-keeping, housing, health and education
Summary statistics of private and public consumption (levels and budget shares)
The main purpose of this article is to provide empirical evidence for Spain on the dependency relationship between government spending and private consumption at the disaggregated level. To this end, we will use two approaches that extend traditional consumption models, allowing for non-separability of consumers' preferences between public and private goods and services. The results obtained show significant links between public and private consumption and, in particular, they point towards the importance of carrying out the analysis at the disaggregated level: there is evidence that some components of public and private consumption act as substitutes, whereas others act as complements.
A quarterly macro-econometric model of the Haitian economy is estimated over the period 1970--1983. The model is based on the Monetary Approach to the Balance of Payments, but differs from the standard formulation in that it takes explicitly into account autonomous components in the balance of payments. Simulation results show that an increase in government spending has only a weak effect on real output but a rather powerful impact on the trade balance and the net external assets position of the banking system. [431]
We use a recently-compiled database with monthly observations, to analyse the determinants of syndicated loans to Latin American (L.A.) and East Asian countries, for the period 1972-1982. Our results indicate that the loans were to a large extent supply-driven, and thus provide econometric evidence that "overlending” was a significant determinant of them along with economic fundamentals in the borrowing countries. They also suggest that E. Asia's recent currency and banking crises will not likely develop into another "debt crisis”, precipitated by a prolonged withdrawal of private capital from the region. [F34, G15, N25, N26]
Unit Root Tests
Lag selection criteria
Evolution of Relative Size of the Hidden Economy of Trinidad & Tobago 1973-1999 (% of Measured GDP)  
In this paper, an attempt is made to measure the hidden economy of Trinidad & Tobago over the period 1973-1999, within the Structural Cointegrating VAR (SCVAR) framework. Using a Tanzi-type currency demand approach as a starting point, a multiple equation SCVAR model is estimated that contains two long-run relationships linking the demand for currency with other variables. The model is evaluated on the basis of its persistence profiles, its impulse responses and other statistical criteria. It is solved using a Gauss-Siedel algorithm and is used to establish that the size of the hidden economy rose from a low of about 14% of measured GDP in the early 1970s to a high of 36% in 1981, and is currently about 20% of measured GDP. Hidden economic activity is also found to be highly positively correlated with activity in the regular economy.
A new Sri Lankan government came to power in 1977 with a sweeping program of financial liberalization and balance-of-payments reforms. This paper tests econometrically whether or not there were significant regime changes in capital inflow and monetary policy behavior. A logistic switching function indicates that structural shifts did occur between 1977 and 1978. However, it is difficult to detect any coherent changes in policy objectives or changes in behavior that one might expect to have accompanied reforms of this kind. Specifically, neither Sri Lanka's offset nor its sterilization coefficient increased in the post-1977 period [310]
Figure 2
This paper presents an alternative method of testing for financial capital mobility in the absence of forward exchange markets. A model of domestic interest rate determination during liberalization is applied to Korean and Taiwanese data. A variety fo diagnostic and recursive tests are used to isolate structural breaks in the data. It is shown that Korean interest rates behave as if determined domestically until late 1988 or early 1989, while Taiwanese rates exhibit this behavior until early 1989. Thereafter, these economies' interest rates appear tightly linked to the Euro Yen rate. These results contrast with those obtained by Reisen and Yeches (1993) which indicated a single opening and closing for Korea, and no structural break for Taiwan. They also differ from those results of Jwa (1994) indicating two temporary openings for Korea. Greater integraton of these domestic markets with world financial markets suggests that it will be more difficult for these countries to stabilize their economies in the face of capital inflows and outflows. [F32,F34]
This paper analyses structural change in Indian manufactured exports empirically for 143 (mainly manufacturing) industrial groupings. Trade indices such as Balassa's revealed comparative advantage (RCA) index and variants are used. Detailed econometric analysis is employed to examine structural change. The stability and the process of the intertemporal evolution of the RCA indices is considered. Three technology categories (high technology, medium technology and low technology) are analysed individually. Our results point towards substantial industrial restructuring in manufactured exports. We find evidence of despecialisation within India's manufactured exports for the time period studied, which is consistent with increasing specialisation in a subset of manufactured exports.
This study investigates the impact of international trade on real wages earned in U.S. manufacturing during the period 1985-89. Many of the previous studies which try to explain the structure of U.S. industry wages include only the negative impact of increased import penetration, or they exclude international trade variables altogether. In order to obtain a more balanced assessment of trade effects, wage equations including, in turn, an import-, export-, and net trade variable are estimated using a generalised least squares procedure. A parsimonious modelling approach is adopted which focuses on a few catch-all variables instead of the large number of variables used in many micro wage studies. It is found that trade had a positive impact on the average real wage, despite the massive trade deficits during the period. Further analysis suggests that it increased both the competitive wage and the amount of economic rent earned by workers, with the impact on the former being stronger than the impact on the latter. However, other variables, in particular capital intensity, had even stronger positive impacts. [F14]
This Paper offers a quantitative assessment of the effectiveness of capital controls in Spain during the period 1986-1990. The analysis is based on a portfolio-balance model Previously estimated for the Spanish economy, where the complete elimination of capital controls is simulated. Our results suggest that capital controls would have avoided a net capital outflow amounting to nearly a 4 per cent increase in the Spanish net foreign asset position, as a quarterly average, during the first five years of Spanish membership into the EU. [C32, F21, F36]
This paper applies the Girton-Roper (1977) monetary model of exchange market pressure to the experience of Costa Rica in the period 1986--92. The results provide strong evidence of a negative relation between domestic credit creation and exchange market pressure and indicate that the Central Bank absorbed most of the exchange market pressure by adjustments in foreign reserves. [F51]
LONG-RUN ESTIMATION A) Net foreign asset position (dependent variable: NFAP t )
This Paper offers a quantitative assessment of the effectiveness of capital controls in Spain during the period 1986-1990. The analysis is based on a portfolio-balance model Previously estimated for the Spanish economy, where the complete elimination of capital controls is simulated. Our results suggest that capital controls would have avoided a net capital outflow amounting to nearly a 4 per cent increase in the Spanish net foreign asset position, as a quarterly average, during the first five years of Spanish membership into the EU. [C32, F21, F36]
In this paper, we present a simple method for estimating the amount and the size of bequests, which is applicable to other countries as well, because it needs only four different kinds of published aggregate data. We estimate the amount of bequests in Japan for 1986, 1988, 1989, 1990, 1992 and 1994 - the period of the Japanese bubble economy and the subsequent recession. Bequests, however, have continued to increase with ageing population from 40 to 60 per cent of net household assets and 30 to 40 per cent of national wealth even in the current recession. Our study confirms the Importance of bequest, even although only one in four Japanese has an intended bequest motive. [D39, E21, H31]
I use a static multi-sector, multi-labour, multi-household Applied General Equilibrium (AGE) model for Turkey to show that the trade policy implemented by Turkish policy-makers in the 1990s is not trade diverting. Aggregate welfare rises by 0.6% of the consumer income. Most importantly, since agriculture and traditional the rural income), while urban groups are worse off (-0.5% of the urban income). It is also shown that overall income inequality declines by 1.1-1.7%, and that its main source is the inter-income inequality between urban and rural areas, which decreases by 8.9- 14.7%. [D58, F14, F17]
During the 1990s the United Kingdom experienced large and sudden exchange rate movements that had no apparent impact on overall consumer prices. This paper shows that the stability of UK consumer prices was made possible in part by offsetting movements in the price-cost margins of foreign exporters and in part by offsetting price-cost margins in the UK distribution sector. At the same time, UK manufacturers experienced margin swings in the opposite direction, largely due to their role as exporters. Thus, sterling depreciation boosted the profits of UK manufacturers and squeezed the profits of UK distributors, while sterling appreciation had the opposite effects.
We analyze the recession and recovery of Mexico during the 1990s by estimating a vector autoregression of aggregate expenditures. The model suggests that, in addition to fiscal, monetary, and exchange rates policies, "expectational” shocks played a significant role in the 1995 recession but not in the insuring recovery. This indicates that when policy factors explain only a portion of the shocks, the public's pessimism and anxiety about the future should be considered important in policymaking. Finally, contrary to the conventional believe that depreciation will raise economic growth, this study finds that Peso depreciation will bring about a recession. [E32, C32]
The Impact of Sector Specific and Overall Protection on Sectoral Value Added for Seven Sectors
Economic Structure for 1988 Base
Sector-Specific Protection Experiments
Sectoral Effects of Overall Protection with Sector-Specific Capital
This paper investigates the implications for the structure of the U. S. economy of a reduction in the U. S. trade deficit. We explore two alternative adjustment scenarios. First, we assume an environment of successful world trade liberalization. An alternative view is that the world economy will lapse into a protectionist environment. We use a 30-sector computable general equilibrium (CGE) model of the United States to analyze the impact of these two scenarios. When analyzing the protectionist scenario, we do a variety of experiments designed to explore the impact of protectionist policies on the U. S. economy. [C68, F13]
Development of worldwide FDI flows according to region of origin.
Countries included in the dataset OECD countries reporting bilateral FDI outflows
It is the objective of this paper to identify the determinants that led to the increase in worldwide foreign direct investment during the 1990s. The paper also addresses the question of whether these factors influenced exports differently. Therefore, using data from 22 countries reporting to the OECD, gravity models for bilateral FDI stocks/flows and exports are estimated, first in a cross-section setting for 1999 and then as a panel data set for the period 1991-2001. In order to control for EU-specific effects, a distinction is made between intra-EU25 observations and observations outside the EU25 area. Regressions are repeated with exports as a dependent variable in order to elaborate how far determinants of trade flows are identical or how far they differ. In the panel context, the results show that a change in total market size is an important aspect that leads both FDI and exports in the same direction. Only exports are significantly influenced by relative market size. Stock market booms boost FDI but not exports. Political indicators and exchange rate changes suggest that exports are demand-driven while FDI is supply-driven. Overall, FDI and exports tended to flow relatively less abundantly to distant countries than to nearby countries over the period under consideration. This supports the idea of a complementary relationship between investment and trade. However, this trend is reversed for exports within the EU25 area.
The paper proposes an explanation for the 1992 currency crisis as the result of monetary policy behaviour and private agents' speculation. Our analysis reveals how speculators' expectations and the behaviour of the monetary policy authority were formed on the widespread beliefs about the future value of income. We show that the real effects of monetary policy measures represent the link between the action of the central bank and speculation.
The European integration of 1992 offers to open-up the service sector of EC countries to substantial investment flows from other member nations. This paper studies how the elimination of restrictions on the flow of foreign capital into services affects the economic welfare of a recipient economy. A model of increasing returns due to specialization is developed in which capital is sector-specific; this model is used to examine the differential impact of foreign capital inflows into the service and manufacturing sectors. It is shown that direct foreign investment in the service sector has positive effects on national welfare that investment in manufacturing may lack. [F15]
This paper examines the external dimension of the completion of the European internal market ("Europe-1992”). It starts with a short review of the relevant tools from customs union theory, which are used to evaluate the effect of the 1992 programme on third countries (in particular, the United States) under the assumption of unchanged trade policy. The paper then assesses the possibility of changes in EC external trade policy after 1992. It suggests that existing GATT rules and the current Uruguay Round of multilateral trade negotiations impose constraints on changes in the external trade policy of the Community. Finally, the paper argues in favor of internal and external liberalization in the Community. [F15]
In this paper, Lance Girton & Don Roper's (19774. Girton Lance &Roper Don (1977) A monetary model of exchange market pressure applied to the postwar Canadian experience The American Economic Review 67 4 September pp. 537–548 View all references) monetary model of Exchange Market Pressure (EMP) is applied to the Turkish economy in the period of 1993–2004. The results provide strong evidence of negative relation between domestic credit and exchange market pressure (EMP) and indicate that the Central Bank of the Republic of Turkey (TCMB) absorbed most of the exchange market pressure by adjusting the foreign reserves.
Estimation of the Coefficient of Prudence
Estimation of the Coefficient of Prudence by Age
This paper explores empirically whether Japanese consumers became more prudent in the second half of the 1990s, a decade in which Japan registered historically low economic growth. Employing the methodology developed by Dynan (1993), this study uses micro-level data from the Family Savings Survey and the Family Income and Expenditure Survey to estimate the coefficient of prudence for Japanese households in the second half of the 1990s. The estimates reveal that the coefficient of prudence is positive and statistically significant in the 1998-1999 period. The obtained value for the coefficient of prudence is four, which is much higher than that estimated for US households (not significantly different from zero) or UK households (around 2). The estimated coefficient for young households is higher still, which is consistent with simulation studies conducted by Gourinchas & Parker (2002) showing that precaution is the most important saving motive for younger households.
a and 4b (which in effect combine figures 2 and 3) explore this issue based on equations  
This paper considers the transfer of technology from the North to the South that occurs through trade in high-technology goods and explicitly models the 'reverse-engineering' process that allows the South to assimilate new technologies. A key finding of this study is that the South's rate of growth is dictated by the size of the country's human capital, which determines its absorptive capacity and its ability to assimilate knowledge from the North. We find that while a Southern country that is poor in human capital can only imitate, Southern countries that possess sufficiently large human capital endowments, beyond a certain threshold, signal the onset of innovation. We also find that the North enjoys a higher rate of innovation and growth with trade than without. North's gains are the highest when it trades with a human-capital 'poor' South, because imitation increases South's demand for Northern intermediates. But trade with the Southern countries that are human capital rich (and therefore involved in innovation), dampens their demand for Northern imports, adversely affecting North's growth. The model predicts growth convergence between the North and a South that is well passed the threshold for innovation.
This paper examines aspects of R&D spillovers across countries, in particular, the role of international trade and human capital as the catalysts for international diffusion of technology. We present a new way of measuring foreign R&D stocks embodied in foreign intermediate goods and capital equipment, which we argue is free from the criticism of previous measures. With the pooled panel data spanning 1970 through 1995 for 103 countries, we find that the effects of foreign R&D on total factor productivity growth of both industrial countries and developing countries are substantial and that human capital is the most influential channel for absorbing foreign R&D spillovers.
This study looks at the link between the patterns of trade-revealed comparative advantage and net inward foreign direct investment in five developed countries: the United Kingdom, the United States, Japan, France, and Italy. It thus extends earlier work by Maskus and Webster (1995) who analyzed two countries, the United Kingdom and South Korea. Despite assertions in the literature that market access is the primary motive for foreign direct investment flows among developed countries, this study shows that there is a significant role for comparative advantage in determining inflows of foreign direct investment in developed countries, especially in the services industry.
The model investigates the possible relationships between market structure, product innovation and trade policy. It is shown that the speed of product innovation is most rapid with a more fragmented market structure and in a free trade regime. Under free trade the origin of the leader in product innovation is indeterminate. If a country unilaterally restricts access to its home market without incurring retaliation, then it increases profits compared to free trade and it ensures also leadership in product innovation. [F13]
To examine the impact of trade barrier reductions on the Chinese economy following its WTO accession, a single-country, static CGE (Computable General Equilibrium) model is constructed, which incorporates certain elements of imperfect competition in China's current economic situation. China's real GDP and total employment are expected to rise by small degrees, while the general price level may decline by a few percentage points. Total imports would rise by more than 10%, whereas total exports would increase far less. China's trade surplus is, therefore, likely to shrink substantially and its dependence upon foreign trade is likely to rise by a few percentage points. A sensitivity analysis confirms the robustness of the simulation results. A comparison with other CGE studies on China's trade liberalization also shows the plausibility of this study's predictions. JEL Classification: F17, C68
A CGE model of world trade is used to examine whether many developing countries can simultaneously expand manufactures exports along East Asian lines without suffering serious terms of trade decline and consequent welfare loss. Experiments are performed in which manufactures exports are expanded for each developing region in turn and for all regions simultaneously. When driven by productivity gains in manufactures exports production, welfare gains are found to be significant and stable, even enhanced by parallel advances in other developing regions; i.e. export growth is mutually reinforcing as a result of extensive South-South manufactures flow, a pattern that is intensifying. [F 17]
The formulation of fiscal policy targets to restore external balance is becoming increasingly important as a condition in World Bank loans, not to mention IMF standby arrangements. Differing amounts of emphasis have been placed on the composition of government spending and the method of deficit finance in particular country situations. The paper suggests that in countries with unrestricted capital inflows and outflows conditionally should focus on reducing the import component of government expenditure, rather than the amount of public sector borrowing abroad. In countries with capital controls on private external borrowing, on the other hand, fiscal targets should limit the amount of public sector borrowing, rather than attempting to shift the composition of government spending. This simple rule should help those involved in establishing a relatively small number of fiscal policy guidelines. [321]
This paper investigates the responses of real exchange rate and current account as well as consumption in a small open economy to fiscal policies using an alternative time horizon model. Cointegration tests present that there is no stable relationship between the fiscal variables and the real exchange rate, current account, or consumption. The maximum likelihood estimation suggests that fiscal policies seem not to be much effective as the conventional or finite horizon model predicts. REP with infinite horizons seems to be more conceivable to explaining the fluctuation of consumption, real exchange rate, and current account in Korea. [F31, F32]
My small-scale macroeconomic model of the Taiwanese economy contains behavioral equations to explain saving, investment, the rate of economic growth, export demand, export supply, and import demand. Exploiting the two definitions of the current account ( national saving - domestic investment and exports + net factor income from abroad - imports ), the in-sample dynamic simulation tracks the current account remarkably well. If the Taiwanese government pursued delibcrate policies to reduce the current account surplus, this model indicates that the effects on the economy would depend critically on whether the current account surplus was eliminated by reducing national saving or by raising domestic investment. [430]
We have tested for a long-run relationship between four U.S. Export measures and analogous import measures (measured in nominal and real terms, levels and deflated by GNP) in the 1967-1994 period using quarterly data. Using various econometric tests that include standard Engle-Granger cointegration tests and two tests that allow for test-determined breaks in the cointegrating relationship, we have shown that the hypothesis of no long-run relationship between exports and imports cannot be rejected. This finding contrasts sharply with earlier literature and carries the important policy implication that US current account deficits are not sustainable. [F30]
Top-cited authors
Friedrich Schneider
  • Johannes Kepler University Linz
Claudio E. Montenegro
Andreas Buehn
  • University of Cooperative Education Bautzen
Chuck A Arize
  • Texas A&M University-Commerce
Frank Anthony Wolak
  • Stanford University