Showing papers on "Purchasing power published in 1986"

Poverty and Hunger: Issues and options for food security in developing countries

Abstract: Available data suggest that more than 700 million people in the developing world lack the food necessary for an active and healthy life. The problem of food security is not caused by an insufficient supply of food as has been commonly believed, but by the lack of purchasing power on the part of nations and households. This report outlines the nature and extent of food security problems in developing countries, explores the policy options available to these countries in addressing these problems, and indicates what international institutions such as the World Bank can and should do to help countries solve their food security problems. It suggests policies to achieve the desired goal in cost-effective ways. It also identifies policies that waste economic resources and fail to reach the target groups. It is in that sense as much about what should not be done as about what should be done

The three faces of the international comparison project

Abstract: Purchasing power parities (PPPs) are the correct converters for translating gross domestic product (GDP) and its components from own-currencies to dollars; the alternative measure, exchange rates, obscures the relationship between the quantity aggregates of different countries. Drawing on the reports of the United Nationals International Comparison Project (ICP), the article contends that exchange rates systematically understate the purchasing power of the currencies of low-income countries and thus exaggerate the dispersion of national per capita incomes. Where full-scale PPP estimates are not available, estimates based on shortcut methods better approximate what the benchmark estimates would be than do the exchange rate conversions. The ICP results also illuminate price and exchange rate relationships among countries by providing a measure of the difference in the levels of prices in different countries. ICP price comparisons for components GDP make possible the analysis of comparative price and quantity structures of different countries and provide the raw materials for many types of analytical studies.

Effective Purchasing Power in a Quantity Constrained Economy: An Estimate for the German Democratic Republic

Abstract: A measure of microeconomic disequilibrium for households facing both budget and quantity constraints is estimated from East German data. Using a new specification, the Flexible-Cobb-Douglas utility function, the parameters of a "German" direct utility function are estimated from West German family budgets. It is estimated that an average East German family in 1977 would have been willing to give up 13% of its total expenditure in order to attain its demands at official prices.

Some Political Economy Aspects of Macroeconomic Linkages with Agriculture

Abstract: Though the political process leading to the 1985 farm bill has shunned proposals for significant policy change, commentators on U.S. food and agricultural policy continue to characterize the current policy environment as arriving at a turning point where fundamental realignment of policy is possible. Among the factors indicating a need for change, macroeconomic linkages have been singled out as primary sources of increasing difficulty in agricultural policy management. Implicit in this view is the idea that a heightened importance of macroeconomic factors represents a structural change in long-term patterns of development for the sector that has rendered current policies anachronistic. To advance such an idea is to ignore the historical record. Macroeconomic disturbances and their links to the agriculture sector are central in any historical account of the policy developments leading to direct federal government intervention in the agriculture sector. For example, the organized agricultural interest groups that emerged during the Populist protest of the late nineteenth century were motivated, in part, in response to the monetary restriction associated with the Greenback period and the return to fixed exchange rates under the gold standard in 1879 (Friedman and Schwartz). Continued price deflation into the mid-1890s and real interest rates that are estimated to have averaged 8.5% in the period 1870-89 (Summers, p. 212) proved particularly burdensome to debtridden farmers. The demands of the various farmer movements thus consisted of easy money (or an "elastic currency") created by government action, government funds for farm mortgages, and the subtreasury scheme for creation of government paper money with stored crops as collateral. The discontent voiced by farmers over the macroeconomic policies of the nineteenth century can be associated with later institutional changes that organized the Federal Reserve in 1913 and created the Federal Land Banks in 1916. Agricultural price support through provision of loans against crops was not achieved until 1933 with the creation of the Commodity Credit Corporation (Reiter and Hughes, pp. 1415-16). That policy change, along with other provisions for federal government intervention included in the Agricultural Adjustment Act, followed a farm crisis that had its origins in macroeconomic adjustments after World War I. Exports of agricultural products had expanded rapidly in the United States to supply the wartime needs of Europe. Rapid inflation accompanied the export expansion, and land prices and farm mortgage debt increased. This exacerbated farm sector adjustments when production was restored in Europe and when world liquidity was restricted as U.S. lending to Europe was curtailed. Overcapacity in world primary-product markets persisted and the combination of raw material overproduction and monetary deflation that occurred has been cited as a factor generating the broader economic collapse of the 1930s (Kindleberger, pp. 98-107). Unified political activity by farmers was also intense in the aftermath of World War I. The congressional farm bloc coalition of Republicans and Democrats came into existence in 1921 and sponsored legislation (e.g., the Capper-Volstead Act of 1922 and the Agricultural Credit Acts of 1923) aimed at improving farm conditions through promotion of cooperatives and expansion of credit. However, as the relative purchasing power of farmers continued to decline through the 1920s, the farm lobby organized around the theme of equality for agriculture and demanded more Margaret S. Andrews is a resident fellow, National Center for Food and Agricultural Policy, Resources for the Future; Gordon Rausser is a professor, Department of Agricultdral and Resource Economics, University of California, Berkeley. Giannini Foundation Paper No. 785.

The Economics of Price Scissors: Comment

Abstract: In a recent issue of this Review, (1984) Raaj Kumar Sah and Joseph Stiglitz model the impact of shifts in the agriculture-industry terms of trade on industrial accumulation and social welfare.' The intersectoral terms of trade, they note, was a key issue in the Soviet industrialization debate of the 1920's, and continues to be an important issue in contemporary less developed countries. One seemingly surprising implication of the Sah-Stiglitz model is that a shift in the terms of trade against agriculture increases industrial accumulation despite (or rather, because of ) a normal agricultural supply response. In their model, a price-induced decline in marketed agricultural surplus requires depression of industrial wages in order to reequilibrate urban food demand with supply at the lower relative food price. The income and substitution effects of these wage and price changes lower urban consumption demand for industrial goods. Together with agriculture's reduced purchasing power, this lower urban demand leads to the price scissors-induced increase in investable surplus out of industrial production. Thus emerges the strong Sah-Stiglitz result, which they label "Preobrazhensky's First Proposition," that the more elastic is agricultural supply response, the more wages must be depressed in equilibrium, and the more effectively plice scissors work to increase accumulation (see their equation (15)). Apparently, the traditional preoccupation with agricultural supply response, including Preobrazhensky's,2 is wrong-headed and backwards. But it is argued here that this result obtains only under rather special labor supply and investable surplus assumptions which conform to neither the constraints of the Soviet industrialization debate, nor to most contemporary less developed countries.3

Prediction and prevention of famine.

Abstract: In general, famines have become less frequent and of decreasing magnitude in recent decades, a generalization to which sub-Saharan Africa is the striking exception. The underlying factors preventing famine continue to weaken in sub-Saharan Africa, while they grow stronger elsewhere. The basic elements of famine prevention are: a substantial surplus of agricultural production beyond the subsistence needs of the rural population; highly developed transportation systems within rural areas, between rural and related urban areas, and with the rest of the world; and a democratic form of government. The first makes a shortage of food and income to buy food less likely, the second makes it possible to deal with food and income shortages if they do occur, and the third ensures that necessary and feasible actions will be taken. In a democratic framework a free press brings attention to famine even in isolated areas, and public opinion refuses to countenance inaction by the bureaucracy. Once conditions of famine arise, market mechanisms concentrate food where the purchasing power exists, drawing food from the rural to the urban areas and from the poor to the rich. In such circumstances governments must take direct action to prevent starvation. Famine is predicted by successive years of poor crops, a rapid rise in food prices, a decline in the prices of goods that the poor sell (particularly including the livestock of pastoralists), and a decline in employment.

Real Economic Development in the South: The Implications of Regional Cost of Living Differences

Abstract: When attempting to assess relative economic development among regions, it is essential to recognize first that the costs of goods and services, and hence the purchasing power of income, vary substantially among localities. In this paper we present estimates of cost of living for the 48 contiguous states and use them to adjust relative measures of economic development for individual states and the four major regions.

Wage indexation and the israeli labor market: The institutional imperative

Abstract: Israel is a nation replete with contradictions; its economics, politics, and sociology often defy understanding. This Jewish state, located on the periphery of the Moslem world, has few natural resources of its own, while its neighbors to the south and east enjoy the benefits of oil wealth. It is geographically Middle Eastern, yet politically finds itself considered European. Its population is predominantly Asian and African, yet its political institutions and leadership, civilization, and national cultural figures are rooted in the West. Another contradiction, less obvious but no less puzzling, provides the subject of this article. In typical periods of inflation, real wages are eroded and the laboring class suffers from a reduction in its purchasing power. Yet in the inflationary economy characteristic of most of Israel's existence, the wage-earner has managed to escape the harm threatened by the ever-diminishing value of the currency. The ostensible explanation-indexed wage contracts-appears to be inadequate, for such agreements never provided full de jure coverage against inflationary erosion. Israeli experience with indexation has endured longer and is more comprehensive than that of any other nation whose economic institutions utilize formal indexed contracts. Historically, linkage in the Israeli labor market represents the parent, with financial market indexation the first-born and the linked tax and welfare structure a younger child. This article focuses on the labor market alone and on the critical role played by its institutional framework in explaining the baffling nature of the Israeli cost-of-living adjustment (COLA) mechanism. It deals almost exclusively with the microeconomic issues raised by imperfect indexation, and suggests that institutional reasons underlie the imperfections.1 Although the case evaluated here deals specifically with wage indexation in the Israeli context, the presence of similar circumstances and motivations in other countries suggests that the institutional role has wider applicability. The plan of the paper is, in the next section, to consider the general institutional setup in the Israeli labor market as it affects COLA arrangements; in section III to suggest two alternative models of the nominal wage/real wage determination process; to devote section IV to an explanation of the models applied to Israel; and finally, to summarize and conclude. The fundamental point made in this paper is that a complex wage-COLA determination process serves

World Food Security: National and International Measures for Stabilisation of Supplies

Abstract: The objective of world food security in a wider sense and a broader perspective is to assure all people, at all times, the physical and economic access to the basic food they need. Sustained physical availability, the stability of adequate food supplies, and command over purchasing power to secure access to food are all necessary components of food security at the level of individuals, households and nations. Measures are needed at national, regional and global levels, not only to expand food supplies through increasing production, especially in low-income, food-deficit countries, but also to maximise the stability of supplies in the face of production fluctuations and to secure access to food supplies on the part of all, especially the poor people and poor nations.

Price and Quantity Variability under Stagflation

Abstract: On October 28th 1976, the Commission for Economic and Social Change of the Federal Government (1977) passed their final report. In Ch. II, No. 68, they stated: “If the current trend in economic activity in the Federal Republic of Germany continues, the prospects are not encouraging. It would have to be expected that economic growth will decline still further, cyclical variation will increase, the rate of depreciation of the purchasing power of the DM will continue, the unemployment problem will become more severe, and social security cannot be guaranteed any longer. The Members of the Commission cannot imagine that these trends will be acceptable to any politician.”