Showing papers on "Real gross domestic product published in 1992"

Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-1985

Abstract: The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85 Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86% The real exchange rate distortion index supports the view that Asian countries are more outward oriented Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; ie overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative The growth rate/capita of Latin American and African countries would increase 15-21% with a shift to move outward oriented trade policies This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth

Stochastic trends and economic fluctuations in a small open economy

Abstract: In this paper we describe how restricted vector autoregressions can be employed to examine the sources of macroeconomic fluctuations. We show how cointegration restrictions can be used to identify a VAR system with common stochastic trends subject to transitory and permanent changes in average growth, and how we may investigate the system's responses to permanent shocks, i.e. to innovations to the trends. Theoretical cointegration vectors are derived from a small open economy growth model for terms of trade, real GDP, real consumption, and real investments. Applying these methods to Swedish annual data (1875–1986) we find that permanent real (supply) shocks account for most of the fluctuations in GDP, even in the short run.

Testing the Neoclassical Theory of Economic Growth; A Panel Data Approach

Abstract: Several recent empirical studies have examined determinants of economic growth using country average (cross-section) data. In contrast, this paper employs a technique for using a panel of both cross-section and time-series data for 98 industrial and developing countries over 1960-85 to determine the quantitative importance for economic growth of both country-specific and time-varying factors such as human capital, public investment, and outward-oriented trade policies. The empirical results provide support for the view that these factors exert a positive and significant influence on economic growth. They also provide estimates of the speed at which the gap in real per capita income between rich and poor countries is likely to be reduced over the longer term.

Making sense of the Soviet trade shock in Eastern Europe : a framework and some estimates

Abstract: Eastern European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock, deriving from the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms of trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Taking all three together, and also adding in Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60 percent of decline in Czechoslovakia, and between a quarter and a third of the decline in Poland.

Capital accumulation in latin america: a six country comparison for 1950–89

Abstract: This article provides estimates of gross and net fixed capital stock for six Latin American countries: Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela for 1950–89. The capital stocks have been generated using the perpetual inventory method. To use the perpetual inventory method, historical time series of gross fixed investment, broken down into machinery and equipment, residential and non-residential structures were estimated. The diskette accompanying the article contains a detailed description of the sources and series used and for each country, long-term series (1900–89) of GDP at constant 1980 national prices, GDP at constant 1980 international dollars, population, GDP per capita and gross total and disaggregated investment in national currencies and as a percentage of GDP. The diskette also contains a complete set of net and gross capital stock estimates, average ages, average service life and capital-output ratios for 1950–89 each in national currencies and international dollars. The findings show rising capital-output ratios in most countries, except for Chile, where it remains more or less constant, and Colombia, where the ratio falls.

Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates

Abstract: East European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock caused by the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms-of-trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Combining these three effects and adding Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60% of the decline in Czechoslovakia, and between one-quarter and one-third of the decline in Poland.

Urban popular attitudes towards the economic recovery programme and the pndc government in ghana

Abstract: THE ECONOMIC RECOVERY PROGRAMME (ERP) implemented since April 1983 by Ghana's PNDC government has been remarkably successful at a macroeconomic level. From 1983 to 1989 real GDP grew on average by nearly 6 per cent per annum, allowing for an annual increase in real per capita income of about 3 per cent; the rate of inflation (as measured by the national consumer price index) decelerated on an end-of-period basis from 142 per cent to 15 per cent; and the balance of payments position improved appreciably, switching from an overall deficit of USS243 million to an overall surplus of US$1 10.l The economic gains realized since the inception of the programme have undoubtedly benefitted quite large sections of the population, particularly in the rural areas. In the urban areas also, there are at least superficial signs of economic progress. The visitor returning to Accra after a number of years will be struck by the remarkable improvements in the availability of goods, in the briskness of economic activity, and in the number of motor vehicles and good-quality roads. The extensive building of fine houses in the leafy residential suburbs of Labone and East Legon probably owes more to remittances from abroad than to fortunes made in Ghana, but more than a few resident Ghanaians have clearly done very well financially over the past few years.2 It is equally clear, however, that the majority of urban inhabitants in the lower income groups have experienced very little, if any, improvement in their real incomes, and that some it is unclear how many are probably worse offthan they were six or seven years ago. Complaints that life is hard and getting harder are regularly heard by any visitor willing to listen. This does not of course mean, even from the perspective of a concern for the welfare of these groups, that the ERP has in any simple sense failed. Most such people would probably be far worse off if it had not been adopted.3

World Bank adjustment lending and economic performance in sub-Saharan Africa in the 1980s : a comparison with other low income countries

Abstract: The authors investigated the factors that influenced the participation of sub - Saharan African countries and all low-income countries in World Bank adjustment lending They estimated how the Bank's adjustment programs affected economic performance in both regions They found that the marginal contribution of Bank-supported adjustment programs to export performance has been postive and significant in sub - Saharan Africa, given the potentially important links between export growth and economic growth But adjustment programs have not significantly affected economic growth in sub - Saharan Africa and have had a deleterious effect on investment there This strengthens the argument of those who call for more explicit consideration of the initial conditions of the sub - Saharan African economies in the design, emphasis, and schedule of their adjustment programs For one thing, a redefined but more important role for governments is in order for reforming African economies Fiscal and monetary retrenchment are still indispensable, but it is critical that there be more public investment in infrastructure, human capital, and agricultural technology - to generate a supply response Moreover, efforts must be made to make policy reforms more credible to the private sector and to improve program implementation Also, governance and political stability - politically sensitive issues - critically affect the adoption, implementation, sustainability, and credibility of adjustment programs

Controlling inflation with an interest rate instrument

Abstract: In this paper we examine the effectiveness in controlling long-run inflation of feedback rules for monetary policy that link changes in a short-term interest rate to an intermediate target for either nominal GDP or M2. We conclude that a rule aimed at controlling the growth rate of nominal GDP with an interest rate instrument could be an improvement over a purely discretionary policy. Our results suggest that the rule could provide better long-run control of inflation without increasing the volatility of real GDP or interest rates. Moreover, such a rule could assist policymakers even if it were used only as an important source of information to guide a discretionary approach.

Openness in the Canadian economy: 1870–1988

Abstract: The causal relation between openness and GDP and between exports and imports are examined. Causality test carried out in growth rates showed that over the period 1870–1988 openness, both narrowly and broadly defined, Granger-causes GDP growth; tests for the inverse causality produced mixed results, validating causality from GDP growth to export plus import growth, but rejecting causlaity from GDP growth to export growth; it was also found that export growth causes import growth, but not the opposite. Causality tests over four subperiods indicated the importance of openness for only the earliest phase of Canadian economic development. While the absence of causality in the later subperiods is largely compatible with the experience of the industrial countries, no meaningful comparison can be made between the experience of Canada and that of developing countries owing to causality variations of openness and to large differences in resource endowments.

Stock market response to unexpected macroeconomic news : the Australian evidence

Abstract: This paper provides empirical evidence on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991. The results suggest that stock returns are positively correlated with any surprise news in the current account deficit, the exchange rate and growth rate of real GDP, and negatively correlated with surprise news about the inflation rate and interest rates. Stock returns are also positively correlated with the unexpected unemployment rate and negatively correlated to revisions in the expected unemployment rate. The results furthermore suggest that market portfolios can detect the impact of common economic shocks better than the portfolios of the two main sub-sectors of the market.

Aggregation of Economic Indicators Across Countries: Exchange Rate versus PPP Based GDP Weights

Abstract: Relative GDP shares are frequently used as weights in aggregations. In order to ensure that these weights reflect countries` shares in real output, GDP data in national currencies should be converted into a common numeraire currency at purchasing power parity (PPP) rates. A review of the empirical evidence on the relationship between exchange rates and prices suggests that market (or official) exchange rates are generally poor proxies for PPP rates. The paper examines the PPP-based GDP data generated by the International Comparison Program and compares aggregations with PPP- and exchange rate-based GDP weights.

Structural adjustment and poverty: A computable general equilibrium model of the Kenyan economy

Abstract: A computable general equilibrium model based on a social accounting matrix for Kenya is used to simulate the effects of 10% devaluation, 10% increased investment and 10% agricultural productivity improvement on the macro‐economy and on the real incomes of the poor. For each policy simulation two specifications for the labour markets are adopted, the first assuming unlimited supplies of labour at given nominal wages and the second fixed supplies so that wages are determined endogenously. These affect the results crucially. Under the first assumption, devaluation provides a 10% boost to real gross domestic product (GDP) and has highly favourable effects on agricultural production, exports, the current account deficit, employment and poverty. Under the second assumption, it has a largely inflationary impact, with attenuated effects on real GDP and no effect on the current account deficit. Agricultural productivity improvement is less affected by the different specifications and compares favourably w...

Malaysia in 1991: Economic Growth and Political Consolidation

Abstract: Economic Growth In August the IMF Survey gave Malaysia high grades for its economic policies, opening its analysis with the comment that "the Malaysian economy has undergone a sharp turnaround," and concluding that "Malaysia's excellent economic performance during recent years is testimony to the soundness of the policies it has pursued."' After the difficult years in the early 1980s when there was negative growth accompanied by severe current account deficits, Malaysia's economy has roared back to a growth rate averaging 8.3% in the past five years. The point has been reached where some observers have looked favorably upon a drop in annual real GDP from 9.8% in 1990 to a projected 8.5% in 1991 (or an adjusted total of US$33.9 billion), arguing that the economy needs cooling down.2 Unemployment has been relatively low (5.6% in 1991 against 6% in 1990), the manufacturing production index rose strongly the first half of the year, mediumand long-term debt and debt service have sharply declined, and there has been a heavy inflow of investment. Foreign investment has been dominated by Japan, Taiwan, the United States, and Singapore but has been accompanied by strong performance by domestic investors. One re-

South Africa : macroeconomic issues for the transition

Abstract: In the 1980s the South African government undertook quite effective policy adjustments in the macroeconomic arena to respond to the short-run crises it faced. Today, however, the macroeconomic situation is fragile. Four areas that could make or break the transition are reviewed in this paper: investment; foreign investment; savings and the deficit; and inflation. The ratio of fixed investment to Gross Domestic Product (GDP) is 20 percent at the beginning of the 1990s and private investment held up relatively well at 15 percent of GDP. Private investment will be critical, both because of its size and its central role in the productive sectors. External debt has already been reduced to less than 20 percent of GDP, compared with almost twice that in Mexico. Maintaining non-gold export growth to finance the expansion of imports will be essential, and exchange rate and associated macroeconomic management should probably be aimed at futher real depreciation. On the surface, South Africa is in reasonable shape with respect to both savings and the deficit. However, private saving has been on a declining trend. The costs of financing the deficit are rising. A reduction in mandatory requirements channeling financial savings to finance the government is leading to a rising interest rate on public borrowings. The inflation rate has remained stubbornly in the region of 15 percent for over a decade. This is likely to remain a problem. Uncertainties over the political transition makes the macroeconomic outlook uncertain. With a smooth transition and a reasonable degree of social stability, short-run prospects could be good. The relaxation of the external position, together with the expansion of some spending programs should support a significant recovery in growth in the near term.

Country survey II: Sri Lanka

Abstract: This paper provides a survey of the recent economic and military history of Sri Lanka. Sri Lanka, a low‐income country that has historically maintained a low defence burden, has recently increased its military spending substantially due to the high level of domestic violence experienced in the country since 1983. Econometric evidence suggests that the level of defence spending in Sri Lanka is primarily determined by the level of internal threat, real GDP, and external military assistance provided from abroad. Also, analysis of available data indicates that the high military burden to date has been financed mainly by cutbacks in investment programs.

Multi-Country Evidenceon the Effects of Macroeconomic, Financial and Trade Policieson Efficiency of Resource Utilization in the Developing Countries

Abstract: This study examines the effects of selected policies on economic efficiency in 81 developing countries by pooling cross-country data over various subperiods between 1961-90. An incremental output-capital ratio is the measure of economic efficiency, while the policy variables include: export orientation, size of the public sector, directed credit program through development bank lendings, financial depth, inflation rate, real interest rate, and real exchange rate distortion. The export-orientation, financial depth, and real interest rate are found to promote economic efficiency, while other policy variables are found to hinder it.

On modeling the impact of arms reductions on world trade

Abstract: [The basic work of Polachek focusses on fundamental aspects of the general relation between trade and political conflict. But at any particular point of time, major shocks in the world economy may occur which can lead to drastic change in trade among many countries. Such was the oil shock of 1973. Today, the shock is the demise of the Warsaw Pact Organization and the economic collapse and democratization (political demise) of the old Soviet totalitarian regime. As we have seen, Klein/Gronicki/Kosaka have addressed the impact of arms reduction in Eastern European countries and the Soviet Union upon their internal economies. But it is also important to examine the impact of major arms reduction in a number of Western powers upon trade in general. While neoclassical and Keynesian theory suggest several different kinds of effects that may come about, Bergstrand looks to empirical materials to identify: (1) the relation of arms trade to aggregate trade; (2) the relation to nonarms trade of the share of real GDP going to military expenditures in importing and exporting countries; and (3) the economic determinants of arms trade. (eds.)]

Policies for Long-Run Economic Growth: A Summary of the Ban

Abstract: The potential rate of economic growth in the industrialized countries is now only half what it was in the 1960s. Growth of world saving and productivity has also declined, suggesting continued low economic growth in the future. If these trends persist, standards of living in the industrialized countries will improve only marginally. This prospect has generated proposals for reversing the growth slump of the past two decades. To explore policies to increase growth, the Federal Reserve Bank of Kansas City invited distinguished central bankers, academics, and financial market participants to a symposium entitled "Policies for Long-Run Economic Growth." The symposium was held August 27-29, 1992, in Jackson Hole, Wyoming. In opening comments, Federal Reserve Chairman Alan Greenspan underscored the importance of the topic by emphasizing the role of long-term forces in shaping short-term economic developments. "It has become ever more apparent...that what policy needs most at this stage are models that effectively tie down the developing long-term forces impinging on our economies. For unless we have some insight into how current short-term aberrations will evolve into the long term, our overall policy posture will surely prove inadequate." Throughout the symposium, most participants agreed that economic policymakers should pay more attention to long-run growth. But participants disagreed on specific policies to promote growth. While some of the participants, mostly from the United States, advocated government programs to increase growth, other participants emphasized increased reliance on free and open markets. This article summarizes the papers presented at the symposium and the discussions they stimulated. The first section of the article reviews evidence on the growth slowdown and discusses traditional and new theories of economic growth. The second section examines economic policies to promote growth. The third section provides a synthesis of the issues from the perspective of overview panelists and others with a broad outlook. THE ECONOMIC GROWTH SL0WDOWN: EVIDENCE AND THEORY To set the stage for a discussion of policies to promote growth, the symposium began by examining the causes of the growth slowdown and the contributions of new economic theories in explaining economic growth. Participants disagreed about the relative importance of various possible causes of the growth slowdown but agreed that economic theory had advanced considerably in recent years in explaining patterns of long-term economic growth. EVIDENCE In a panel discussion, Michael Darby, Horst Siebert, and Kumiharu Shigehara addressed the causes of slower economic growth. Darby questioned the extent to which long-term growth had actually declined in the United States because he felt measures of growth were biased. While the other participants acknowledged the measurement problem, they viewed the growth slowdown as real. Siebert, focusing primarily on Germany, emphasized a wide variety of structural, supply-side, and other forces. Shigehara, focusing on countries belonging to the organization for Economic Cooperation and Development (OECD), suggested that structural problems, not supply factors, explained the bulk of the slowdown. Darby argued that much--if not all--of the economic growth slowdown in the United States was an illusion stemming from faulty measurement. Estimating the real value of a country's output has become more difficult as the share of services and high-tech goods in GDP has grown. For example, price changes are difficult to disentangle from quality changes in the high-tech sector. Official statistics likely overstate price increases of many high-tech goods, while underestimating improvements in quality. While increased quality of a good should be reflected in real GDP, a price change should not. Likewise, in the service sector, output is often measured by hours of input without accounting for possible increases in productivity. …

Structural Adjustment, Agriculture, and the Poor: A General Equilibrium Analysis of the Kenyan Economy

Abstract: A computable general equilibrium model based on a social accounting matrix for Kenya is used to simulate the effects of 10-percent devaluation, 10-percent increased.investment, and 10-percent agricultural productivity improvement on the macroeconomy and on the real incomes of the poor. For each policy simulation, two specifications for the labour markets are adopted, the first assuming unlimited supplies of labour at given nominal wages and the second assuming fixed supplies so that wages are determined endogenously. These crucially affect the results. Under the first assumption, devaluation provides a 10-percent boost to real GDP and has highly favourable effects on agricultural production, exports, the current account deficit, employment, and poverty. Under the second assumption, it has a largely inflationary impact, with attenuated effects on real GDP and other variables and no effect on the current-account deficit. Agricultural productivity improvement is less affected by the different · specifications and compares favourably with devaluation except for its smaller impact on GDP. The increased investment policy is found to be inferior on most counts. All three policies decrease poverty, though income distribution remains stable.

Index numbers and the measurement of real GDP

Abstract: The measures of real GDP and inflation are aggregates of many individual prices and quantities. These variables are measured using fixed-weight indexes, which can give a misleading impression of price and output changes in a particular year if the structures of output and relative prices are different from those in the base year. This measurement problem adds to the uncertainties facing policymakers. ; These ambiguities result from the definitions of output and inflation in use. This article describes alternative measures of growth and inflation that have a stronger theoretical basis and avoid these ambiguities. Operational versions of these measures will be introduced by the Bureau of Economic Analysis in 1992. These new measures will remove one source of uncertainty facing policymakers.

Testing the Neoclassical Theory of Economic Growth; A Panel Data Approach

Abstract: Several recent empirical studies have examined determinants of economic growth using country average (cross-section) data. In contrast, this paper employs a technique for using a panel of both cross-section and time-series data for 98 industrial and developing countries over 1960-85 to determine the quantitative importance for economic growth of both country-specific and time-varying factors such as human capital, public investment, and outward-oriented trade policies. The empirical results provide support for the view that these factors exert a positive and significant influence on economic growth. They also provide estimates of the speed at which the gap in real per capita income between rich and poor countries is likely to be reduced over the longer term.

Causes of declining growth

Abstract: From 1979 to 1989, growth in U.S. real gross domestic product (GDP) slowed to only 2.5 percent per year. From 1989 through the first half of 1992, growth has slowed further to only 0.5 percent, with growth reduced about 2 percent below normal due to transitory cyclical factors. Thus, either way you look at it, what is alternately termed trend, secular, steady-state, or capacity growth has slowed to about 2.5 percent. This growth is very slow compared to the trend growth of nearly 4 percent experienced in 1948-65 or even the 3.1 percent of 1965-79. In the perspective of this century, recent U.S. growth is slow but not unprecedented: for example, trend real GNP growth was only about 2.25 percent during 1929-48 as the capital stock fell due to the Depression and World War 11.

Explaining the Argentine growth paradox: new evidence applying cointegration techniques

Abstract: In this paper we revisit three hypotheses, which we had proposed before, in an attempt to explain the long-run pattern of Argentine real GDP growth: (i) distributional conflicts (between the government and the private sector, and between entrepreneurs and trade unions), (ii) a permissive monetary policy, and (iii) the delinking of the Argentine economy from the world markets. Applying unit root econometrics we determine that the model is not cointegrated and that it should be estimated with conventional methods in difference form. Alternative estimates . indicate that the best fit is achieved by a model representing hypotheses (i) and (ii) but not (iii). Thus, foreign trade seems not to have had any impact on Argentine GDP during the period studied. Also, the conflict between entrepreneurs and trade unions does not seem to have had an important influence on Argentine growth, at least in the period 1915 - 1978. However, the results for the extended period 1915 - 1988 indicate that our model representing hypotheses (i) and (ii) does not perform well in explaining the 1980s, when substantial changes in economic policy took place in Argentina.

Making Sense of the Soviet Trade Shock in Eastern Europe: A Framework and Some Estimates

Abstract: Eastern European countries have experienced sharp declines in real GDP since 1990. One of the reasons for this decline is the Soviet trade shock, deriving from the collapse of the CMEA and of traditional export markets in the Soviet Union. This paper is an attempt to quantify the magnitude of this external shock. A conceptual framework is developed to show that the shock has three distinct elements: (a) a terms of trade deterioration; (b) a market-loss effect; and (c) a removal-of-import-subsidy effect. Taking all three together, and also adding in Keynesian multiplier effects, the conclusion is that the Soviet trade shock accounts for all of the decline in Hungarian GDP, about 60 percent of decline in Czechoslovakia, and between a quarter and a third of the decline in Poland.

Stock Market Response to Unexpected Macroeconomic News : The Australian Evidence

Abstract: This paper provides empirical evidence on the relationship between unexpected changes in macroeconomic variables and Australian stock returns over the period 1980-1991. The results suggest that stock returns are positively correlated with any surprise news in the current account deficit, the exchange rate and growth rate of real GDP, and negatively correlated with surprise news about the inflation rate and interest rates. Stock returns are also positively correlated with the unexpected unemployment rate and negatively correlated to revisions in the expected unemployment rate. The results furthermore suggest that market portfolios can detect the impact of common economic shocks better than the portfolios of the two main subsectors of the market.