Showing papers on "Real gross domestic product published in 1999"

Aid, policies, and growth

Abstract: The authors of this paper use a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP. In panel growth regressions for 56 developing countries and 6 four-year periods (1970-93), they find that the policies that have a great effect on growth are those related to fiscal surplus, inflation, and trade openness. They construct an index for those three policies and have that index interact with foreign aid. They have instruments for both aid and aid interacting with policies. They find that aid has a positive impact on growth in developing countries with good fiscal, monetary and trade policies. In the presence of poor policies, aid has no positive effect on growth. This result is robust in a variety of specifications, which include or exclude middle-income countries, include or exclude outliers, and treat policies as exogenous or endogenous. They examine the determinants of policy and find no evidence that aid has systematically affected policies, either for good or for ill. They estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors' pursuit of their own strategic interests. In a counterfactual, they reallocate aid, reduce the role of donor interests and increasing the importance of policy. Such a reallocation would have a large positive effect on developing countries' growth rates.

Has the u.s. economy become more stable? a bayesian approach based on a markov-switching model of the business cycle

Abstract: We hope to answer three questions: Has there been a structural break in postwar U.S. real GDP growth towards stabilization? If so, when? What is the nature of this structural break? We employ a Bayesian approach to identify a structural break at an unknown changepoint in a Markov-switching model of the business cycle. Empirical results suggest a break in GDP growth toward stabilization, with the posterior mode of the break date at 1984:1. Furthermore, we find a narrowing gap between growth rates during recessions and booms that is at least as important as any decline in the volatility of shocks.

Circumstance and Choice: The Role of Initial Conditions and Policies in Transition Economies

Abstract: The experience of countries in transition from a planned to a market-oriented economy has varied greatly. The clearest differences are between the East Asian countries, China and Vietnam, and the countries of Central and Eastern Europe (CEE) and the former Soviet Union (FSU). China and Vietnam have contained inflation and benefited from continued high growth in GDP since the beginning of their reforms, while all CEE and FSU countries have experienced large declines in output, and most have experienced hyperinflation. But even in CEE and the FSU, differences are marked. Some countries have lost over half of their GDP, and growth performance in a number of countries is still poor, while others are growing strongly. Some are still suffering from high inflation while others have successfully reduced annual inflation. What determines this divergence of outcomes across transition countries? No study so far has analyzed the interaction of all factors, including initial conditions, political change, and reforms, in a unified framework including CEE, the FSU, China, and Vietnam. The authors examine these broader interactions, but focus first on the role of initial conditions, such as initial macroeconomic distortions and differences in economic structure and institutions, which have been emphasized less in the literature. They find that initial conditions and economic policy jointly determine the large differences in economic performance among the 28 transition economies in the sample. Initial conditions dominate in explaining inflation, but economic liberalization is the most important factor determining differences in growth. But reform policy choices are not exogenous. They depend, in turn, on both initial conditions and political reform, with political reform the most important determinant of the speed and comprehensiveness of economic liberalization. Other findings provide additional insight into these relationships. Results show that liberalization has a negative contemporaneous impact, but a stronger positive effect on performance over time. The results also show that macroeconomic and structural distortions are negatively related to both policy and performance. Regarding the former, unfavorable initial conditions discourage policy reforms but do not diminish their effectiveness once they are implemented. The authors find some evidence that the influence of initial conditions diminishes over time. This is in part because many of the initial conditions are themselves modified in the course of transition. Monetary overhangs are dissipated through inflation, industrial overhang is eroded as plants shut down, and market memory returns through experience.

From plan to market : patterns of transition

Abstract: In analyzing the transitional experience of countries in Central and Eastern Europe (CEE) and the former Soviet Union (FSU), the authors find strong common patterns for countries at similar stages of reform despite differences in initial conditions. To establish rankings, the authors create a reform index combining the intensity and duration of economic liberalization. Freeing domestic prices is one element of reform captured by the index; it was needed to enable governments to cut subsidies and restore macroeconomic balance. Other dimensions of reform captured by the index are liberalization of external trade, including foreign currency convertibility, and facilitation of private sector entry through privatization of state enterprises and improvements in the environment for private sector development. Some countries moved faster on reform than others, and one major reason appeared to have been the pace of political liberalization. Liberalization has, indeed, encouraged capital and labor to reallocate from industry toward services, many of which were previously repressed; and the repressed sectors fueled the return to positive growth in fast reformers. For slow reformers, the main problem in achieving stabilization has been the continued monetization of fiscal and quasi-fiscal deficits, associated with attempts to maintain employment in the old system. Among the policy implications are: 1) stabilization is a priority for the resumption of growth, and this requires extensive liberalization; 2) stabilization is made difficult by output contractions in the early stages of liberalization, by limited external financing, and by very large depreciations of the real exchange rate; and 3) there is no evidence that a slower pace of reform strengthens the fiscal position of slow reformers; their consolidated fiscal and quasi-fiscal deficits are quite high.

Macroeconomic uncertainty and private investment in developing countries - an empirical investigation

Abstract: The impact of uncertainty on investment has attracted considerable attention in the analytical and empirical macroeconomic literature In theory, however, uncertainty can affect investment through different channels, some of which operate in mutually opposing direction So, the sigh of its overall effect is ambiguous and can be assessed only empirically To thoroughly assess the impact of macroeconomic uncertainty on private investment, the author uses a large panel data set on developing countries He draws a distinction between sample variability and uncertainty, constructs alternative measure of the volatility of innovations to five key macroeconomic variables (inflation, growth, the terms of trade, the real exchange rate, and the price of capital goods), and examines their association with aggregate private investment He then adds these constructed measures to an empirical investment equation that is estimated using alternative panel data econometric methods, allowing for simultaneity, country-specific effects, and parameter heterogeneity across countries The results underscore the robustness of the link between investment and uncertainty Virtually all of the volatility measures in the paper show a strong negative association with investment ratios In addition, the regression estimates indicate that uncertainty has an adverse direct impact on investment, over and above any indirect effect that might also be at work This finding is particularly robust in the case of real exchange rate volatility, which invariably has a robust negative effect on investment, regardless of econometric specification

Finance and macroeconomic volatility

Abstract: Countries with more developed financial sectors, experience fewer fluctuations in real per capita output, consumption, and investment growth. But the manner in which the financial sector develops matters. The relative importance of banks in the financial system is important in explaining consumption, and investment volatility. The proportion of credit provided to the private sector, best explains volatility of consumption, and output. The authors generate their main results using fixed-effects estimates with panel data from seventy countries for the years 1956-98. Their general findings suggest that the risk management, and information processing provided by banks, maybe especially important in reducing consumption, and investment volatility. The simple availability of credit to the private sector, probably helps smooth consumption, and GDP.

Explaining Japanese foreign direct investment in Latin America, 1979-1992

Abstract: This study seeks to explain the variation in Japanese foreign direct investment (FDI) in Latin America between 1979 and 1992. The analysis focuses on twelve countries: Argentina, Brazil, Chile, Colombia, Costa Rica, El Salvador, Honduras, Mexico, Paraguay, Peru, Uruguay, and Venezuela. A multivariate regression model is used to test the effects of political and economic determinants. The effects of the independent variables are estimated using ordinary least squares (OLS) with panel corrected standard errors. The findings suggest that market size, economic adjustment policies, and certain types of political instability have influenced Japanese FDI in the region. Official development assistance and a number of macroeconomic variables (e.g., real gross domestic product, yen appreciation, size of the skilled workforce, inflation, and imports and exports) were found to have little explanatory power. While previous studies have emphasized economic determinants, our results suggest that both political and economic variables are important in understanding Japanese investment behavior in Latin America

An aggregate import demand function for Bangladesh: a cointegration approach

Abstract: This paper investigates the existence of a long-run aggregate merchandise import demand function for Bangladesh during the period 1974 - 94. The cointegration and error correction modelling approaches have been applied. Empirical results suggest that there exists a unique long-run or equilibrium relationship among real quantitities of imports, real import prices, real GDP and real foreign exchange reserves. The dynamic behaviour of import demand has been investigated by estimating two types of error correction models, in which the error correction terms have been found significant. In model I, real import prices and real GDP (lagged one year) and in model II, real import prices, real GDP (lagged one year), real imports (lagged one quarter) and a dummy variable capturing the effects of import liberalization policies have all emerged as important determinants of import demand function. The error correction models have also been found to be robust as they satisfy almost all relevant diagnostic tests.

The search for the key : aid, investment, and policies in Africa

Abstract: The traditional aid-to-investment-to-growth linkages are not very robust, especially for African economies. Aid does not necessarily finance investment and investment does not necessarily promote growth. Differences in economic policy, on the other hand, can explain much of the difference in growth performances. Furthermore, domestic politics rather than aid or conditionality has been the main determinant of policy reform. Where societies and governments have succeeded in putting growth-enhancing policies into place, aid has provided useful support. The combination of good policies and aid has created a productive environment for private investment and growth. Copyright 1999 by Oxford University Press.

Re-examining export-led growth hypothesis: a multivariate cointegration analysis for India

Abstract: This paper re-examines the export-led-growth (ELG) hypothesis using a vector autoregressive (VAR) model by considering the relationship between real GDP, real exports and terms of trade for India during the period 1961-93. In re-examining the ELG hypothesis, this study, perhaps for the first time, employs a multivariate framework using Johansen's model selection and maximum likelihood cointegration procedure. The results sugest that there is one long-run equilibrium relationship among the three variables, and the causal relationship flows from the growth in GDP and terms of trade to the growth in exports. The causality from exports to GDP appears to be a short run phenomenon, suggesting that the recent export promotion strategies adopted in India have the potential of bearing growth in the future.

Oil prices and U.S. aggregate economic activity: a question of neutrality

Abstract: Considerable research finds oil price shocks have had major effects on U.S. output and inflation. Several recent studies argue that the response of monetary policy-rather than the oil price shocks themselves-caused the fluctuations in economic activity. Stephen Brown and Mine Yucel show that an oil price increase will lead to a decline in real GDP and an increase in the price level that are of a similar magnitude if the federal funds rate is unconstrained-a finding consistent with the definition of monetary neutrality in which nominal GDP is constant. Brown and Yucel also find that holding the federal funds rate constant in the face of an oil price increase is an accommodative policy that boosts real GDP, the price level, and nominal GDP. In short, the monetary authority can use accommodative policy to cushion the negative effects of higher oil prices on real GDP, but at the expense of higher inflation.

The Sources of Humanitarian Emergencies

Abstract: This study identifies the sources of humanitarian emergencies characterized by warfare, displacement, hunger, and disease. The authors emphasize that economic variables often become salient through relative deprivation. Their econometric analysis indicates that stagnation and decline in real GDP, a high ratio of military expenditures to national income, a tradition of violent conflict, high income inequality, and slow growth in average food production are sources of emergencies. Also, inflation and low levels of IMF funding are associated with emergencies, although the direction of causation may be opposite.

An Examination of the Causal Relationship between Savings and Growth in the Third World

Abstract: Past studies reveal a correlation between savings and GDP growth in the Third World. Those studies hypothesize that higher rates of savings cause higher growth rates of real GDP. This paper explores an alternative hypothesis: that higher growth rates of GDP cause increased savings. Higher growth rates of income boost the rate of savings and attract more foreign savings. The difference between these two hypotheses is the direction of causality. This study investigates the direction of causality using the Engle-Granger error-correction model or the Granger causality test, whichever is appropriate. The findings support the latter hypothesis in more cases.

A Decomposition of the Increased Stability of GDP Growth

Abstract: Since 1984, the U.S. economy has grown at a remarkably steady pace. An analysis of this increased stability shows that every major component of GDP has exhibited smoother growth. However, two components - inventory investment and consumer spending - are responsible for the bulk of the decline in overall volatility.

What are the Effects of Monetary Policy on Output? : Results from an Agnostic Identification Procedure

Abstract: This paper proposes to estimate the effects of monetary policy shocks by a new "agnostic" method, imposing sign restrictions on the impulse responses of prices, nonborrowed reserves and the federal funds rate in response to a monetary policy shock. No restrictions are imposed on the response of real GDP to answer the key question in the title. We find that "contractionary" monetary policy shocks have an ambiguous effect on real GDP. Otherwise, the results found in the empirical VAR literature so far are largely confirmed. The results could be paraphrased as a new Keynesian-new classical synthesis: even though the general price level is sticky for a period of about a year, money may well be close to neutral. We provide a counterfactual analysis of the early 80's, setting the monetary policy shocks to zero after December 1979, and recalculating the data. We found that the differences between observed real GDP and counterfactually calculated real GDP was not very large. Thus, the label "Volcker-recession" for the two recessions in the early 80's appears to be misplaced.

A re-examination of the predictability of the yield spread for real economic activity *

Abstract: This paper revisits the yield spread’s usefulness for predicting future real GDP growth. We show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium. We find that both factors are relevant for predicting real GDP growth but the respective contributions differ. We account for part of the contribution of the term premium using a logarithmic term structure model with a time-varying variance of the inflation forecast error. We find that the variance of inflation is a significant component of the term premium and part of the reason that the term premium helps predict real GDP growth.

Malaria and growth

Abstract: The authors explore the two-sided link between malaria morbidity and Gross Domestic Product (GDP) per capita growth. Climate significantly affects cross-country differences in malaria morbidity. Tropical location is not destiny, however: greater access to rural health care and greater income equality are associated with lower malaria morbidity. But the interpretation of this link is ambiguous: does greater income inequality allow for improved anti-malaria efforts, or does malaria itself increase income inequality? Allowing for two-sided causation, the authors find a significant negative causal effect running from malaria morbidity to the growth rate of GDP per capita. In about a quarter of their sample countries, malaria is estimated to reduce GDP per capita growth by at least 0.25 percentage point a year.

Adjustment and Growth in Sub-Saharan Africa

Abstract: This paper analyzes the factors affecting economic growth in sub-Saharan Africa, using data for 1981-97. The results indicate that per capita real GDP growth is positively influenced by economic policies that raise the ratio of private investment to GDP, promote human capital development, lower the ratio of the budget deficit to GDP, safeguard external competitiveness, and stimulate export volume growth. The favorable evolution of these variables played an important role in the region`s apparent postreform recovery of 1995-97. The paper also discusses a policy framework to promote sustainable economic growth and reduce poverty in sub-Saharan Africa.

The rise and fall of the New Zealand underground economy: are the responses symmetric?

Abstract: Earlier research by the author indicates a causal relationship from measured real output in New Zealand, to output in the real underground economy. We investigate the possibility of asymmetries in this relationship, and test to see if the response of the underground economy to downturns in real GDP differs from the response to such upturns. No such evidence is found.

Alternative Industrial Development Paths for Indonesia: Sam and CGE Analyses

Abstract: In this article, we examine the economy-wide effects of three alternative growth paths for Indonesia's industrial sector using SAM (social accounting matrix) multiplier analysis and CGE (computable general equilibrium) modeling The context of the analysis is the immediate post-crisis period — most likely to be in the next millennium — represented in our study by a modified benchmark data set for 1995 Special attention is given to the overall income and equity effects, considering that egalitarian growth has become a particularly important development objective in Indonesia The results of SAM multiplier analysis indicate relatively strong macro-linkages from agricultural demand-led (ADL) industrialization, yielding a significantly larger increase in real GDP compared to that arising from industrial development oriented to either food processing or light manufacturing The simulation results based on CGE modeling, which take account of nonlinearities and supply constraints that are ignored in SAM analysis, bear out the dominant influence of demand linkages in showing that ADL industrialization is associated with a larger GDP increase than the two industrial-led development paths

Taxes and growth: testing the neoclassical and endogenous growth models

Abstract: 1. INTRODUCTION Neoclassical and endogenous growth theories have substantially different implications about how economic growth is affected by changes in certain variables such as the saving rate, the population growth rate, and several government-policy variables. In particular, the neoclassical growth model developed by Ramsey (1928), Solow (1956), and Cass (1965) predicts that such changes, while permanently changing the steady-state level of output per capita, will alter its growth only temporarily, having no permanent effect on the economy's steady-state growth rate. On the contrary, endogenous growth models, such as those proposed by Romer (1986, 1990), Lucas (1988), Rebelo (1991), and others, predict that such changes will permanently change the growth rate of per capita output.(1) Theoretically, therefore, as Jones (1995) proposed, a test of the neoclassical versus the endogenous class of growth models can easily be constructed as follows. First, suppose permanent changes in a certain relevant variable, x, can be identified. Then, the endogenous paradigm will be supported if the effects of these changes on the growth rate of output per capita are found to be permanent (and in the predicted direction), while the neoclassical paradigm will be supported if the effects are found to be transitory (and in the predicted direction). For such a test to become empirically operational, however, variable x must satisfy the following two criteria: (i) in theory, it must have different effects on the growth rate in the neoclassical than in the endogenous growth theory, and (ii) in practice, it must be nonstationary so that it will exhibit permanent changes. The investment rate, which Jones (1995) selected as variable x, while clearly satisfying the first criterion, may or may not satisfy the second: there is no particular reason why changes in investment rates should be permanent rather than transitory. The present paper argues that the tax rate is a very good candidate for x. First, it is well known that the tax rate satisfies the first criterion: a permanent increase in the tax rate will permanently reduce the steady-state real growth rate in an endogenous growth model, but not in a neoclassical model, where growth will be affected only temporarily, the only permanent effect being a decrease in the steady-state level of output per capita.(2) In addition, there is good reason to expect that the tax rate is nonstationary. Barro's (1979) well-known "tax smoothing" hypothesis says that, if the marginal cost of raising tax revenue is increasing in the tax rate, the optimal tax rate (defined as the rate that minimizes the present value of the distortions due to the tax) is a random walk. Intuitively, just as the smoothing motive of consumers makes consumption a random walk (Hall, 1978), the smoothing of tax rates by the government makes the tax rate a random walk.(3) This means that changes in the tax rate will he permanent and, given their different effects on growth under the two types of growth models, very useful in empirically distinguishing between the neoclassical and endogenous models. This is the goal of the present paper, which empirically investigates the effects of the tax rate on economic growth using data from the 1960-1992 period for a panel of 11 Organization of Economic Cooperation and Development (OECD) economies. In this sample, real growth rates and tax rates have varied significantly both across countries and over time since 1960.(4) The first two columns of Table 1 report the annual growth rate of real GDP per capita and the total tax rate, averaged over the 1960-1991 period. Average growth has ranged from 1.83% in Switzerland to 5.32% in Japan; the total tax rate has varied from 25.30% of GDP in Japan to 47.62% of GDP in Norway. Figures 1 and 2 add a time dimension to these numbers. Note that for most of these 11 countries, total taxes as a fraction of GDP have increased almost monotonically. …

Estimating the effects of corruption - implications for Bangladesh

Abstract: Building on the pioneering work of Barro (1991) and Mauro (1995) to include the most recent years for which data are available (for Bangladesh in the 1990s), the authors investigate the relationships between corruption, and growth, and, between corruption and investment, both domestic and foreign, to see whether they have changed from earlier decades. Then they move away from Mauro's implicit assumption that the corruption index value for a relatively short period of time, can be used as a proxy for the long run, and further augment Mauro's model by including significant regional dummy variables, in an attempt to take account of various region-specific effects. The authors also analyze the sensitivity of corruption in the presence, and absence of various policy, geographic, and demographic variables that are widely used in empirical growth, and investment literature. The findings suggest that countries serious about improving governance, and reducing corruption, should redefine the role of government, overhaul the system of incentives, and strengthen domestic institutions, to make sure the necessary checks, and balances are in place. Such an approach to reform would help attract more investment - both domestic and foreign - and would accelerate economic growth, and poverty reduction.

Inequality and Financial Crises: Some Early Findings

Abstract: We employ the UTIP data set on the evolution of earnings inequality in manufacturing in the global economy to illuminate two questions First, do regional patterns of similarity in the movement of large macroeconomic aggregates, such as real GDP, imply underlying similarities of industrial structure, so that knowledge of one national economy in a GDP cluster can reasonably be assumed to convey useful information about the others? We show that this is not generally the case Particularly, regional comovement of GDP in Asia, which is very strong, masks deep dissimilarities in underlying employment structures -- and, we argue, a range of potential sources of transmissible financial crisis Second, what are the consequences of crisis for inequality? We show that crises typically generate increases in inequality, but more so in less developed countries, and more so in regions that are more liberal in their policy regimes

Investment and economic growth

Abstract: We used unit root and cointegration techniques to determine the long run relationship between GDP and investment for 90 countries using data from World Bank for the period 1960-1992. In the first step of our analysis we found GDP and investment integrated of different orders for 33 countries. Second step of our analysis shows no cointegration between GDP and investment for 25 countries and cointegration for 25 countries with both variables of order I(1). The other 7 countries with both variables of order I(0) are in long run relation and do not need cointegration test. To determine the direction of causal effect between GDP and investment we used Granger causality test as the third step of our analysis. We found causality in the short run for 15 countries and in the long run for 23 countries. Bi-directional causality is found for 10, unidirectional causality from GDP to investment for 18 and from investment to GDP for 10 countries. The causality from GDP to investment is positive for 11 countries and from investment to GDP for 6 countries. Bi-directional causality is mostly positive between the two variables.

Decline and Recovery in Transition Economies: The Impact of Initial Conditions

Abstract: This paper examines and analyzes the stylized facts of the contemporary transition economies, specifically the initial decline and subsequent variable recovery of real gross domestic product. We test the argument that a major source of observed differences in magnitude and duration of decline is the extent of initial disequilibrium of these economies. We specify and estimate a simple econometric model relating the observed pattern of decline to important pre-transition disequilibrium forces, especially macroeconomic distortions. Microeconomic distortions, conceptual, and measurement issues are considered as well. The transition experiences of former Soviet republics are compared with those of countries in Eastern Europe. Journal of Economic Literature, Classification Numbers: O10, P20, P50. 6 figures, 1 table, 21 references.

Japanese Monetary Policy: A Quantity Theory Perspective

Abstract: In the last half century, Japan has exercised an enormously beneficial influence on the world. After the end of World War II, it not only adopted democracy, but it also showed that non-Western countries could combine democracy with attainment of Western living standards. By embracing the use of Western technology and combining it with thrift and hard work, Japan modernized its economy and grew at double-digit rates for two decades in the 1950s and 1960s. By the early 1970s, Japan took advantage of economies of scale in manufacturing and exported automobiles, steel, ships, and other manufactured goods to the world. By the early 1980s, it aggressively adopted new technology to create a range of electronic consumer goods for export, such as cameras and VCRs. At that point, Japan had also moved beyond importing innovative technology from the West to exporting its own innovations, such as just-in-time manufacturing techniques. More important, the range and quality of goods offered by Japanese firms forced Western companies to remain dynamic and competitive. Over the post-World War II period, Japan has implemented a variety of monetary regimes. The world can learn valuable economic lessons from Japan by studying its monetary history. Japanese monetary policy divides naturally into two time periods separated by 1987. The first part includes the high inflation of the early 1970s and the establishment of price stability by the mid-1980s. The second part includes the boom-bust episode known as the bubble.1 The variety of monetary regimes implemented by Japan produced the results shown in Figures 1, 2, and 3. Figure 1 shows quarterly observations of four-quarter percentage changes in money (M2+CDs) and nominal output (GDP).2 Figure 2 reproduces the nominal output growth series of Figure 1 and adds real output growth. Figure 3 shows inflation measured by the GDP price deflator. Inflation is the difference between nominal and real output growth. The rest of the article attempts to breathe some life into these data series. 1. BRETTON WOODS Until the demise of Bretton Woods in early 1973, Japan pegged the foreign exchange value of the yen to the dollar. With a pegged exchange rate and with U.S. prices beyond Japanese control, the Japanese price level had to adjust to achieve balance of payments equilibrium. To maintain ongoing balance in its external accounts, Japanese baseline inflation had to match U.S. inflation.3 Furthermore, as Japanese goods became more desirable to the rest of the world, their prices had to rise an additional amount. That is, a favorable change in the terms of trade required inflation in Japan beyond what was occurring at the time in the United States. The external constraints imposed by a system of pegged exchange rates required the Bank of Japan (BoJ) to set its discount rate with the objective of targeting the current account balance rather than the state of the domestic economy. At times of current account surpluses, the BoJ lowered its discount rate and money growth and inflation rose. Similarly, at times of current account deficits, the BoJ raised its discount rate and money growth and inflation fell (see Ueda [1997]; Suzuki [1985]; and Yeager [1976]). Changes in economic activity followed changes in money growth with a lag of about three quarters (Yeager 1976, p. 526). The pegged exchange rate regime served Japan well. In the 1960s, Japan's economy grew rapidly. From 1960 through 1969, Japanese real GDP grew at an annualized rate of 10.4 percent. A major reason for this growth was Japan's ability to mass-produce goods, such as compact automobiles, in big demand by consumers in the West. With its exchange rate pegged at 360 yen to the dollar, the resulting favorable change in the terms of trade required a rise in Japanese prices relative to U.S. prices. From 1961 through 1970, the difference between Japanese and U.S. (GDP deflator) inflation rates was 3 percentage points. …

Vietnam : On the Road to Labor-Intensive Growth?

Abstract: Since Vietnam's adoption of the doi moi or renovation policy in 1986, the country has been undergoing the transition from central planning to a socialist market-oriented economy. This has translated into strong economic growth, led by the industrial sector, which expanded more than 13 percent a year from 1993 to 1997. Vietnamese policymakers are concerned, however, that employment growth has lagged. To address this concern, the author compares new employment data from the Vietnam Living Standards Survey (VLSS 2), completed in 1997-98, with data from the first household survey undertaken in 1992-93. He shows that in 1993-97, industrial employment grew an average of about 4 percent a year, which is low compared with industrial GDP growth. This slower growth was attributable to the capital-intensive, import-substituting nature of the state sector and foreign investment, which dominate industry. The more labor-intensive, export-oriented domestic private sector is still small, although growing quickly. In the future, growth promises to become more labor-intensive. Before the Asian crisis there were signs of an emerging export-oriented sector. Using previous statistical analysis (Wood and Mayer 1998) as well as factor content calculations, the author estimates that given Vietnam's endowment of natural and human resources, Vietnam could triple its manufacturing exports and create about 1.6 million manufacturing jobs in export sectors in the near future. After examining Vietnam's labor regulations, the author concludes that there is no need for basic reform of the labor market. At current levels, minimum wages and nonwage regulations (even if better enforced) are unlikely to inhibit development of the private sector or hurt export competitiveness. But a restrictive interpretation of the Labor Code's provisions on terminating employment could hurt foreign investment, reduce the speed of reform in the state sector, and slow the reallocation of resources to the domestic private sector.

Economic Reform and Environmental Performance in Transition Economies

Abstract: '...transition has proved to be a much longer and more difficult process than most had anticipated, and progress has varied. By 1998 only one country, Poland (which embarked on economic reform before the rest of the region), had reestablished sustained economic growth and surpassed the pretransition level of real gross domestic product (GDP).' - From 'Economic Reform and Environmental Performance in Transition Economies' Most global economy and environmental watchers expect the transition to a market economy to yield environmental benefits. The changing incentives that a market economy introduces should foster more efficient production, better use of resources, and increased community input. The advanced reformers of the Central and Eastern European (CEE) countries proved this to be the case. They improved energy efficiency and reduced emissions intensity of pollutants. The slower-reforming countries of the Newly Independent States (NIS) also experienced lower pollution. However, that downturn coincided with the economic decline, which shut down many major polluters. This report reviews progress in environmental trends since transition began. It looks at air and water pollution and health indicators in the trends and in light of the environmental issues identified in the Environmental Action Programme for Central and Eastern Europe. It continues and builds on the World Bank's work in analyzing the environmental effects of transition, restructuring, and privatization with a view to identifying priority areas for investment and policy initiatives. The report will interest environmental policy makers and practitioners.