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A real imports of capital and intermediate goods declined sharply for highlyindebted countries in the 1980s, these economies were faced with the need tosubstitute previously imported factors of production with domestic capital and labor. The study empirically analyzes the degree of import dependence of twelve developing countries. Estimates of the short-run elasticity of substitution characterize both imported capital and intermediate goods to behave like complements in the production process in the developing countries. Long-run substitution elasticites differ considerably among the group of economies, especially for imported machinery and equipment. The results indicate that inward-oriented strategies have not achieved the aim of reducing the import dependence of the developing economies. In order to visualize theimplications of the differing degree of import dependence, a partial equilibrium econometric model is used to analyze the reaction of the trade account on external shocks and domestic policies in Columbia and Ecuador. Simulations show that the dependence on imported production means can transform an "adjustment with growth" of the external account intoan "adjustment or growth" controversy.
A real imports of capital and intermediate goods declined sharply for highlyindebted countries in the 1980s, these economies were faced with the need tosubstitute previously imported factors of production with domestic capital and labor. The study empirically analyzes the degree of import dependence of twelve developing countries. Estimates of the short-run elasticity of substitution characterize both imported capital and intermediate goods to behave like complements in the production process in the developing countries. Long-run substitution elasticites differ considerably among the group of economies, especially for imported machinery and equipment. The results indicate that inward-oriented strategies have not achieved the aim of reducing the import dependence of the developing economies. In order to visualize theimplications of the differing degree of import dependence, a partial equilibrium econometric model is used to analyze the reaction of the trade account on external shocks and domestic policies in Columbia and Ecuador. Simulations show that the dependence on imported production means can transform an "adjustment with growth" of the external account intoan "adjustment or growth" controversy.
The research for this project was carried out while the author was at the staff of the Economics Faculty of Erasmus University Rotterdam. The core results were recorded in discussion papers 7821/G, 7901/G, 7910/G and 8002/G of the faculty's Institute for Economic Research. Working on the project I incurred considerable debts to some professors and fellow staff members of the faculty. Professor P. J. Verdoorn initiated this study by suggesting its subject and by encouraging me to turn my initially hesitantly held view of imports as 'indispensable' inputs into the cornerstone of the analysis; he also read the final manuscript. Professor H. C. Bos' enthusiastic encouragement greatly stimulated me in the arduous phase of the writing of the manuscript; his advise on style and emphasis considerably improved the presentation while his careful reading of the various versions of the manuscript eliminated many non sequiturs and some errors. I am deeply in debt to A. S. W. de Vries who scrutinized not only the manuscript but also the preliminary discussion papers; while sharing an office room with him for six years I had the benefit of many stimulating discussions and he equanimously put up with my moods when I was stuck at some point. I am also in debt to D. P. Broer for checking and improving the optimal control theorem in chapter 7; to Professor R. Harkema for inducing me to write sections 5. 1 and 5.
This paper presents an assessment of Haiti’s qualification for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Poverty Reduction and Growth Facility (PRGF) arrangement is scheduled to be discussed by the IMF Executive Board in parallel with this document. The impact of prolonged political conflicts and violence, periods of high external assistance followed by the withdrawal of economic support, and natural disasters has been severe. The government has begun the preparation of a full Poverty Reduction Strategy Paper (PRSP). An important objective of the authorities is to achieve robust and sustainable real economic growth.
The Heavily Indebted Poor Countries (HIPC) Initiative, launched in 1999 by the IMF and the World Bank, was the first coordinated effort by the international financial community to reduce the foreign debt of the world’s poorest countries. It was based on the theory that economic growth in heavily indebted poor countries was being stifled by heavy debt burdens, making it virtually impossible for these countries to escape poverty. However, most of the empirical research on the effects of debt on growth has lumped together a diverse group of countries, and the literature on the countries’ impact of debt on poor is scant. This pamphlet presents the findings of the authors’ empirical research into the subject, analyzing the channels through which debt affects growth in low-income countries.
This book presents a radically different argument for what has caused, and likely will continue to cause, the collapse of emerging market economies. Pettis combines the insights of economic history, economic theory, and finance theory into a comprehensive model for understanding sovereign liability management and the causes of financial crises. He examines recent financial crises in emerging market countries along with the history of international lending since the 1820s to argue that the process of international lending is driven primarily by external events and not by local politics and/or economic policies. He draws out the corporate finance implications of this approach to argue that most of the current analyses of the recent financial crises suffered by Latin America, Asia, and Russia have largely missed the point. He then develops a sovereign finance model, analogous to corporate finance, to understand the capital structure needs of emerging market countries. Using this model, he finally puts into perspective the recent crises, a new sovereign liability management theory, the implications of the model for sovereign debt restructurings, and the new financial architecture. Bridging the gap between finance specialists and traders, on the one hand, and economists and policy-makers on the other, The Volatility Machine is critical reading for anyone interested in where the international economy is going over the next several years.
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief by running up new debts or by running down assets. And there are some signs that incremental debt relief over the past two decades has fulfilled those predictions. Debt relief is futile for countries with unchanged long-run savings preferences. How did highly indebted poor countries become highly indebted after two decades of debt relief efforts? A set of theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief with a mixture of asset decumulation and new borrowing. A model also predicts that a high-discount-rate government will choose poor policies and impose its intertemporal preferences on the entire economy. Reviewing the experience of highly indebted poor countries, compared with that of other developing countries, Easterly finds direct and indirect evidence of asset decumulation and new borrowing associated with debt relief. The ratio of the net present value of debt to exports rose strongly over 1979-97 despite the debt relief efforts. Average policies in highly indebted poor countries were generally worse than those in other developing countries, controlling for income. The trend for terms of trade was no different in highly indebted poor countries than in other developing countries, not were wars more likely in highly indebted poor countries. Over time there has been an important shift in financing for highly indebted poor countries, away from private and bilateral nonconcessional sources to the International Development Association and other sources of multilateral concessional financing. But this implicit form of debt relief also failed to reduce debt in net present value terms. Although debt relief is done in the name of the poor, the poor are worse off if debt relief creates incentives to delay reforms needed for growth. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the effectiveness of aid for growth.
Since 1982, public and private investment rates have declined dramatically in most debtor countries. What would be the effects of debt- reduction operations for heavily indebted countries like Argentina?