The World Bank model for global interdependence: A quantitative framework for the World Development Report

This paper describes the basic structure of the Global Model used in preparing various parts of the World Development Report (WDR) issued annually by the World Bank. The report is designed to help clarify linkages between the international economy and the domestic strategies of developing countries. The paper is divided in four parts. The first two present different aspects of the model structure and discuss the reasons that induced the authors to orient themselves towards given functional specifications. In the final parts the policy relevance of the exercise is studied in light of the results that the model has produced for 1975–1985.     

The language and techniques of multiyear restructing of sovereign debt: Lessons from the Mexican experience

While many economists assure that the restructing of sovereign external debt is a straightforward matter, there are many practical details that bankers must address in negotiating a deal. The problems are compounded in a multiyear restructing, where a new frame of reference had to be established for the problem of debt restructing, including new concepts for included and excluded debt, various schedule for amortizations, monitoring, and conditionality procedures, and pricing considerations. The end result achieved for Mexico can be used as starting point for other debt restructing discussions, at least from a technical point of view.     

The energy constraint in the 1980s and the scope for import substitution in Western Europe

Various policies are being proposed for reducing the energy dependence of Western Europe during the 1980s. This paper discusses their impacts through the use of a simple simulation model under different assumptions concerning energy prices conservation measures and overall economic growth. It also assesses broad energy prospects for three regions of Western Europe up to 1990. In particular, the paper analyzes the scope for substituting domestically produced energy for imported energy. Tentative policy recommendations are presented following presentation of the results. Preference is expressed for combined price-cum-rationing measures. Coordinated and generalized energy consumption policies, so as to improve the energy efficiency for both intermediate and final uses, are also discussed.     

Automobile prices and protection: The U.S.-Japan trade restraint

We examine the effects of the U.S.-Japan trade restraint on automobile prices and quality upgrading, for both Japanese imports and American small cars. From April 1981 to April 1984 the suggested retail price of all Japanese models increased by 15.8 percent, or 5.3 percent per year. We find that nearly the entire amount of this rise can be explained by the upgrading of individual models. This upgrading may benefit consumers who would purchase a luxury import in any case, but harms those who desire the basic imports. In addition to upgrading, we conclude that a second cost of the trade restraint has been to prevent the yen depreciation from being passed onto American consumers, in terms of lower imported auto prices. For U.S. small cars we find a 9.1 percent rise in the suggested retail price, or 3 percent per year, with a fraction of this amount due to model upgrading. If the yen depreciation had led to lower import prices without the trade restraint, then we expect that U.S. auto prices would have been lower, too.     

Economic growth, poverty, and the international agencies

During the past few years, the international agencies have been playing down economic growth as the main road to the elimination of poverty and emphasizing the role of asset and income redistribution. The latest reflection of this attitude is the so-called “basic needs” approach. This essay attempts to demonstrate that where economic growth has been sufficiently high and sustained, it has been a powerful means of alleviating poverty. Growth has not “failed”; there is simply not enough International agencies should be cautious in advocating redistribution, for the results .     

Political assessment by international firms: Models or methodologies?

Political risk is defined in terms of managerial contingencies arising from political events and processes. A number of “first-generation” assessment methodologies are reviewed and compared in terms of their degree of structure (explicit model of process) and systemization (formalization of methodology). The paper concludes that, at this point, effective political assessment is more likely to result from explicit specification of causal relationships and implementation of systematic analytical procedures than from development of increased methodological sophistication or elegance.     

Prospects for the Soviet economy to the year 2000

This article reviews the current state of the Soviet economy, and, after placing it within the broader context of the world economy, provides a number of alternative projections of its future course up to the year 2000. For this purpose an updated structural matrix of the Soviet economy was incorporated into a global structure of the world economy built for the United Nations and described in Leontief, Carter and Petri (The Future of the World Economy. New York: Oxford University Press, 1977). Several important modifications in the structural formulation of the model were carried out in order to account for the projected increased production and export of Soviet natural gas to the end of the century and to incorporate current estimates of Soviet agricultural and military-goods production.     

Restructuring for import competition from developing countries,I: Labor displacement and economic redeployment in the United States

The widely-held belief that imports into America have been responsible for job losses in labor intensive industries is examined. It is shown that economic growth impacts on these industries, and that productivity growth and chaning demand patterns, have been quantitatively larger than changes in trade levels affecting employment in individual industries. It is concluded that protection can do very little to affect employment trends in affected industries.     

Latin America's recovery from debt problems: An assessment of model-based projections

This paper examines economic assumptions used in assessing prospective economic adjustment of Latin America in response to its debt problems. The analysis compares forecasts obtained by combining parameter estimates from different researchers' trade models with the authors' macroeconomic models for Brazil. Chile, and Mexico. The influence of econometric procedure on simulation results is discussed. Then, by simulation analysis, the following issues are addressed: (1) likelihood of high domestic growth rates for Latin America in the late 1980s; (2) whether OECD growth or interest rates have a larger impact on developing-country economies; (3) effects of dollar depreciation and high interest rates on Latin America's debt problems.     

Alternative specifications of the demand for money and their implications for forecasting and policy analysis with large macroeconomic models

The demand for money is an important function in large macroeconomic models because of its central role in monetary policy. The interest rate responsiveness of money demand determines the interest rate changes consistent with the initial change in monetary policy and the subsequent changes on aggregate demand and the price level. This paper uses the DRI macroeconometric model to investigate these issues, finding that the model's predictive power and its estimates of the relative potency of monetary and fiscal policy are dependent upon the specification of the money demand function.     

Political confrontation over fiscal processes: The impact of the U.S. Congressional Budget Act

In July 1974 the U.S. Congressional Budget Act was signed into law. This legislation was the result of a heavily fought political confrontation between President Nixon and Congress over who controlled the Federal budget. In addition to the issue of control, the Act was prompted by dissatisfaction with the procedures used by Congress to determine Federal receipts and expenditures. The purpose of this paper is to assess the impact this legislation had on the U.S. economy in its early years.The first section of the paper sets up a simple modeling framework. The model is specified so as to illustrate how a change in the budget process resulting from the Congressional Budget Act could potentially produce changes in the level of total output. This section also explains the derivation of a tax and expenditure series used in the model's empirical testing. The second section addresses some of the theoretical issues, and presents the results of simulations based on the Chase, Wharton, and Data Resources econometric models. Broad conclusions are gathered in the final section.     

A computational general equilibrium approach to the shadow pricing of trade restrictions and the adjustment of the exchange rate, with an application to Argentina

A general equilibrium model of an open economy in which there are ad valorem texes on domestic production and export activities, and import activities are subject to both tariffs and quotas is constructed. A domestic monetary asset, foreign exchange, and a corresponding nominal exchange rate are introduced and a numerical example of the model is constructed. The example is solved via the Scarf fixed point algorithm, first with taut quotas and then after having relaxed quotas. Various price indices are then used to guide programs designed to stabilize the trade balance against the quota liberalization. An empirical example, using Argentine data, is carried out to find the quota equivalent of a particular tariff.     

A general model of family income distribution: Chicago and Cambridge reconciled

In the first part of the present study it is shown that the theories of personal income distribution developed in the past one hundred years are partial and incomplete even when integrated. Because they stop short of offering a promise of a general distribution theory, the second part of the study proposes a general scheme anchored upon an all-inclusive concept of both human and material capital. Prevailing inheritance models are evaluated in the third part of this study, while the basic model appears in the fourth. It is a theoretical model but is rooted in an actual economy, namely, Brazil. An emperical application of the model is given in the final section. Since income distribution involves social welfare, the study ends with a dynamic policy analysis in which optimal time paths of changes in different policy instruments are computed for the attainment of planned redistribution goals during specified time periods.     

Economic evaluation of an agricultural sector investment program: A case study for Peru

An evaluation of a sector-wide investment program differs in important respects from an evaluation of an individual project. First, the program as a whole is likely to have more than a marginal effect on production and trade levels and other variables, and so the returns to any one project depend on which other projects are included in the program. Therefore the evaluation of all projects in the program must be carried out jointly. Second in many cases Policy makers may judge alternative program designs according to a multiplicity of criteria, explicitly or implicity. Hence the project identification stage of work is more useful if it takes into account the multiple criteria. This paper reports an experience in constructing and applying a model for the design and evaluation of a sector-wide agricultural investment program. Emphasis is placed on the ways in which such a model may be used. In the course of the applications discussed here, policy makers' preference weights among alternative goals were elicited, but even without such information a model-based exercise can be helpful in the design of a sector investment program.     

Protectionism: Old wine in new bottles

This paper addresses some new types of arguments that have recently arisen in defense of protectionism in developing and developing countries. The new sources of protectionism in developing countries discussed are: (1) recession-debt-crisis costs; (2) protection in the world economy; (3) wages and labor markets; (4) political requirements. The new arguments for protectionism in developed countries discussed are: (1) shift to the service economy; (2) defense; (3) threat of protection to induce foreign investment.     

The Law of the Sea treaty and the regulation of nodule exploitation

The production of nonferrous metals from manganese nodules from the ocean floor has potential impact on prices of cobalt, copper, nickel, and manganese and on the earnings of land-based producers. These effects must be considered in the Law of the Sea negotiations. This article uses econometric models to evaluate the impact of nodule production on the LDC producers. We find that the price impact is greater for cobalt whose nodule production is very large relative to conventional output, but that the impact on LDC earnings is greater for copper and nickel.