Productivity growth,external shocks,and capital inflows in Chile: A general equilibrium analysis

This paper uses a computable general equilibrium model to analyze the growth path of the Chilean economy during 1977–1981. During that period a comprehensive package of reforms liberalized international trade and removed restrictive labor legislation. As a result of the reforms, there were large changes in relative prices and in the structure of production and demand, and the economy enjoyed unprecedented growth with declining inflation. But large macroeconomic imbalance become evident toward the end of the period and in 1982 Chile experienced an abrupt and severe recession. Taking the real exchange rate as an exogenous policy variable, and using the observed levels of employment growth and foreign capital inflows, this paper compares model-generated growth paths with those of the economy. First, the benchmark simulation path is used to estimate the magnitude and pattern of growth and productivity change during the 1971–1981 period. Next, counter-factual simulations are used to assess how Chile's economic performance would have differed if (a) external events had been different; and (b) foreign capital inflows had been different. The analysis suggests that the macroeconomic imbalances that led to the crisis in 1982 were exacerbated by the large capital inflows and real exchange rate appreciation that resulted from the use of the exchange rate as a stabilization device.     

Policy responses to external shocks in sub-Saharan African countries

The author analyzes the experience of sub-Saharan African countries with external shocks in the form of the deterioration of the terms of trade and the world recession between 1973 and 1978, with distinction made between low-income and middle-income countries. Adjustment to external shocks in low-income sub-Saharan African countries took largely the form of reductions in imports through lower rates of economic growth and lower income elasticity of import demand while these countries lost export market shares. Losses in export market shares were smaller in the middle-income countries and in the entire group, export performance was positively correlated with the rate of economic growth.     

Agricultural policies and development: A socioeconomic investigation applied to Sri Lanka

This paper explores the interrelationship between agricultural policies and development by means of a dynamically recursive, computable general equilibrium model applied to Sri Lanka. The agricultural policies investigated include elimination of the food subsidy, land reform, and technical change in agriculture. The goals considered are the levels and growth rates of GNP and employment, the distribution of income, and the real income level of the lowest income group. The study provides a quantitative assessment of the association between policies and goals and identifies the key economic mechanisms in this association.     

Macroeconomic adjustment in Thailand: Demand management and supply conditions

Within the framework of a four-sector macroeconomic model for Thailand, comparative statics are used to assess alternative ways of macroeconomic adjustment. Fiscal policy interventions, manipulations of the exchange rate, and productivity improvements are discussed. Their implications in terms of income generation, external deficit, and inflation are derived. It is shown that only productivity improvements have positive effects on all indicators. Fiscal interventions lead to an improvement in the external deficit, but at the cost of income generation. The outcome of a devaluation is largely dependent on the behavior of factor prices.     

A world iron and steel economy model: A projection for 1980–1995

This article presents an aggregate global model that projects steel markets for the period 1980–1995, with particular attention to investment in production capacities. The model is developed as a linear complementarity programming problem. The model distinguishes between newly constructed steel mills and average mills to characterize price formation and quantity balances respectively. Various validation tests of the model are discussed.     

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 determinants of international creditworthiness and their policy implications

The present paper utilizes an empirical measure of creditworthiness based on bankers' perceptions to estimate the effect of various variables hypothesized to influence assessments of countries' debt-servicing capacity. The data pertain to a cross section of countries within the period 1979–1983. Such estimates necessarily employ a ceteris paribus assumption, which prevents a realistic assessment of the effects generated by policy changes. The second part of the paper develops, therefore, a dynamic simulation model of a hypothetical average economy. The simulations allow analysis of changes in macroeconomic variables and creditworthiness over time within a system that maintains accounting identities and behavioral constraints. Several changes in policy variables are considered that highlight the importance of export expansion. The latter is, of course, an often suggested policy objective, but the present paper demonstrates its effectiveness in terms of a somewhat nonstandard criterion.     

Distributional effects of international commodity price stabilization: Do the aggregate gains apply to individual producing countries?

This paper demonstrates the different producer gains and losses that can occur from a price stabilization scheme in a same market. An international buffer stock model integrated in a trade flow model of commodity exports of the Latin American economies is used to simulate two representative products: coffee, where instability in the world market has originated mainly from changes in supply, and copper, where the major source of world market disturbances have been demand shifts. The results show that global generalizations as to the net benefits or costs of price stabilization are erroneous at the producer country level in supply or supply/demand dominated instability, a condition that typifies many primary commodity markets.     

Five ways to ration capital: The case of a developing economy

The performances of two programming models and three “simple” investment rules, the benefit-cost ratio, internal rate of return, and present value to constrained cost ratio, are compared in solving a four-year capital rationing problem in a Latin American nation. The properties and advantages of the various approaches are discussed and policy conclusions are drawn. In addition, the effects of including project timing variants and political/ bureaucratic constraints are explored.     

Protectionism and real wage rigidity: A discussion of the macroeconomic literature

The paper discusses the macroeconomic literature on the relationship between real wage rigidity and the case for protectionism. First, it gives an account of the analytical arguments that lie behind the protectionist position of the Cambridge Economic Policy Group (CEPG). Then, it provides a critical appraisal of the model of the CEPG; the discussion is focused on its supply side, on the role it assigns to financial markets as well as on the issue of retaliation. Finally, the paper considers and evaluates the subsequent work by Eichengreen, which incorporates aggregate supply and wealth effects into the CEPG analysis.     

The impact of trade policies on income distribution in a planning model for Colombia

This paper develops a multisector Computable General Equilibrium (CGE) model to simulate the effects of trade on the distribution of income among socioeconomic groups defined both by the factors of production they own and the sector in which they work. The categorization of recipients includes landless rural labor, land owners, workers in the urban traditional sector, and workers in the organized sector and capitalists. Experiments are conducted with an application to Columbia, a primary-exporting economy. The results indicate that, for such an economy, outward-looking policies with increased primary exports are likely to be more detrimental for the distribution of income in the medium term than inward-looking ones.     

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.     

Must high commodity prices depress the world economy? An application of a world model system

The impact of higher primary commodity prices on the world economy is central to the North-South dialogue. The less developed countries are seeking a way to obtain a larger share of world income. In the context of current discussions of commodity price stabilization, UNCTAD's “integrated programme” for example, this is likely to mean higher commodity prices. A critical question is then, “Must higher prices for primary commodities depress the industrial economies?”The cyclical swing of 1973–1975 would seem to support the thesis that high primary commodity prices lead to recession in the industrial countries. Yet this experience is not conclusive evidence. Many complex forces, some natural and others policy induced, accounted for the recession. The impact of primary commodity prices must be considered in a full system, recognizing not only the direct costs, but also the resulting demand feedback. Under different circumstances, higher payments to the commodity producing LDCs may well increase demand for manufactures and stimulate exports and industrial activity in the developed countries.This paper uses a version of the LINK world model system to examine the linkages between commodity prices and world economic activity. In the first part we examine the demand feedback in a simple theoretical model of the interrelationships between commodity consumer countries and the commodity producers. In the second part we use an empirical system, COMLINK, the version of the LINK system that incorporates commodity models and commodity price linkages, to simulate various types of commodity price impacts.     

Modeling oil price fluctuations and international stockpile coordination

Major interruptions in the supply of crude oil in the Middlle East have caused significant economic damage in terms of lost output and incresed inflation in the industrial countries. To the extent that the macroeconomic costs of shocks are a function of the magnitude of the oil price increases, domestic or internationally coordinated policies to restrain oil price increases during disruptions can be beneficial. One such policy initiative is the release of oil held in public stockpiles. We address the motivations for private and public stockpilling in an intertemporal optimizing model. As a special case of our general model, we develop and simulate a model of the world oil market to examine the benefits (in terms of lower world oil prices) of releasing oil from the U.S. Strategic Petroleum Reserve.     

Dollar appreciation,deficit stimulation,and the new protectionism

This article probes whether contemporary U.S. protectionism arises from an appreciating dollar. It concludes that (a) an enrich-thy-neighbor policy of upvaluation has transformed the current U.S. economic recovery into an engine of global recovery; (b) flexible exchange rates continually equilibrate the balance of payments as evidenced in changed domestic—relative to foreign—prices, as well as in capital movements induced by interest-rate differentials resulting from exchange-rate shifts; and (c) flexible exchange rates automatically alter so as to maintain a country's competitive position in the world economy even when facing deficits at home and abroad.     

International cooperation in stockpiles and tariffs for coping with oil supply disruptions

This paper provides a unified treatment of oil stockpiling and demand restraint as policy responses for enhancing energy security and examines the implications of recent changes in the structure and performance of the international oil market for the design of policies. These issues are addressed using a dynamic programming framework in which international policy actions of key oil-importing countries are modeled as a Nash dynamic game. Significant policy implications from the analysis include: (1) the result that, with realistic assumptions about disruption risks and inventory capacities, differences between noncooperative and coordinated stockpile policies appear to be minor and (2) significant mutual gains could be reaped from a modest degree of collective restraint on normal market oil demand. The broader role of international cooperation in enhancing energy security is also discussed.     

Effects of export diversification in a primary commodity export country: Colombia

This article examines the income and allocation effects of an appropriate export diversification policy by means of a computable general equilibrium model for Colombia. This kind of policy is often envisaged to reduce the dependence of developing countries on primary commodity exports, which are considered to be a source of economic instability. The results show that an appropriate diversification of exports has positive income effects in Colombia.     

Distributional implications of changes in U.S. petroleum taxation

This article develops a methodology based on input-output relations for the evaluation of excise tax incidence. Since many excise taxes are levied on products that are used not only in final consumption but also as intermediate inputs in the production of other commodities, estimation of the tax burden by the conventional methodology of using direct final consumption may yield inadequate and perhaps misleading results. The input-output methodology developed in this article is applied to the case of the U.S. taxation of petroleum products and the empirical results are compared with similar ones obtained by the U.S. Congressional Budget Office.     

Commodity price stabilization models: A review and appraisal

This paper is designed to bring into focus the numerous modeling attempts to analyze commodity price stabilization that have recently appeared. The studies examined begin with the Waugh-Oi-Massell framework and advance to econometric commodity modeling. Such a critique is considered necessary: None of the studies examined has overcome the myriad of problems that analysts have pointed out as essential for assessing the welfare outcomes of price stabilization schemes. As a consequence, stabilization analyses for similar commodities have produced conflicting results regarding predicted welfare outcome. The present appraisal attempts to provide a unity of direction to this work by (1) comparing recieved studies of a theoretical, empirical, and econometric modeling nature, and (2) suggesting possibilities for improving modeling analyses.