The World Bank Economic Review

Dornbusch,, Rudiger

doi: 10.1093/wber/1.1.3pmid: N/A

Abstract The governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets. Domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices, and through the impact of real exchange rates on employment. The domestic responses to changes in these factors are often strong and rapid. In an attempt to sever these ties, governments have adopted dual exchange rate systems in which capital account transactions are conducted at a depreciated exchange rate while an otherwise overvalued rate is maintained for commercial trade. This article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets. The article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term. While free capital account rates can cut the flow of capital flight, however, a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance. In the longer term, a dual rate system with a misaligned commercial rate exacerbates the government's deficit; ultimately, real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt. Thus a dual rate works well if the commercial rate is maintained close to the equilibrium level. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK

Bhalla, Surjit, S.;Glewwe,, Paul

doi: 10.1093/wber/1.1.35pmid: N/A

Abstract In the important debate between the proponents of direct (basic needs) and indirect (economic growth) measures of promoting welfare, Sri Lanka has frequently been cited as one country which has successfully pursued the direct approach—it has raised living standards without much cost in terms of reduced growth. This conclusion, however, is based on analyses which do not account for the initial conditions of the countries being compared. After methodologically incorporating these concerns, neither the improvement in living standards nor the 2.0 percent per capita growth rate during the period of direct policy measures (1960–78) was exceptional. In contrast, during the period of more indirect growth-promoting policies (1977–84), (i) economic growth more than doubled to an average rate of 4.3 percent per capita per annum; (ii) expenditure inequality did not significantly change; (iii) consumption expenditures of the population, and the poor, generally increased; and (iv) several living standard indicators continued to improve. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK

Hughes, G., A.

doi: 10.1093/wber/1.1.65pmid: N/A

Abstract This article proposes a new methodology for estimating the impact of fuel price and tax changes on the general price level and the distribution of income and applies a model to Thailand using data for 1975–76 and 1981–82. Because the model allows for pricing under international competition where tax increases must be partially absorbed in reduced factor income rather than always being passed on in higher consumer prices, the results are significantly different from those generated by the more conventional cost-plus pricing rule. The inflationary impact of fuel tax changes is slight because of both the openness of the economy and the low energy intensity of manufacturing and other production in Thailand. In contrast, taxes on imports engender price increases not only for imports but also for goods which substitute for imports. The model also indicates that the net effects of taxes on petroleum products (other than kerosene) are progressive in their distributional impact, relative to a tax on imports or consumption. A main policy conclusion of the study is that fuel taxes could be used to increase both equity and allocative efficiency without inducing significant inflationary responses. It follows that in the current circumstances of falling world oil prices, developing countries could generate revenues needed for structural adjustment by increasing fuel taxes to maintain domestic petroleum price levels. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK

Hans,, Binswanger;Quizón,, Jaime

doi: 10.1093/wber/1.1.103pmid: N/A

Abstract This article uses a limited general equilibrium model to investigate the growth and equity effects of a variety of economic and technical changes and selected agricultural policies in India. It explores how changes in food prices, rural wages, and farm profits associated with the Green Revolution period affected income distribution between net buyers and sellers of food. The model shows that income gains from the Green Revolution initially accrued to the wealthier rural groups but that after 1972–73 they were transferred to urban consumers and that by 1980–81 the per capita incomes of poor and wealthier rural groups alike were barely above their respective 1960–61 levels. The model is also used in counterfactual analysis of the impact of changes in technological, demographic, investment, taxation, and income redistribution variables. Its findings indicate the importance of trade policies for the nature of the equity outcomes from agricultural growth and suggest that a reduction in population growth and an increase in nonagricultural employment and income are required to convert agricultural growth into reduced rural poverty. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK

Singh,, Inderjit;Squire,, Lyn;Strauss,, John

doi: 10.1093/wber/1.1.149pmid: N/A

Abstract Semicommercial farms that produce multiple crops make up a large part of the agricultural sector in developing economies. These farms or agricultural households combine two fundamental units of microeconomic analysis: the household and the firm. Traditional economic theory has dealt with these units separately. But in developing economies in which peasant farms dominate, their interdependence is of crucial importance. Researchers at the Food Research Institute, Stanford University, and at the World Bank have developed models of agricultural households that combine producer and consumer behavior in a theoretically consistent fashion. Recent empirical applications of these models have extended them and expanded the range of policy issues which can be investigated using this general framework. This article reports the results of empirical applications of this model in India, Indonesia, Japan, the Republic of Korea, Malaysia, Nigeria, Senegal, Sierra Leone, Taiwan, and Thailand. It provides a comparative analysis of the policy implications of the approach for such matters as the welfare of farm households, the size of marketed surplus, the demand for nonagricultural goods and services, and for hired labor, and the availability of budget revenues and foreign exchange. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK

Nogués, Julio., J.;Olechowski,, Andrzej;Winters, L., Alan

doi: 10.1093/wber/1.1.181pmid: N/A

Abstract This article examines the extent of nontariff barriers (NTBS) to the visible imports of sixteen industrial countries. It user three alternative measures to show that governmental commodity-specific border measures affect more than 27 percent of all imports and more than 34 percent of imports from developing countries. It also shows that during the period from 1981 to 1983, NTBS became significantly more extensive. Detailed statistics reveal considerable variations in NTB coverage by commodity, type of barrier, importer, and exporter. The data on which these conclusions are based were compiled from official information at the highest level of disaggregation and are described in the article. This content is only available as a PDF. © 1986 by the International Bank for Reconstruction and Development / THE WORLD BANK