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Two recent investigations of the 1967 devaluation of the pound sterling concluded that the benefits of that devaluation were delayed in timing and were relatively small in magnitude. If confirmed, their conclusion would clearly tend to undermine the case for exchange rate changes as a means of promoting current account adjustment; it would also refute the previous consensus on the size of international trade elasticities. It is therefore of the greatest importance to scrutinize the devaluation experience of the United Kingdom more closely, so that the right lessons may be drawn from it. A further and more detailed investigation of the U. K. devaluation is presented here. Its conclusion differs sharply from that reached in the recent investigations by the National Institute of Economic and Social Research (NIESR, 1972) and the London Business School (LBS, by Ball, Burns, and Miller, 1972). It is estimated in the present study that positive benefits from the devaluation occurred relatively rapidly and were large in their magnitude.

Michèle Guerard

IN 1967 THE BRAZILIAN STATES abolished the heterogeneous turnover taxes that they had levied for 30 years and replaced them with a unified sales tax of the value-added type. The reform was designed to overcome the defects of turnover taxation and to secure a greater degree of tax coordination among the states of the Federation.


This paper examines contractionary currency crashes in developing countries. It explores the causes of India’s productivity surge around 1980, more than a decade before serious economic reforms were initiated. The paper finds evidence that the trigger may have been an attitudinal shift by the government in the early 1980s that, unlike the reforms of the 1990s, was pro-business rather than pro-market in character, favoring the interests of existing businesses rather than new entrants or consumers. A relatively small shift elicited a large productivity response, because India was far away from its income possibility frontier.


This paper uses a Ricardian framework to clarify the role of micro–economic and macroeconomic factors governing the time–series and cross–sectional behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time–series and cross-sectional variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross–sectional results are, however, less conclusive.


This paper examines the sources of disturbances to output in the United States and a set of European Union countries and analyzes labor market adjustment mechanisms in these two economic areas. Comparable data sets comprising one-digit sectoral data for eight U.S. regions and eight European countries are constructed and used to compare the degree of industrial diversification and the relative importance of different sources of shocks to output growth. Both economic areas are found to be subject to similar overall disturbances although a disaggregated perspective reveals some important differences. The major difference, however, is in labor market adjustment. Interregional labor mobility appears to be a much more important adjustment mechanism in the United States, which has a more integrated labor market than the European Union.

International Monetary Fund


Over the past 25 years, the share of employment accouted for bymanufacturing has fallen dramatically in the world's most advanced economies, a phenomenon widely referred to as "deindustrialization."Many see deindustrialization as widening income inequalities and causinga sharp rise in unemployment. This paper argues that, contrary to popularperception, deindustrialization should not be regarded as alarming, butrather as a natural consequence of continued economic growth within the advanced economies.

International Monetary Fund


During the past 25 years, employment in manufacturing as a share of total employment has fallen dramatically in the world’s most advanced economies, a phenomenon widely referred to as “deindustrialization.” The trend, particularly evident in the United States and Europe, is also apparent in Japan and has been observed most recently in the Four Tiger economies of East Asia (Hong Kong, China, Korea, Singapore, and Taiwan Province of China). Not surprisingly, deindustrialization has caused considerable concern in the affected economies and has given rise to a vigorous debate about its causes and likely implications. Many regard deindustrialization with alarm and suspect it has contributed to widening income inequality in the United States and high unemployment in Europe. Some suggest that deindustrialization is a result of the globalization of markets and has been fostered by the rapid growth of North-South trade (trade between the advanced economies and the developing world). These critics argue that the fast growth of labor-intensive manufacturing industries in the developing world is displacing the jobs of workers in the advanced economies.

Mr. Jonathan Levin

An earlier version of this paper was presented to a conference on the topic “Is the Business Cycle Obsolete?” organized by the Social Science Research Council and held in London, England, on April 3–7, 1967.

Ta-Chung Liu

THE NATIONAL SECURITY program of the United States, as outlined in the July 1951 report of the President’s Council of Economic Advisers, envisaged that total defense expenditures would reach, at mid-1952, an annual rate of about 19 per cent of gross national product, which was expected to be at the level of $345 billion (in terms of prices in the first half of 1951). The probable level of civilian employment in the United States, when the current program reaches its planned “peak,” is obviously of direct importance to the stabilization policies not only of the United States but also of other nations. An estimate of this level is provided by an analysis of the relationships between output and employment in the United States during the past two decades—for the economy as a whole and, as far as possible, for important industrial divisions.1