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Ian M.D. Little, Adrian Lambertini, and Carl Dahlman

This paper discusses quantitative indicators that measure such macroeconomic variables as the growth of national product, inflation. The importance of considering several indicators in a dynamic context becomes particularly relevant during periods when needed economic and financial adjustment measures are undertaken. Rationales given for maintaining negative real interest rates in developing countries range from keeping down the cost of servicing the public sector’s debt, or of investment, to avoiding the consequences of other policies.

Mick Silver

Unit value export and import indices compiled from returns to customs authorities are often used as surrogates for price indices in the analysis of inflation transmission, terms of trade (effects), and to deflate import and export value series to derive volume series. Their widespread use is mainly due to their low cost relative to establishment price surveys. This paper provides evidence of substantial errors and bias in their representation of such price changes. Their continued use would mislead economic analysis. The paper considers the efficacy of alternative strategies for their improvement, and argues for a move to establishment-based price surveys.

Mr. Chris Papageorgiou, Mr. Andrew Berg, Ms. Catherine A Pattillo, and Mr. Nikola Spatafora
This paper investigates the medium- and long-term growth effects of the global financial crises on Low-Income Countries (LICs). Using several methodological approaches, including impulse response function analysis, growth spells techniques and panel regressions, we show that external demand (ED) shocks are not historically associated with sharp declines in output growth. Given existing evidence that LICs were primarily impacted by such a shock in the global financial crisis, our analysis provides some optimism on the chances that LICs will avoid a protracted period of slow growth. However, we also show that there seem to be persistent output losses associated with ED shocks in the medium-run. In terms of policy implications, our analysis provides evidence that countries with lower deficits, lower debt, more flexible exchange rate regimes, and a higher stock of international reserves are more likely to dampen the effects of an ED shock on growth.
EHSAN U. CHOUDHRI and DALIA S. HAKURA

The paper estimates an empirical relation based on Krugman’s “technological gap” model to explore the influence of the pattern of international trade and production on the overall productivity growth of a developing country. A key result is that increased import competition in medium-growth (but not in low- or high-growth) manufacturing sectors enhances overall productivity growth. The authors also find that a production-share weighted average of (technological leaders’) sectoral productivity growth rates has a significant effect on the rate of aggregate productivity growth. [JEL F10, F43, O10, O40]

Mr. Thierry Verdier

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

Carl Dahlman and Larry Westphal

This paper highlights the sources of payments problems in less developed countries. Growth in the industrial countries has a direct impact on the current account of the developing countries through its influence on both the prices and volumes of their exports. An increase in the real effective exchange rate is clearly a fundamental determinant of a deteriorating current account since, other things being equal, it tends to raise domestic demand for imports and to reduce foreign demand for exports.