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Jacques R. Artus

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.

Helen Hughes and Goran Ohlin

The industrialization of developing countries is transforming patterns of production and trade throughout the world. The authors outline the national and international policy implications embodied in these changes.

The September 2007 issue of F&D looks at the growth of cities and the trend toward urbanization. Within the next year, for the first time in history, more than 50 percent of the world's population will be living in urban rather than rural areas. What are the economic implications of this urban revolution? Economists generally agree that urbanization, if handled well, holds great promise for higher growth and a better quality of life. But as the lead article tells us, the flip side is also true: if handled poorly, urbanization could not only impede development but also give rise to slums. Other articles in this series look at poverty as an urban phenomenon in the developing world and the development of megacities and what this means for governance, funding, and the provision of services. Another group of articles discusses the challenge of rebalancing growth in China. 'People in Economics' profiles Harvard economist Robert Barro; 'Country Focus' looks at the challenges facing Mexico, and 'Back to Basics' takes a look at real exchange rates.

Jack Baranson

This paper describes modernization of ports in Peru. With the sea so predominant in the life of the country, modern ports are vital in Peru. A program has been undertaken to abandon the numerous obsolete ports served by barges and to establish a few strategically situated ports—modern, mechanized, and with terminals having direct mooring facilities. At the same time, Callao, the country’s chief port, has been improved, and specially equipped ports are being planned for fishing products.

Herman Kamil and Jeremy Zook

Two years ago, citizens in the Arab world—fired by their ideals and visions of a better life—ignited a social movement that inspired people around the globe. In Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen—the so-called Arab countries in transition—people embraced change, ushering in a new era. This issue of F&D looks at the difficulties of this transition, focusing on long-standing forces that shape the region’s economy and offering options for moving ahead to achieve strong, inclusive growth. • Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, maps out an agenda for modernizing and diversifying the region’s economies in “Toward Prosperity for All.” • In “Freedom and Bread Go Together,” Marwan Muasher addresses the intersection of economic progress and political change. • Vali Nasr, in a Point of View column, underscores the vital role small and medium-sized enterprises play in a successful democratic transition. Elsewhere in this issue, we look at how surging oil and gas production in the United States could shake up global energy markets; the effect of uncertainty on economic growth; and Mexico’s competitiveness rebound. F&D's People in Economics series profiles Christina Romer, former chair of the U.S. Council of Economic Advisers and an architect of the U.S. stimulus package; and the latest installment in our Back to Basics series explains how structural policies help to both stabilize and strengthen economies.

Mr. Stephen S. Golub

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.

Anthony Elson

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.

Paul S. Armington

THE DISTRIBUTION of any country’s export and import trade, by destination and by origin, differs substantially from the corresponding distributions for many other countries. Such differences, as well as the differences in size of over-all trade, have an important bearing on the way in which trade flows respond to price changes. For example, if country A expands its exports as a result of a reduction in its price level, the change in value of exports from some other country, B, will naturally depend on the size of B’s total exports, but also on the extent to which B trades with country A and on the extent to which A supplies foreign markets that are important outlets for B’s products. Or, for another example, suppose that A’s trade balance deteriorates as a result of a loss in price competitiveness. The extent to which country B will share in the offsetting improvement in the collective trade balance of other countries will depend on such factors as the importance of A’s products in B’s imports, on the importance of imports in B’s total expenditure, and on the extent to which B’s exports depend on markets that are heavily supplied by A. These structural variables are ratios of recorded trade flows.