Robert Z. Aliber
Exchange Risk and Corporate International Finance
Halsted Press, a Division of John Wiley and Sons, Inc., New York, N.Y., U.S.A., 1978, ix + 164 pp., US$21.95.
The strength of this book is that it attempts to provide a single consistent framework for international corporate finance decisions based on a specific model of the behavior of interest rates and exchange rates. Its weakness stems from its attempt to provide simple answers to questions that remain unresolved. Specifically, while there seems to be considerable consensus among economists on the underlying long-term behavior of these variables—particularly that of the relationships between exchange rate variations and interest rate differentials, intense controversy continues to exist over the causes and effects of their short-run behavior. Aliber’s framework does not go far in explaining the areas of disagreement. The book is technical, and although accessible to anyone with minimal familiarity with financial markets, it is designed for readers with an advanced level of knowledge and interest in the subject.
The backbone of the book consists of a simple, concise explanation of the general relationships between expected exchange rate changes on the one hand and interest rate differentials, actual exchange rate changes, and price levels in different countries on the other. The primary determinants of exchange rate changes are seen to be the relative growth rates of countries’ money supplies adjusted for differences in the growth of their money demand. Although this “monetary approach” has, in recent years, received widespread attention as the most systematic explanation of exchange rate behavior, alternative analyses place greater emphasis on such factors as overall portfolio allocation decisions, the current account, and developments in the real economy, none of which Professor Aliber directly incorporates into his theory. Furthermore, although the role of expectations in exchange rate determination is discussed, the limitations on exchange rate forecasting posed by the enormous difficulties in measuring expectations also deserve more emphasis than they receive.
The second aspect of the author’s framework deals with the question of whether asset markets in general, and foreign exchange markets in particular, are “efficient” in the sense that assets denominated in different currencies can be expected over time to earn identical returns for a given degree of risk. This view implies that current asset prices, including exchange rates, fully incorporate all expectations about future price movements. The operational implication of this approach is that without “inside” information about future changes in asset prices, market participants cannot make larger than average profits systematically overtime. The question of whether asset markets are efficient has been the subject of considerable empirical work, especially among doctoral students in international finance. Despite the substantial volume of recent literature on this topic, and the quite sophisticated character of much of this work, no clear answers have emerged. While one could not reasonably expect the question to be answered in this book, the author might have made clearer than he does the inconclusive nature of the current evidence.
The exposition of the analytical framework presented in the book is tested against a brief, but very useful, examination of the relationship between price level and exchange rate movements and interest rate differentials and exchange rate movements for up to 50 countries over 25 years. One general conclusion reached is that purchasing power parity holds among the currencies examined over periods longer than five years but not consistently over shorter periods. Furthermore, both long-term and short-term interest rate differentials between countries are found to have a tendency to reflect actual exchange rate changes with a sufficient degree of accuracy as to imply that differences are statistically insignificant. Finally, some evidence on political risk in foreign investments is examined.
The comprehensive framework for evaluating international financial decisions is followed by a stimulating and tightly reasoned attempt to develop a modus operandi for financial decision making based upon these principles. There is a brief description of methods that a firm could use to alter its exposure to foreign exchange risks and political uncertainties, with a consideration of the costs and returns of each. There is also a very interesting discussion of the difference between a firm’s exposure to risks in accounting terms and in terms of the economic framework developed in the first part of the book; this analysis highlights the possible distortions to the firm’s methods of handling exchange risk when it seeks to satisfy accounting rather than economic criteria.
Susan M. Schadler
M. S. Mendelsohn
Money on the Move:
The Modern International Capital Market
McGraw-Hill Book Company, New York, N.Y., U.S.A., 1979, x + 291 pp., US$16.50.
In this valuable book, Mendelsohn tells us what the modern international capital market is, how it arose, how it works, and where it seems to be going. The framework for his analysis is how the market has handled a very large part of the international imbalance between savings and investment—between national economies in current balance of payments (BOP) surplus and those in BOP deficit—since the late 1950s.
This broad framework and the exposition of the market’s role and origins in Part One are particularly useful compared with the overly dramatic and manifestly ephemeral articles on the Eurocurrency market of which one has seen so many. Mendelsohn, rightly, does not ascribe the early growth of the market to any one cause. He gives a broad view of the interaction of a number of events: the end of the dollar shortage, the establishment of convertibility, the emergence of a dollar glut, and the final years of the Bretton Woods era. This reviewer would have added to the list of causes the growth of multinational corporations and the migratory movements—first of U.S. and then of other transnational corporations, followed by their domestic banks. Mendelsohn’s estimates of the size of the international market are particularly useful. He also relates the size to the international financing of investment—the relevant measure even if data limitations make the comparison necessarily impressionistic.
The author concludes that the market seems to have filled a political vacuum as well as to have met an economic need. There was the need for an international monetary system in the late 1960s and in the early and mid-1970s. During much of this period, national politicians and their officials were at loggerheads over the creation of a system. Meanwhile, the private institutions in the market were a substitute for it and dealt effectively with the grave disturbances of 1973-75 and, in this sense, provided an efficient international financial mechanism based upon the international banks. Mendelsohn goes on to caution us that the market cannot “solve” the problems created for the world economy by higher energy costs and rapid changes in the location of industrial production from North to South. But it can provide temporary financing to give countries time for national policies to be made more effective and for international arrangements to be put into effect. By 1980 there was promise of both but no certainty of either.
Part Two is an account of the mechanics of the market. There is a step-by-step description of how Eurocredits are arranged and for whom, what costs are involved, and the advantages and disadvantages of this form of borrowing. There is a similar review of the Eurobond market (distinguished here from foreign issues on national markets, which are far more closely regulated) with information on the amount and nature of borrowing by countries, divided into familiar groups: the industrial countries; Eastern Europe; oil exporters; developing countries, with one addition—the “Newer Industrialized Countries” (NICs).
The author rightly points out in Chapter 17 that there is a great deal of confusion about how to classify countries. As he says at the outset, the market has generally drawn savings from industrial economies in BOP surplus and lent them to those in deficit, mostly developing countries. Certainly, this has been the case for many years. But most “mature” national economies—and, more and more, industrializing countries—both borrow and lend abroad. Moreover, the net position of these (and other) economies may change from year to year. Witness Italy, Japan, and the United States; remember the “oil surplus” countries which had a surplus for only one year (such as Indonesia); and keep in mind the “maturing” NICs.
In two most interesting short chapters at the end of Part Two, Mendelsohn deals with such topics as the portfolio choices of investors, the equity cult, and the effects of inflation on investors’ choices. The reviewer must add that, although the equity cult is by no means dead, it may prove to have been brought back to life by rapidly rising prices (rather than by an encouragement of stable economic growth as the author suggests). But that remains to be seen.
Part Three—on the background of individual markets, the characteristics of the securities and the “managers,” and the costs, risks, and rewards involved—may seem less obviously attractive to those mostly interested in the broader aspects of international banking. They should persevere because it is a remarkably concise and informative account. Finally, in short appendices, there is a chronology, a very useful summary of the size of the main financial centers, a very good annotated bibliography of basic information and analysis—particularly the official sources (Appendix 3, Sources of Market Information), and an International Market Glossary.
It is unusual to read a concise, accurate, and technical analysis within such an enlightening broad historical and economic framework.
Other books received
Global, International and National Aspects
Louvain University Press, Louvain, Belgium, 1980, 117pp., BF 340.
Four lectures presented in March 1980 at the Catholic University of Louvain dealing with (i) inflation as a global problem; (ii) the international transmission mechanisms between national economies; (iii) the national autonomy of macroeconomic policy in an integrated world economy; and (iv) a study of alternative policies against inflation in the context of post-World War II inflationary experience. Of advanced academic interest.
Edward K. Y. Chen
Hyper-growth in Asian Economies:
A Comparative Study of Hong Kong, Japan, Korea, Singapore and Taiwan
Holmes & Meier Publishers, Inc., New York, N.Y., U.S.A., 1979, 241 pp., US$36.00.
This study of export-led growth in five East Asian countries attempts to identify common patterns of development, causes of rapid growth, and the consequences of economic expansion particularly on income distribution. A number of hypotheses are tested empirically, using time-series data for the period 1955-70.
Richard A. Easterlin
Population and Economic Change in Developing Countries
University of Chicago Press, Chicago, II., U.S.A., 1980, viii + 581 pp., US$38.00.
A number of papers presented at a conference sponsored by the National Bureau of Economic Research are collected in this volume. The quality is well above average, although several of the contributions do not break much new ground. Of particular interest are a paper by Easterlin, which analyzes the various determinants of preferences for children; one by Kuznets which investigates empirically the effects of demographic changes on income distribution; and one by Lee on the possible existence of a balancing mechanism between population and resources in premodern England.
Trade Amongst Growing Economies
Cambridge University Press, New York, N.Y., U.S.A., 1980, 157 pp., US$21.50.
A theoretical study that examines the role of capital in the growth of a small economy. A useful book for a student of international economics who wishes to broaden his or her theoretical horizons without wading deeply into advanced mathematics.
The Measurement of Economic Growth
Columbia University Press, New York, N.Y., U.S.A., 1980, x + 306 pp., US$22.50.
Economists have long known that such commonly used measures of economic welfare as changes in gross national product had serious shortcomings, but the systematic investigation of these deficiencies and attempts to construct alternative measures of social welfare are relatively recent. Usher presents the theory that growth can be determined mainly by measuring technical changes in the means of production. This very useful book goes some way toward bridging the gap between national income texts and technical articles analyzing various measures of growth.
Hans M. Gregersen and Arnoldo H. Contreras
Economic Analysis of Forestry Projects
Food and Agriculture Organization, Rome, Italy, 1980, 2 vols.
A pragmatic manual for project analysis, in two parts: Volume 1 deals with the cost-benefit analysis of forestry projects with some alternative approaches; Volume II includes six case studies, four of which are drawn from the World Bank’s experience.
William Diebold, Jr.
Industrial Policy as an International Issue
McGraw-Hill Book Company, New York, N.Y., U.S.A., 1980, xx + 305pp., US$9.95 (US$6.95 paperback).
Economic policies pursued in one country often clash with those of another, resulting in disputes in areas such as trade and employment. The author discusses why these problems persist, and makes specific proposals for improving the way governments can deal with structural change at the national and international level without damaging the world economy and international cooperation. An overview of the subject.
Joseph A. Pechman (editor)
What Should Be Taxed:
Income or Expenditure
The Brookings Institution, Washington, D.C., U.S.A., 1980, xi + 332 pp., US$14.95 (US$5.95 paperback).
For close to two decades, specialists on taxation have debated the merits of taxing consumption expenditure. Although many are convinced that such a levy would be significantly superior to a tax on income, few countries have experimented successfully with expenditure taxes. Interest in such taxes was recently revived by the Meade Committee report in the United Kingdom and in a proposal for tax reform issued by the U.S. Treasury. The five studies in this volume are thus very timely. The first article is devoted to the measurement and determination of savings that contribute to the supply of loanable funds. Richard Goode then puts forward the case for income taxation, which is countered by David Bradford’s piece on the relative advantages of a personal consumption tax. The two remaining contributions deal with questions of design and the possibilities of employing an expenditure tax in the United States.
Ali A. El-Hakim
The Middle Eastern States and the Law of the Sea
Syracuse University Press, Syracuse, N.Y., U.S.A., 1979, xxii + 293 pp., US$27.00.
A comprehensive treatment of issues discussed in connection with the UN Conference on the Law of the Sea that concern these countries. Discussion of the legal, economic, and political ramifications of these issues for 16 Arab states recommends this book to a wide audience of legal, economic, and political experts, students, and businessmen interested in that region.
René-Francois Bizec and Yves Daudet (editors)
Un code de conduite pour le transfert de technologie
Economica, Paris, France, 1980, xi + 217 pp.
Jacques Richardson (editor)
Integrated Technology Transfer
Lomond Publications, Inc., Mt. Airy, Md., U.S.A., 1979, xi + 162 pp., US$12.75.
Both books are collections of articles on the transfer of technology from developed to developing countries. The first addresses only the problems arising in the formulation of the code of conduct for the transfer of technology. The authors—a group of French civil servants and scholars—draw essentially from the work of UNCTAD V (1979, Manila), the UN Conference on Science and Technology (1979, Vienna), and other UN conferences on the code.
Fourteen international scholars and UNESCO staff have contributed to the second book. The collection of essays—reprinted from UNESCO’s journal, Impact of Science on Society—deals with all aspects of technology transfer to the developing countries, including technology management, research funding, the role of the university, and the formulation of suitable public policies. Country and sectoral cases are discussed.
Rudiger Dombusch and Jacob A. Frenkel (Editors)
International Economic Policy:
Theory and Evidence
Johns Hopkins University Press, Baltimore, Maryland, U.S.A., 1979, xiv + 342 pp., US$18.50 (doth), US$7.95 (paperback).
Papers, prepared for a conference under the auspices of the University of Chicago in 1977, which attempt an overview of the professional literature in nine major problem areas in the fields of international trade theory and international finance. Of advanced academic interest.
Hamish S. Murison and John P. Lea (editors)
Housing in Third World Countries:
Perspectives on Policy and Practice
St. Martin’s Press, New York, N.Y., U.S.A., 1980, 182pp., US$27.50.
The topics in this conference volume range from the planning and the provision of low-cost housing to site development, indigenous building materials, and the rehabilitation of housing stock. The emphasis throughout is on the practical aspects of housing, and the exposition is not overly technical.
Monetary Targets and Inflation Control
OECD Monetary Studies Series, Organization for Economic Cooperation and Development, Paris, France, 1979, 101 pp., US$9.50.
A technical study of changes in monetary policy techniques during the period 1974-78 for the seven largest OECD member countries and for selected smaller members, with an emphasis upon the widespread adoption of official targets for the growth of monetary aggregates or of credit supplies as a key element in the control of inflation.
The Innovator’s Situation:
Upper Middle Class Conservatism In Agricultural Communities
Stanford University Press, Stanford, Calif., U.S.A., 1979, 159 pp., US$12.50.
The ability to assimilate new technology has been and will continue to be one of the major determinants of agricultural production in the developing countries. Cancian’s useful study is based upon an analysis of 23 sample surveys previously conducted in eight developed and developing countries, including India, Mexico, Pakistan, and the United States. He hypothesizes that the willingness to innovate depends upon a farmer’s ranking within a social hierarchy. The richer farmers are the first to adopt new farming methods; the poorer farmers generally follow them. Once the innovation has been extensively tested, it is taken up by those in the middle-income position.
The Fate of the Dollar
Truman Talley Books, Times Books, New York, N.Y., U.S.A., 1980, 376 pp., US$15.00.
An historical account, organized in terms of the six administrations in the United States from President Eisenhower to President Carter. The account is lively and anecdotal: U.S. policy actions, in the author’s view, are largely responsible for the long decline of the dollar. Mayer finds that the weakness of the dollar is partly technical, partly systemic, and partly an expression of worldwide political and economic change that cannot be escaped and should not be fought; but it is a self-indulgence in the American policy which makes the condition so difficult to treat. In his view, “the dollar will not be almighty ever again; but it can be sound” if the United States implements appropriate policies and, with other countries, works to wring the excess liquidity out of the world’s monetary system. For the general reader.
International Monetary Fund
Announcing publication of:
Government Finance Statistics Yearbook
Volume IV, August 1980
A standard reference work on governments and their finances
This Yearbook contains descriptive and statistical information for 118 countries needed to answer such questions as:
Are the taxes a government collects in line with taxation patterns in other countries?
What shares of a government’s spending are devoted to housing, health, defense, economic services, and social security? How have the shares changed over time and how do the trends compare with those of other countries in the region and that for the world as a whole?
How large is a government’s outstanding domestic and foreign debt compared with total government outlays each year? How does this ratio compare with those for other countries?
How many enterprises and financial institutions does a government own and control and in what fields do they operate?
What are the sources of data on government financial operations in each country?
Approximately 550 pages.
Price: US$13.00 a copy; US$5.00 for university libraries, faculty, and students; US$32.00 for a combined subscription to all Fund statistical yearbooks including the International Financial Statistics Yearbook, Direction of Trade Yearbook, and Balance of Payments Yearbook. Advice on payment in currencies other than the U.S. dollar will be given upon request. To subscribe or for further information write to:
International Monetary Fund
Washington, D.C. 20431
Standing orders for continuing subscription are accepted.
* * * * * *
Published by the International Monetary Fund in March, June, September, and December. Summaries of each paper in French and Spanish, as well as in English.
Fiscal Content of Financial Programs Supported by Stand-By Arrangements in the Upper Credit Tranches, 1969-78
W.A. Beveridge and Margaret R. Kelly
Monetary Shocks and the Dynamics of Inflation
Mohsin S. Khan
The World Model of Merchandise Trade: Simulation Application
Duncan M. Ripley
Short-Run Effects of Exchange Rate Changes on Terms of Trade and Trade Balance
Gasoline Taxation in Selected OECD Countries, 1970-79
Alan A. Tait and David R. Morgan
The International Monetary Fund, 1978-79: A Selected Bibliography
Anne C.M. Salda
Subscription: US$9.00 a volume; US$3.00 a single issue. Special rate to university libraries, faculty, and students: US$4.00 a volume; US$1.00 a single issue.
Advice on payment in currencies other than the U.S. dollar will be given upon request. To subscribe or for further information write to:
International Monetary Fund
Washington, D.C. 20431
World Development Report, 1980
Adjustment and Growth in the 1980s—Poverty and Human Development
This is the third in a series of annual World Bank reports designed to present to the public a continuing assessment of world development issues. This year’s report looks at two important challenges facing developing countries at the start of the decade: to continue the economic and social progress of the past 30 years, but under more difficult international conditions, and to relieve the plight of the 800 million people still living in absolute poverty. World Bank staff examine important aspects of the difficulties and prospects in both areas, looking as far ahead as 2000, but paying particular attention to the next five to ten years.
Contents: Introduction—The Outlook for Developing Countries-International Problems and Policies—Poverty, Growth, and Human Development—Human Development Issues and Policies—Implementing Human Development Programs—Priorities and Progress in Regional Perspective—Summary and Conclusions—Annex: World Development Indicators.
172 pages. Cloth US$13.50; paperback US$5.75.
The report is published for the World Bank by Oxford University Press and is available from booksellers; directly from the Press (200 Madison Avenue, New York, N.Y. 10016, U.S.A., or Press Road, Neasden, London NW10 ODD, United Kingdom); or from Oxford branches and distributors throughout the world.
Growth and Equity in a Multiracial Society
Kevin Young, Willem C. F. Bussink. and Parvez Hasan
Reviews the performance of the Malaysian economy since 1960, discusses current issues, and assesses the outlook for the future.
368 pages. Cloth US$25.00; paperback US$7.95
State Manufacturing Enterprise in a Mixed Economy
The Turkish Case
Traces the roots of “etatism” in Turkey and reviews the performance of six important state industries.
408 pages. Cloth US$25.00; paperback US$9.95.
The World Rubber Economy
Structure, Changes, and Prospects
Enzo R. Grilli, Barbara Bennett Agostini, and Maria J. t’Hooft-Welvaars
Assesses the recent changes in the rubber economy and their likely consequences for the world’s natural rubber industry.
About 200 pages. Paperback (only) US$6.50.
The above three books are published for the World Bank by The Johns Hopkins University Press and are available from booksellers; directly from the Press (Baltimore, Md. 21218, U.S.A., or 2-4 Brook Street, London W1Y 1AA, United Kingdom); or from Press distributors throughout the world.
Commodity Trade and Price Trends
A 125-page, annual statistical handbook that presents historical information on the export trade of developing countries and market quotations for 51 commodities, including food, nonfood items, metals, and minerals that figure largely in international trade will be published for the World Bank by The Johns Hopkins University Press on a subscription basis.
All commodity prices in the 1980 edition of COMMODITY TRADE AND PRICE TRENDS are shown in a single currency (the US dollar), in terms of both current, or nominal, dollars and 1979 constant, or real, dollars, and in both tabular and graphic form. These data are presented in English, French, and Spanish. Selected data on ocean freight rates are also featured, as most of the price series are based on c.i.f. quotations at the major consuming markets.
Students of economics, economists, commodity traders, bankers, and government officials all will find the handbook to be of particular value in their work.
Payment is required before issues can be shipped, and must be made by check payable in US dollars through a US bank or by International Money Order or Unesco coupon in the amount of US$15.00 for each subscription.
Issues will be sent by book rate in the United States and Canada and by air mail to all other countries. There is no extra charge for postage.
To order “Commodity Trade and Price Trends” fill in this form and mail it, with payment of US$15.00 for each annual subscription, to:
The Johns Hopkins University Press
Baltimore, Maryland 21218