Journal Issue

Recent staff studies: Brief reports on selected recent research by Bank and Fund staff

International Monetary Fund. External Relations Dept.
Published Date:
September 1982
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With this issue, Finance & Development begins a regular report on some of the recently completed research by Fund and Bank staff.

IMF Occasional Papers are available, at US$5.00 per copy (US$3.00 for university libraries, faculty, and students), from

Publications Unit

International Monetary Fund

Box A-100

Washington, DC 20431 U.S.A.

World Bank Staff Working Papers and other Bank publications are available, at the price stated, from

Publications Distribution Unit

World Bank

1818 H Street, NW

Washington, DC 20433 U.S.A.

Syed Ashraf Ali et al.

Labor Migration from Bangladesh to the Middle East

World Bank Staff Working Paper No. 454, US$5.00

Pakistan Institute of Development Economics

Labor Migration from Pakistan to the Middle East and its Impact on the Domestic Economy

PIDE Reseasrch Report Series Nos. 126-28. (Pakistan Institute of Development Economics, P.O. Box 1091, Islamabad, Pakistan).

Pakistan and, to a lesser extent, Bangladesh, are two South Asian countries that have seen large numbers of their work force migrate to the Middle East for lucrative temporary positions. The impact of the resultant remittances has been obvious and substantial, yet the nature and extent of this impact has been little studied and even less is known about the pattern and implications of future flows. When the unarguably large transfer of resources is measured against the disruption of the domestic labor market and the inevitable economic and social adjustments in the home society, are these countries benefiting?

Using cost-benefit analysis and data generated from household surveys, local researchers in these countries with World Bank support attempted to weigh the pluses and minuses accruing from this large-scale migration and to analyze the size and uses of these migrant remittances. Drawing on this empirical and analytical base, policies and programs could then be devised to maximize benefits. A greater understanding of the pattern of current remittance flows and uses would likewise provide data from which to project future flows and the implications of changes in these flows.

The Bank-sponsored study found the net impact of temporary emigration of labor to be positive, although the benefits varied with the skill of the worker. Several categories of adverse effects resisted quantification. It was impossible, for instance, to weigh the impact of migration on family life or to estimate the difficulties connected with return and readjustment. On a broader scale the impact of emigration on the domestic development effort was also difficult to assess, though instances of adverse effects were identified.

The study did provide some surprising results. Data gathered contradicted the assumption that large amounts of remitted funds were spent on luxury goods. A sizable percentage was, however, spent on real estate; alternative domestic productive investment opportunities were scarce and in some cases unsuited for unsophisticated investors.

David Morawetz

Why the Emperor’s New Clothes Are Not Made in Colombia: A Case Study in Latin American and East Asian Manufactured Exports

Oxford University Press for the World Bank, US$22.00.

Sharp divergences persist in the export performance of developing countries. Some, most notably certain East Asian countries, have been very effective in exporting manufactures; others, including almost all countries in Latin America, have achieved only minor and fitful success despite considerable potential. Among the reasons for these divergences is the uncertain role of nonprice influences.

World Bank consultant, David Morawetz, studied Colombia’s clothing exports, which were almost negligible until 1970, enjoyed rapid growth in 1970 until 1974, but have declined or stagnated since then. Comparisons were made with leading economies in East Asia where exports, already immensely larger, continued to grow rapidly.

Using in-depth interviews with those in the Colombian firms and organizations who were directly involved in the export effort and with U.S. executives who viewed the process from the buyers’ perspective, while also collecting and analyzing substantial quantitative data, Morawetz charted the performance of Colombia’s clothing exports and examined the interplay of export incentives with nonprice influences.

The study found that nonprice factors, such as fulfillment of specifications, quality control, and prompt deliveries, are, along with prices, critical for success. Colombia’s exports lost ground based on a mixture of all these influences, despite lower recent wages and substantial competitive potential compared to East Asia. Some exceptional Colombian companies nevertheless achieved excellent nonprice performance even amidst deteriorating incentives. The findings indicate that how well a country’s export industry responds to nonprice challenges depends on the policy environment in which it operates. Poor incentives or obstacles to importing required inputs lead to failures in nonprice aspects of performance even more than they raise costs. The crucial policies are those that set real exchange rates and financial inducements to export; protection and the resulting relative profitability of the domestic market; access to imported inputs; costs and availability of locally made inputs; customs procedures; costs, delays, or uncertainties in international transactions; and factors affecting the stability and costs of manufacturing.

Cultural factors, such as work habits and the degree of managerial know-how and technical skills, vary and also affect exports. How these determinants of export performance interplay with the policy environment can only be guessed, but Morawetz does find strong evidence that policy defects were in large measure responsible for the relatively weak performance of Colombia’s clothing exports. There is considerable reason to suppose that this would also be true of Colombia’s other manufactured exports and, by extension, of manufactured exports from most other countries in Latin America.

Shailendra J. Anjaria, Sena Eken, and John F. Laker

Payments Arrangements and the Expansion of Trade in Eastern and Southern Africa

IMF Occasional Paper 11.

This study describes the existing payments, exchange control, and exchange rate arrangements in the proposed 17-nation Preferential Trade Area of Eastern and Southern African States; analyzes any payments obstacles to trade in this region; and recommends improvements in payments arrangements that would promote intraregional trade.

A main finding is that the present low volume of intraregional trade and its uncertain potential are generally not due to the nature or the application of trade and payments regulations in the region. Establishment of an alternative system for channeling intraregional settlements would not by itself lead to an expansion of intraregional trade.

Most intraregional payments are denominated in convertible currencies and usually channeled through the commercial banking network of branches and correspondents. This network is reportedly sufficiently widespread and flexible to accommodate an increased volume of intraregional settlements. Intraregional and other settlements for trade transactions generally appear to take place efficiently, at relatively low cost, and on a timely basis (except in countries with payments arrears). Thus, there is likely to be only a small increase in efficiency or financial saving as a result of a new clearing facility.

Even so, the establishment of a new clearing facility may be justified because it would promote intraregional contacts and cooperation, particularly in the monetary area. It would also contribute to the formulation of more liberal and flexible links among groups of developing countries.

Another conclusion of the paper is that a clearing facility for the region should not be a mechanism for providing balance of payments support nor should it restrict payments or create discriminatory currency arrangements. To be effective, it should be designed to gain wide acceptance among national authorities, bankers, and traders.

John B. McLenaghan, Saleh M. Nsouli, and Klaus-Walter Riechel

Currency Convertibility in the Economic Community of West African States

IMF Occasional Paper 13.

The absence of currency convertibility is one of a number of obstacles to economic integration within the Economic Community of West African States (ECOWAS). This paper addresses the difficulty and ways in which it may be overcome.

The authors review the concept of convertibility and define full convertibility, which, they argue, is the relevant concept for ECOWAS, as the completely unrestricted exchange of one member’s currency for the currencies of other members, with no limitation on its use. Before full convertibility can be achieved within ECOWAS, certain preconditions—essentially in the correction of existing balance of payments disequilibria in the region—must be met.

Three distinct stages of monetary cooperation can be reached once exchange restrictions have been eliminated. The first involves the establishment of a convertibility agreement under which participants agree to exchange and use freely the currency of all members in regional transactions. The second stage calls for the formation of a partial monetary union, with the participating countries agreeing to set fixed exchange rates between their currencies. The third stage involves the creation of a full monetary union, in which a single currency is issued by a central monetary authority for all member countries.

The principal ingredients of a program of monetary cooperation, including the attainment of convertibility, are also identified.

Alan A. Tait and Peter S. Heller

International Comparisons of Government Expenditure

IMF Occasional Paper 10.

In the 1960s and 1970s, when a Fund program involved reducing a budget deficit, the typical recommendation was to increase tax revenue. The economic and political climate of the 1980s, however, makes increased taxation more difficult and suggests that ways should be sought in which the Fund can assist governments to control public expenditure.

This paper represents a possible starting point. It presents figures that Fund economists can use as a basis for discussions with authorities about their government expenditure priorities.

The international expenditure indices constructed for this study are the ratio of the actual share of different government expenditures (on, for example, defense, health, education, wages, and salaries) in gross domestic product (GDP) relative to the predicted share of such expenditures in GDP. The predictions are made using a series of hypotheses about the factors that determine particular forms of expenditure; for example, government expenditure on health services is dependent on the proportion of the population aged 65 and above, access to clean water supplies, and population per hospital bed. The index would enable a staff member to question why, for instance, a government appeared to be spending 80 per cent more than indicated on these services given the particular factors prevailing in that country; there would probably be a good sui generis reason but, at least, the question might raise some doubts and help identify expenditures where further study could show how reductions might be made.

Robert S. McNamara Fellowship Program

The World Bank has established the Robert S. McNamara Fellowships in honor of its former president who retired last year.

Fellowships will be awarded for full-time study or research at the post-graduate level in fields related to economic development. Selection will be made by a panel named by the Executive Directors of the Bank. The innovative or imaginative character of the work to be done will be a factor in selection. The program is not intended to support work leading to an advanced degree. Fellows must be nationals of a Bank member country, normally not more than 35 years of age and holders of a Master’s degree or the equivalent. They will be expected to undertake their work in a member country other than their own.

Fellowships will be awarded annually out of the income of an endowment fund. Each fellowship will include a stipend to cover subsistence and accommodation, travel (less than first class) for the fellow, the fellow’s spouse, and dependent children to and from the place of study or research, and an allowance for books and the cost of research.

The first fellows will be selected early in 1983 and the fellowships, for a 12-month period, will be tenable starting July 1, 1983.

For further information, write to J. Price Gittinger, Coordinator, McNamara Fellowship Program, Economic Development Institute, World Bank, 1818 H Street, N.W., Washington, DC 20433, U.S.A. Applications for the fellowships must reach the EDI by December 1, 1982.

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