Journal Issue

Books in brief

International Monetary Fund. External Relations Dept.
Published Date:
December 1986
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Roy Bahl, Chuk Kyo Kim, Chong Kee Park

Public Finances During the Korean Modernization Process

Council on East Asian Studies, Harvard University Press, Cambridge, MA, USA, 1986, xxiii + 340 pp., $15 (paper).

This study, jointly undertaken by the Harvard Institute for International Development and the Korea Development Institute, traces the evolution of the Korean fiscal system during 1954–1975, a period of dramatic developments. Although the authors admit that the government was the moving force behind Korea’s modernization, they continuously stress that public finance policy played a supporting, rather than a leading, role. Throughout the period, fiscal policies were adjusted to support other policy measures. The striking features of this atypical path to fiscal modernization include the choice of a small government sector for a country with its characteristics; a relatively low tax effort and government expenditure ratio to GNP; no noticeable shift toward direct taxes and continued heavy reliance on indirect taxes; the onus for supporting social services, like education and health, borne by the private sector; and an unusual financing pattern after 1964 with little borrowing or foreign aid. The authors’ detailed analysis of the distributional effects of the Korean budget finds a net transfer of benefits to future years; a significant intersectoral transfer to the rural sector; and a slightly progressive redistribution in both urban and rural sectors. A few provocative questions, however: Would the size of the government sector still be small if we include all state enterprises? What difference would it make if an arbitrarily assumed very low 5 percent return on capital investments were adjusted upward? Would some of the findings change, particularly with the now-known increases in tax efforts and ratios of government expenditures to GNP, if the book had covered data beyond 1975?

Richard Luedde-Neurath

Import Controls and Export-Oriented Development

A Reassessment of the South Korean Case

Westview Press, Boulder, CO, USA, xiv + 249 pp., $26.50 (paper).

The Korean experience is often used to show how liberal import policies can fuel export-led growth. Dr. Luedde-Neurath reexamines Korea’s import policies from 1962 to 1982, and in a chapter that is the book’s main strength, argues that the Government used many indirect controls to keep imports on a short leash throughout the period. Trader licensing, foreign exchange allocation, settlement methods, advance deposits, and customs procedures, as well as quantitative controls, were all in use. But importantly, goods for export industries were let in quite freely, with controls bearing most heavily on goods for the home market. In assessing Korea’s performance, the author finds that import controls can be compatible with strong export growth and have a beneficial role in development. This is especially so when there are trade distortions in world markets, heavy indebtedness, or infant industries in need of protection. For countries “gripped by liberalization fever”—or those advising them—this book may have a timely message.

V. N. Balasubramanyam

The Economy of India

Westview Press, Boulder, CO, USA, 1985, xiv + 241 pp., $25 (cloth).

A valuable feature of this survey of India’s economic performance and policies over the past three decades is its discussion of the internal debates over various aspects of development strategy, such as the initial emphasis on heavy industry and the persistent bias in favor of import substitution. The central concern for Balasubramanyam is why growth has been so disappointing in a country relatively well endowed with natural and human resources and enjoying an impressive rate of savings. The author believes that industrial and trade controls, associated with the policy of import substitution, have contributed significantly to the low productivity and growth of the Indian economy. Balasubramanyam proposes instead an outwardlooking strategy in which the price mechanism would play a greater role in resource allocation. The book is intended to help students to sift through the vast literature on India’s economic problems. It does this well.

Robert W. Kates, Christopher Hohenemser, and Jeanne X. Kasperson (editors)

Perilous Progress

Managing the Hazards of Technology

Westview Press, Boulder, CO, USA, 1985, ix + 489 pp., $33.50 (cloth).

For anyone concerned about the increased risks to health and welfare occasioned by rapid developments in science and technology during this century—and an escalation in these risks over the past 10-20 years—this book provides an excellent overview. The authors are well-known experts in the field of hazard and risk assessment, and in this treatise they cover the risks involved in chronic or long-term accidential exposures—such as exposure to toxic chemicals, PCBs, or mercury—and in acute or sudden accidents—such as the recent Chernobyl incident or airplane crashes and automobile or industrial accidents. The book addresses the social, moral, and economic implications of these risks, as well as government’s role in managing aspects of these technological hazards. The book is presented in such a way as to appeal to the technical, as well as the lay, reader.

P.N. Snowden

Emerging Risk in International Banking

Origins of Financial Vulnerability in the 1980s

George Allen and Unwin, London, 1985, 146 pp., $29.95 (cloth).

This concise little book reviews the various factors in the 1970s that led to “over-indebtedness” in certain developing countries and “over-lending” by some international banks relative to their capital. The author’s analysis breaks no new ground but rather surveys the literature on both the international debt crisis and bank lending behavior, drawing especially on the Fisher-Minsky thesis of financial cycles. The survey work is very good, balanced, and provides a quick introduction to the subject, but unfortunately, the book is too brief to explore issues fully, which leaves the reader with several unanswered questions. One example is the financial cycles thesis, which has not been developed in a convincing fashion. Certainly, there has been a boom and a bust in bank lending to developing countries, but it is perhaps too early to characterize this behavior as the first in a series of lending cycles.

Marie-France I’Hériteau

Le Fonds Monétaire International et les pays du Tiers-Monde

Presses Universitaires de France, Paris, 1986, 277 pp., F 155 (paper).

This well-written and reasoned book explores a complex topic that is frequently subject to misunderstanding. The first part offers a straightforward account of the modalities of using Fund resources, including some historical perspective and a chapter on conditionality. The second part provides an analysis of the policy aspects surrounding the use of Fund resources, and includes a critique of the role of the Fund in LDCs. The author has read, with a perceptive and intelligent eye, most of the relevant literature on the subject (although her book appeared too early to profit from a number of major studies undertaken by the Fund staff on the effects of Fund-supported programs). The exposition is lucid and the judgments, on the whole, balanced. These virtues notwithstanding, one can take issue on a number of points. For instance, the characterization of Fund-supported programs as being based on “the Fund model” is oversimplified: the Fund’s approach is much more flexible and eclectic. The author does not always explore the reasons why particular policy measures are proposed (such as expenditure reduction, rather than revenue increase, to improve the budgetary balance). On a different plane, she might have recognized more forthrightly the catalytic and coordinating role of the Fund in recent years as proof of the Fund’s adaptability. Unlike many other writers, I’Hériteau recognizes the constraints that have to be faced in dealing with payments disequilibria and she is aware of the lack of any credible or realistic alternatives under existing conditions. The book is a delight to read and to quote: “the road to economic hell is paved with good social intentions” (p. 151).

United Nations Non-Governmental Liaison Service

Directory of Development Education Periodicals

NGLS/Geneva, 1986, 523 pp., first copy free.

A handy guide to periodicals from the United Nations system, international nongovernmental organizations, and national NGOs from Australia, New Zealand, and Europe. Many of the publications listed are available without charge, a boon for developing country readers and agencies seeking ready access to development information. A free copy of the directory may be ordered from the United Nations Non-Governmental Liaison Service/Geneva, Palais des Nations, CH-1211 Geneva 20, Switzerland.

Alan V. Deardorff and Robert M. Stern

The Michigan Model of World Production and Trade: Theory and Applications

MIT Press, Cambridge, MA, 1986, xiii + 274 pp., $30 (cloth).

The Michigan Model of World Trade and Production is the product of a project that has involved Deardorff and Stern for more than a decade. The model is large—34 economies and 29 industries—and fairly complex; in this detailed description of the model, the authors have made the reader’s task as simple as could be expected by providing an excellent theoretical chapter at the outset. The exposition is clear and the authors are forthcoming about the model’s limitations and, when discussing simulations, about several anomalies that appear. The model is particularly well designed to analyze the effects of tariffs on trade and production. Simulations, for example, provide a number of interesting results, including suggestions that the final effects of the Tokyo Round tariff reductions have been relatively small, that the true effective rate of protection is typically less than calculations made with partial equilibrium models, and that taxes, as opposed to tariffs, might have a considerable impact on trade. In estimating the resource costs of the tariff structure, the book eschews the typical approach—that of indirect estimates made under strong assumptions, such as perfect substitutability between home and foreign goods, and exogenous exchange rates. Instead, the Michigan model uses its own well-developed structure to make these calculations directly. The book concludes with several chapters designed to show the effect of exchange rate changes on trade and the effect of trade on employment. The results must be used with care. The authors are obviously aware of the difficulties in analyzing the effect of one endogenous variable on another; readers of the book are well advised to remind themselves of the potential pitfalls before using these results. Nevertheless, this is a serious book that deserves a place on the bookshelf of the specialist. All in all, a valuable and informative work. Unfortunately it contains no index.

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