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I am grateful for comments and suggestions I received from Naly Carvalho, Camelia Minoiu, Ritha Khemani, Stephen Tokarick, and George Tsibouris. Anne Grant provided editorial help. Any errors remaining are my responsibility.
The WEF’s competitiveness pillars are institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation.
For each subset we divide Madagascar’s export by the sum of its competitor’s exports. To make the series comparable, we use data in 2000 constant US$. The SADC aggregate comprises all SADC countries except Zimbabwe and Angola, for which data are not available. The Asian aggregate comprises Bangladesh, China, India, Indonesia, Pakistan, and Vietnam.
From a competitiveness point of view, the REER of the ariary (as measured by the IMF’s International Financial Statistics) may overestimate the importance of industrialized countries. To weigh exchange rates and prices of Madagascar’s competitors in the REER index, the IMF takes into account both bilateral trade and indirect competition between trading partners in third countries. As a result, industrialized countries represent 80 percent of Madagascar’s competitors. The share of industrialized countries would be far lower if just the competition in third markets was considered (as is the case in the common definition of competitiveness). For instance, the weight of Asian countries in the REER is only 13 percent, which does not reflect the true level of competition with Madagascar.
Non-economic factors also played a role at particular points in time. Madagascar has undergone periods of severe political instability, notably at the beginning of the 1990s and in 2002.
In the first half of 2004, the ariary depreciated by about 50 percent against the euro because of (i) an acceleration of private imports in response to tax and tariff exemptions, and (ii) the impact of cyclones on vanilla and shellfish exports. Exchange rate volatility was exacerbated by erratic liquidity management in domestic money markets and structural weaknesses in the foreign exchange market, which were partly addressed by the introduction of an inter-bank foreign exchange market in July 2004.
See footnote 4 for a caveat on the inflation differential measure in the IMF’s International Financial Statistics.
Wage cost indicators in the garment industry: (1) Monthly machine operator wage in $ (2001); (2) Number of shirts produced daily per worker (2001); (3) Labor cost per shirt in $ with 26-day work month (2001).
Nonwage cost indicators: (4) Shipping cost of children clothes to Paris/New York by air in $ (2003); (5) Value lost due to electrical outages (% of sales) (2005); (6) Business tax rate (% of profit) (2007); (7) Cost of business start-up procedures (% of GNI per capita) (2007).
Adopting a medium-term perspective ensures that the output gap is zero, i.e., the internal balance condition is met.
The CA norm is the CA estimated by the econometric equation for 2013; the underlying CA is the CA forecast by the WEO for 2013.
Owing to a deceleration of exports and still strong imports for the mining sector.
The level of the CA that stabilizes the NEP/GDP ratio is calculated as
The NEP should not be mistaken for the net foreign asset (NFA) position of the central bank, which is published data in Madagascar. The NFA covers only the short-term external position of the central bank; the NEP describes the external position of a country, covering all institutional sectors, all maturities, and all instruments. For example, in 2004 the NEP of Madagascar amounted to –91 percent of GDP but the NFA position was +10 percent.
The SADC comprises the following: Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia, and Zimbabwe.
Export and import elasticities are sometimes defined with respect to the real exchange rate; the real exchange rate is sometimes defined as the ratio of foreign to domestic prices etc.
The CGER methodology implicitely makes the Mudell-Fleming assumptions (see Lee and al., 2008 on page 7 or Isard and Faruqee, 2001 on page 32). The CGER defines the export and import elasticities with respect to the real exchange rate; this explains the difference in the sign of the export elasticity.
Results are identical if we adopt the real exchange rate definition of the third case (see below).