THIS PAPER begins with a brief theoretical analysis of the various direct and indirect ways in which inflation in primary producing countries may be expected to affect their exports.
Section II seeks to discover, on the basis of postwar data, whether there is any systematic relationship between the degree of inflation, measured in terms of internal price movements, and changes in exports. It has proved convenient to group countries, according to the degree of increase in their domestic prices, into (1) “stable,” (2) “mildly inflationary,” and (3) “strongly inflationary” countries. In view of the special conditions prevailing earlier, attention is mainly focused on the years 1953–59. Over that period, the exports of countries with relatively mild inflation rose, on the average, by some 27 per cent, against a 35 per cent increase in those of stable countries. Exports of countries with strong inflation, however, remained on the whole virtually unchanged.
The role of devaluation, either on an over-all basis or through the adjustment of effective export rates for individual commodities, is examined (1) by comparing the evolution of exports between 1953 and 1959 in different countries with varying degrees of inflation and (2) by studying year-to-year changes in individual countries over the period 1949–59. In countries with mild inflation, devaluation appears to have largely offset the effect of inflation on exports, while in countries with strong inflation, even where devaluation reduced their price levels in terms of dollars below those in stable countries, exports did not increase accordingly.
For a number of countries, mainly those with strong inflation, the “major” and “minor” exports have been examined over the period 1953–59 and compared with those of stable countries. The effect of inflation was particularly pronounced on minor exports; exports of the inflation groups showed a small decline, against an increase of some 50 per cent for the stable group. The shares in world trade of inflationary countries’ exports of a number of products fell, in most instances, in the postwar period; they were also less than in prewar years.
Section III endeavors to illustrate in some detail various direct and indirect effects of inflation on specific exports from a number of countries.
Miss Lovasy, Assistant Chief of the Special Studies Division, was formerly with the Economic and Financial Department of the League of Nations. She is the author of a memorandum on “International Cartels,” published by the United Nations, and of several articles in economic journals.
The distinction between commodities produced mainly for export and those consumed mainly in the country is necessarily fluid. As countries become more developed, a number of commodities shift from the first to the second group, partly because the growth of manufacturing absorbs materials formerly exported, but also because consumption levels rise as incomes increase.
Sometimes such measures simply reflect the need to divert supplies to the domestic market to meet increasing requirements of goods for which domestic output cannot be expanded. The case here discussed, however, is different: shifts in the internal price structure and not physical limitations prevent an increase in production.
Such practices include rate differentials for different commodities and sometimes for different markets, as well as procedures that permit exporters to sell some proportion of their export receipts at “free” market rates but require them to surrender the remainder at the much lower official rate.
For the countries covered in Chart 1, see Table 7 (p. 61). The choice of countries was largely determined by the availability of suitable data; a number of countries had to be omitted because reliable data on either prices or the volume of exports were lacking. In addition to the cost of living, which is the criterion of inflation actually used, data on wholesale prices have been examined whenever available for the countries studied.
The price data in the chart refer to the period 1953–58; export data to the average volume in the two years 1958 and 1959 compared with the average volume in the years 1953 and 1954. Throughout this paper, comparisons of changes in exports in individual countries have been based on the averages of two consecutive years, so as to reduce the effects of special factors which may determine exports in any particular year.
The cumulative increase over five years corresponding to annual rates of 4 per cent and 10 per cent amounts to roughly 22 per cent and 61 per cent, respectively.
The effects of exchange rate adjustments are examined in some detail below.
For all but one of the stable countries, the exchange rate remained unaltered during the period under consideration and price movements, in terms of dollars, were the same as in domestic currency. The rate of Nicaragua had been devalued by about 6 per cent.
It should be noted that in Chart 2 the change in the cost of living, shown both in domestic currency and dollar terms, is expressed as an index (1953 = 100) and not as an annual average rate.
The data for Brazil exclude coffee, exports of which have not been affected by internal price changes and have moved at effective exchange rates which were kept much below those for other commodities.
It should be mentioned that the conclusions derived from Chart 3 may differ from those just discussed. For some countries, notably Argentina as well as Brazil, year-to-year data indicate a response of exports to price changes in terms of dollars over time, while the data in Chart 2 suggest that the exports of these countries relative to the dollar price level remained low compared with those of other countries.
Only for a few countries, for which the global volume index appeared to be reasonably comprehensive, was the index for “minor” exports derived by deduction of “major” exports from the total. In most instances the index combines volume data for each of a number of the minor commodities, supplemented by rough estimates (on the basis of value) for the usually small residual. The latter method assures the inclusion of newly developed exports.
The data in both Table 2 and Chart 4 refer, for each year shown, to the same countries within each of the two groups. The number of countries used in computing these averages is smaller than the number used in the computation of total exports, shown in Table 1.
The choice was limited by availability of data on world trade in the commodities exported by the countries under consideration.
This was intimated by Ignacio Tosta Filho in Análise das Exportações Brasileiras Outras que não o Café (Rio de Janeiro, 1958, mimeographed).
Estimate by the Brazilian Institute of Economics, Getulio Vargas Foundations. The authors admitted that the estimate was likely to overstate actual growth, but even if allowance is made for some overstatement, expansion must have been considerable.
Theodore R. Gates, Production Costs Here and Abroad (National Industrial Conference Board, New York, 1958).
The 13 products originate from the following industries: food (2), pulp and paper (1), chemicals and allied products (6), rubber products (1), metal products (2), instruments (1).
Survey of Investment in Brazil (Brazilian Embassy, Washington, 1958), App. III.
The data refer to U.S. direct investment. Source: US. Department of Commerce, U.S. Business Investment in Foreign Countries (Washington, 1960).
The volume of copper exports from Chile in 1959 was some 35 per cent greater than in 1948; exports of petroleum and its products from Indonesia more than doubled during the same period.