Real Exchange Rates, Import Penetration, and Protectionism in Industrial Countries

The causes and effects of the recent trend toward increased protectionism have been widely discussed. The focus of much of the attention has been on the role of real exchange rate movements in prompting protectionist pressures from management and unions in adversely affected industries. Nevertheless, despite the popularity of the view that appreciating real exchange rates foster protectionism, little research attention has actually been paid to the question, and virtually no empirical evidence to support or refute this view has been forthcoming (see Bergsten and Williamson (1983) and Corden (1984)). This paper is an attempt to fill part of that gap in the literature.

Abstract

The causes and effects of the recent trend toward increased protectionism have been widely discussed. The focus of much of the attention has been on the role of real exchange rate movements in prompting protectionist pressures from management and unions in adversely affected industries. Nevertheless, despite the popularity of the view that appreciating real exchange rates foster protectionism, little research attention has actually been paid to the question, and virtually no empirical evidence to support or refute this view has been forthcoming (see Bergsten and Williamson (1983) and Corden (1984)). This paper is an attempt to fill part of that gap in the literature.

The causes and effects of the recent trend toward increased protectionism have been widely discussed. The focus of much of the attention has been on the role of real exchange rate movements in prompting protectionist pressures from management and unions in adversely affected industries. Nevertheless, despite the popularity of the view that appreciating real exchange rates foster protectionism, little research attention has actually been paid to the question, and virtually no empirical evidence to support or refute this view has been forthcoming (see Bergsten and Williamson (1983) and Corden (1984)). This paper is an attempt to fill part of that gap in the literature.

The paper addresses the interaction between exchange rate appreciation and increased protection (specifically, nontariff trade barriers) in terms of a two-stage process. In the first stage, an appreciating real exchange rate leads to increases in import penetration beyond what would typically accompany the normal growth of international trade. In the second, rising import penetration leads to increased protection. Recent studies by Cline (1984) and others have established empirically the second stage of this process. The present paper tests for the occurrence of the first stage by estimating industry-level import penetration ratios as functions of industry-level real exchange rates and the level of a country’s aggregate international trade.

The plan of the paper is as follows. Section I describes the model underlying the hypothesized relation between the import penetration ratio and the real exchange rate and outlines the empirical tests used. Section II discusses the countries and industries that are studied. Section III reviews the empirical results. Section IV discusses some implications of the results and shows how they can be used to assess some of the economic effects of trade restrictions. A quantitative illustration is developed to show how a policy to restrict import penetration into an industry will lead to measurable increases in economic rents for domestic producers in terms of a depreciation of the “shadow” real exchange rate for that industry.

I. The Model

Cline (1984) examined the determinants of nontariff quantitative restrictions at the industry level in five major industrial countries. He estimated protection functions for the United States, Canada, the United Kingdom, the Federal Republic of Germany, and France and concluded that, on the basis of the similarity of the coefficients in the individual country equations, the protection process is broadly similar in all five countries. He also found that, in general, the import penetration ratio is the key variable triggering protection, with its influence moderated to the extent that the home country is also an exporter of goods in the same industrial category. Cline’s “best estimates” (defined as the set of explanatory variables for each equation that produced the highest-percentage explanation of protection) of the protection functions for Germany, the United Kingdom, and the United States included as major explanatory variables the import penetration ratio and an industry’s share of the total manufacturing labor force.

Whereas Cline’s and other studies have shown that increasing import penetration is an important determinant of protection, few have directly explored the variables that might lead to increases in the import penetration ratio itself (although this issue is addressed indirectly, of course, by empirical studies of import demand functions). In addressing this question, this paper examines the role of the industry-specific real exchange rate in determining the import penetration ratio. Throughout the analysis, the real exchange rate is defined as an index of the labor cost of a unit of gross output in the relevant domestic industry divided by an index of the unit value of imports of those goods, with all values converted into domestic currency.

In the underlying model it is assumed that in each country consumers—including both final consumers and sectors that use the goods as intermediate inputs—purchase one product from each industry j. Apparent consumption, Cj, consists of goods produced by foreign and domestic manufacturers as the goods Mj, and Dj, respectively, where Dj), is domestic production, Pj minus exports, Ej or

Cj=Dj+Mj,(1)

where Dj = Pj - Ej.

The partial equilibrium proportion of the total purchases of product j that domestic residents will satisfy through imports, IPj* is assumed to be a function of the industry-specific real exchange rate indicator and the real level of the country’s international trade; that is,

IPj*=(Mj/Cj)*=f(Rj,T),(2)

where Rj is the real exchange rate for product j, and T is the trade variable, equal to the sum of real total imports plus total exports (T does not have a subscript because it applies to aggregate trade, not only to the industry’s trade). 1 Other factors that influence the total domestic demand for the product are assumed not to be differentiated between foreign and domestic goods.

Equation (2) represents a demand-determined relation between the import penetration ratio, the real exchange rate, and the level of trade. The real exchange rate variable reflects the relative prices of domestic and imported goods, which are in turn functions of their relative costs to the domestic market. 2 This specification also makes the simplifying assumption that movements in each industry’s real effective exchange rate are exogenous to the industry. Because the exchange rate is endogenous to the macroeconomy, this assumption is obviously a rather strong one, particularly in the long run. Although consumers are assumed to be indifferent to the source of Cj this indifference does not necessarily imply that Mj and Dj must sell for the same price. As Goldstein and Khan (1984) have noted, many empirical studies have shown that the “law of one price” does not appear to hold continuously within countries, even at disaggregated commodity levels. Aside from having differences in quality, delivery dates, after-sales service, and other factors, a given product need not be sold by two different suppliers for the same price in the short to medium term because selling prices of a product reflect the cost conditions of its respective producers, with the exact cost-price relations depending on the competitive structure of the industry. In a competitive market, of course, the low-cost producer would eventually drive out all competitors. But the low-cost producer may not drive out the competition in a flexible exchange rate system in which importers perceive that a foreign supplier’s cost advantage (or disadvantage) is the temporary result of an overvaluation (or undervaluation) of the home country’s currency in real terms. Equation (2) is thus a composite function representing a relation between the share of imports in total domestic consumption of product Cj and the relative price of domestically produced good j with respect to imported good j, which is in turn a function of the costs of domestic producers relative to the cost of the imported substitute. 3

It is assumed that domestic purchasers do not respond immediately to changes in their ex ante demand for imports relative to total consumption because of adjustment costs associated with altering their sources of supply. Letting IPt equal the actual import penetration ratio at time t (the j subscript is deleted below for notational simplicity), the change in the import penetration ratio is assumed to follow 4

lnIPtlnIPt1=λ(lnIPt*lnIPt1),(3)

where λ is the coefficient of adjustment and IPj* is the desired value of the import penetration ratio. Corresponding to IPj* in equation (2), IPj* is a function of the real exchange rate and the level of real trade,

lnIPt*=β0+β1lnTt+β2lnRt.(4)

Substituting equation (4) into equation (3) and rearranging terms gives

lnIPt=λβ0+λβ1lnTt+λβ2lnRt+(1λ)lnIPt1.(5)

Whereas several specifications of the relation between the import penetration ratio and the real exchange rate were estimated, only the results of estimating equation (5) are reported in this paper. 5

The hypotheses are that the signs of β1 and β2 are positive, and that λ, the adjustment coefficient, is between zero and unity. The coefficient β2 is the elasticity of the import penetration ratio with respect to the real exchange rate. Given the definition of the import penetration ratio—imports divided by domestic consumption—β2 is equal to the elasticity of imports with respect to the real exchange rate, minus the elasticity of domestic consumption with respect to the real exchange rate, or

β2=εmεc.(6)

Thus the hypothesis that β2 is greater than zero is equivalent to the hypothesis that єm is greater than єc, with єw assumed to be positive. Alternatively, equation (6) can be expressed as

β2=(D/C)εm(P/C)εp+(E/C)εE,(7)

where єP and єE are the elasticities of domestic production and exports with respect to the real exchange rate. Thus the hypothesis that β2 is positive is equivalent to the hypothesis that

εm>(P/D)εp(E/D)εE.(8)

The left-hand term, єm, is usually assumed to be positive. Estimates of the price elasticity of import demand contained in Stern, Francis, and Schumacher (1976) suggest that in the long run the demand for imports in the countries and industries examined in this paper is fairly responsive to changes in relative prices. Such estimates do not necessarily imply, however, that import demand is responsive to movements in real exchange rates. In International Monetary Fund (1984), Jacques Artus and Malcolm Knight estimated the elasticity of the import volume of manufactures with respect to a real exchange rate measure—relative normalized unit labor costs—for a sample of industrial countries that included the three examined in this paper. They found that, in both the short run (less than six months) and the long run, the responsiveness of imports to movements in relative normalized unit labor costs was estimated to be positive, although not very large.

On the right-hand side of equation (8), єE is usually assumed to be negative; єP is also assumed to be negative. 6 The rationale for the assumption about єP is as follows. As their costs increase, domestic producers can either raise their prices or cut their profit margins. Because of price competition from imports, at least part of the impact of increased production costs falls on profit margins, and in the long term increases in domestic costs of production lead to declines in domestic production. Regardless of the assumption about the sign of єP, however, equation (7) makes clear that the sign of β2 is an empirical question. Traditional assumptions from trade theory about the response of imports and exports to movements in real exchange rates do not automatically imply that the import penetration ratio will respond in a certain direction to exchange rate changes.

II. Countries and Manufacturing Industries Examined

To examine empirically the determinants of the import penetration ratio, quarterly data from four manufacturing industries in the United States, the United Kingdom, and the Federal Republic of Germany over the period 1963 through 1980 were used. 7 These countries were chosen for their importance in international trade and because they experienced relatively large movements in their real exchange rates over this period, as measured by relative normalized unit labor costs in manufacturing, adjusted for exchange rate changes (see International Monetary Fund (1984, pp. 10-12)). In addition, in all of these countries there has been an upsurge in protectionist sentiment over the past several years (see Cline (1983) for a discussion of recent developments in commercial policy). The manufacturing industries that were considered are: textiles, clothing, iron and steel, and transport equipment. 8 These industrial categories accounted for about 40 percent of world trade in manufactures in 1980 and have all been subject to protectionist pressures over the past decade (see Anjaria and others (1982)).

Charts 1-3 present annual data on import penetration ratios and real exchange rates by industry. The data sources and the derivation of the variables used in these charts are described in detail in the Appendix. In brief, industry-level real exchange rate indicators are defined as an index of the labor cost of a unit of gross output in the relevant domestic industry divided by an index of the unit value of imports of those goods, with all values converted into the domestic currency. Thus a decline in the solid line in Charts 1-3 indicates a depreciation of the home country’s real exchange rate for the relevant industry. The import penetration ratios used are equal to real imports in each sector divided by apparent real consumption, which is defined as gross production plus imports minus exports. The import penetration ratios are in real terms, so that changes in the ratios represent changes in the volume of consumption accounted for by imports, not just changes in the price of imports.

Chart 1.
Chart 1.

Import Penetration Ratios and Real Exchange Rates by Industry, United States, 1963-80

Citation: IMF Staff Papers 1985, 003; 10.5089/9781451972863.024.A005

Note: The real exchange rates are defined as an index of the labor cost of a unit of domestic gross output in the industry divided by an index of the unit value of imports of those goods, with all values converted to domestic currency. An increase thus represents a real appreciation. Import penetration ratios are real imports divided by apparent real consumption.Source: Fund staff estimates. See the Appendix for notes on the data in this graph.
Chart 2.
Chart 2.

Import Penetration Ratios and Real Exchange Rates by Industry, Federal Republic of Germany, 1963-80

Citation: IMF Staff Papers 1985, 003; 10.5089/9781451972863.024.A005

Note: The real exchange rates are defined as an index of the labor cost of a unit of domestic gross output in the industry divided by an index of the unit value of imports of those goods, with all values converted to domestic currency. An increase thus represents a real appreciation. Import penetration ratios are real imports divided by apparent real consumption.Source: Fund staff estimates. See the Appendix for notes on the data in this graph.
Chart 3.
Chart 3.

Import Penetration Ratios and Real Exchange Rates by Industry, United Kingdom, 1963-80

Citation: IMF Staff Papers 1985, 003; 10.5089/9781451972863.024.A005

Note: The real exchange rates are defined as an index of the labor cost of a unit of domestic gross output in the industry divided by an index of the unit value of imports of those goods, with all values converted to domestic currency. An increase thus represents a real appreciation. Import penetration ratios are real imports divided by apparent real consumption.Source: Fund staff estimates. See the Appendix for notes on the data in this graph.

In general, over the 1963-80 period import penetration ratios were increasing for all the countries considered, with the U.S. textile industry the only exception. As regards the measures of industry-level real exchange rates, the indicators for the United States were in general depreciating over the period, whereas those for Germany were in general appreciating. The real exchange rate measures for the United Kingdom fluctuated widely during 1963-80 but on balance appear to have shown relatively less change than in the other two countries.

III. Estimation Results

Equation (5) was estimated for each of the four industries and three countries in the study on the basis of a sample of 72 quarterly observations extending over the period 1963 through 1980 (as noted earlier, slightly shorter periods were used for two British industries). Estimates of equation (5), which are presented in Table 1, provide support for the hypothesis that increases in import penetration are positively related to appreciating real exchange rates. All variables, except dummy variables, are in the form of natural logarithms. These 12 equations were independently estimated, using a nonlinear estimation technique for iterative minimum distance estimation as implemented by Berndt and others (1974), and quadratic interpolation was used as the search method for determining the parameter step size at each iteration. Three seasonal dummy variables were used in the estimations, although these coefficients have been omitted from Table 1. There was no evidence of significant serial correlation, and thus no correction was made for it; the tests for autocorrelation were based on the h-statistic and the Durbin-Watson bounds test.

Table 1.

Estimated Import Penetration Equations, 1963-80

(ln IPt = λβ0 + λβ1 ln Tt + λβ2 ln Rt + (1 − λ) ln IPt-1)

article image
Note: The numbers in parentheses are the ratio of the parameter estimate to the standard error for that parameter and are asymptotically normally distributed. All variables are defined as natural logarithms. The equations were estimated with seasonal dummy variables, which are omitted from this table. R2 is the adjusted coefficient of determination.

These dummy variables are to take account of restrictive trade actions that occurred during the sample period and other special factors. See the Appendix for details.

The time period for the U.K. iron and steel industry is 1963-79. The time period for the U.K. transport industry is the first quarter of 1963 through the first quarter of 1976.

In 8 of 12 individual cases the coefficient β2 has the expected positive sign and is significant at least at the 10 percent level. In another three cases β2 has its expected positive sign but is not statistically significant. The evidence of a link between the real exchange rate and the import penetration ratio is most persuasive in the cases of the United States and Germany. (The tests in this paper do not establish “causality” between the variables; however, it seems unlikely that increasing import penetration would cause the real exchange rate to appreciate.) For the United Kingdom, the link is in general less evident. In addition, the estimates of equation (5) provide strong evidence that increases in import penetration are related to the level of the country’s international trade. In all 12 cases, the sign of β1 is positive at statistically significant levels.

In the last two columns of Table 1 are presented values of the adjusted coefficient of determination, R2, for each equation. The first of these columns, entitled “Level,” shows the portion of the total variance of the levels of the import penetration ratio that the estimated equations are able to explain. Based on F-statistics, these equations are all significant at the 1 percent level. The second of the columns, entitled “Change,” contains R2s for a version of each equation in which the dependent variable is the change in In IP at time t. The R2s based on changes in the dependent variable provide an indication of the portion of the variance of changes in the import penetration ratio that the estimated equations are able to explain. (See Boughton (1984) for a similar use of R2s for levels and changes.) On the basis of F-statistics, the equations are all significant at the 1 percent level except the equation for the U.S. transport equipment industry, which is significant at the 5 percent level.

Table 2 presents information on the mean time lag of the response of the import penetration ratio (that is, the time required for just over 60 percent of the adjustment to be completed), along with estimates of the long- and short-run elasticities with respect to the real trade variable and the real exchange rate. Concerning the mean lags, Goldstein and Khan (1984) reported that studies of import demand equations that have used Koyck-type lag structures have found that most of the adjustment to price changes occurs within a year. The median lag of the equations in Table 1 is about six months, so that the results are basically consistent with earlier empirical work.

Table 2.

Mean Lags and Long- and Short-Run Elasticities

article image
Source: Table 1.

The formula for the mean time lag is (1 - λ)/λ.

The short-run elasticities are λβi, and the long-run elasticities are βi. The short-run elasticity shows the percentage change in the import penetration ratio during the first quarter for a given percentage change in an independent variable. The long-run elasticity gives the total percentage change in the import penetration ratio after all adjustment has taken place.

Artus and Knight in International Monetary Fund (1984) estimated impact and long-run elasticities of import volume with respect to relative normalized unit labor costs for the United States, Germany, and the United Kingdom using semiannual data. Although β2 is not the same as the elasticity of demand for imports with respect to the real exchange rate (see equation (7)), the difference between these two measures will be small if total domestic consumption is not highly responsive to changes in the real exchange rate. The results reported in Table 2 for the United States and Germany are similar to those reported in International Monetary Fund (1984), but the results for the United Kingdom in Table 2 are in general larger in absolute value.

For the United States, the results in Table 1 strongly support the hypothesis that the real value of trade and the real exchange rate are significant determinants of the import penetration ratio, at least for these industries. Based on two-sided tests for the significance of “t-statistics,” the coefficients for β1 are all significant at the 1 percent level, as are the β2 coefficients for the textile and iron and steel industries. 9 The β2 coefficients for the clothing and transport equipment industries are significant at the 5 percent level.

As discussed earlier, Cline (1984) found a significant relation between the import penetration ratio and protection in the United States. Thus the evidence in Table 1, taken in conjunction with the Cline study, tends to support the hypothesis that appreciation in industry-level real exchange rates may indeed lead to increased protection in the United States. The results also suggest, however, that the growth and increasing openness of U.S. trade can lead to increases in import penetration even if the real exchange rate is depreciating. Section IV uses the empirical results for the U.S. transport equipment industry from Table 1 to illustrate the effects of a hypothetical trade restriction.

For Germany, the results in Table 1 also support, although not as strongly, the hypothesis that the real level of international trade and the real exchange rate are significant determinants of the import penetration ratio. The “t-statistics” for β1 are significant at the 1 percent level except in the iron and steel industry, where the significance level is 10 percent; for β2, the coefficient is significantly different from zero at the 5 percent level in the iron and steel industry and at the 10 percent level for the textile and transport equipment industries. In two of the German industries, dummy variables were used to account for special factors. (See the Appendix for further details on the dummy variables.) In the case of the clothing industry, the special factor was the Multi-Fiber Arrangement (MFA) that went into effect on January 1, 1974. Experiments using a similar dummy variable in the cases of the United Kingdom and the United States did not yield significant coefficients for the dummy variables. It may be that the effects of the MFA were, in terms of the estimated equations, relatively more severe for Germany, which is a much less important producer of clothing and textiles than the United Kingdom and the United States. In the case of the transport equipment industry, the special factor was rising oil prices; the significance of the positive sign of β2 for the industry is dependent on the inclusion of this dummy variable. Cline (1984) found a statistically significant relation between the import penetration ratio and protectionist actions in Germany. Thus, as in the case of the United States, the results in Table 1 tend to support the hypothesis of a positive relation between the real exchange rate and protection.

For the United Kingdom, the results in Table 1 do not provide much support for the hypothesis that the real exchange rate is a determinant of the import penetration ratio. Only in the textile industry is the sign of β2 significantly positive (at the 1 percent level). In contrast, the level of British trade does appear to be an important determinant of the import penetration ratios for the various industries. The β1 coefficients are all significant at the 1 percent level. The failure to uncover a significant link between movements in industry-level real exchange rates and import penetration at the industry level may be due to data problems that were encountered in this case. Alternatively, as can be seen from Chart 3, the British industry-level real exchange rates showed relatively less change over the sample period compared with those in the United States and Germany, and this fact may have complicated the estimation procedure. Of interest is that Cline (1984) did not uncover a significant link between British nontariff trade barriers and import penetration, although the estimated relation was positive.

IV. Implications of the Analysis

This section illustrates how estimates such as those presented in Table 1 might be used as a tool for examining the effects of a quantitiative limitation on imports. Specifically, the analysis shows that it is possible to estimate the “shadow” real exchange rate associated with any given level of quantitative trade restrictions by solving the estimated equation (5) for the level of the real exchange rate when given a fixed import penetration ratio. Comparison of the actual exchange rate with the (depreciated) shadow exchange rate then gives a quantitative impression of the economic effect of the quota. 10 For example, suppose that in the fourth quarter of 1980 a decision had been taken to limit the penetration of imports into the U.S. transport equipment industry to 10 percent of the domestic market for the next five years (the actual penetration of imports in the fourth quarter of 1980 was about 14.5 percent in this U.S. industry). In this example, the year 1980 was chosen because it coincides with the end of the estimation period for the results in Table 1, and it enables one to examine what the effects of the trade restriction would have been over 1981-84. Although this restriction is hypothetical, it is roughly analogous to the proposed U.S. Fair Trade in Steel Act of 1984. In the debate in the U.S. Congress, this Act was proposed to limit U.S. imports of carbon steel to 15 percent of the domestic market for five years, compared with an actual ratio of 20.5 percent in 1984 (The New York Times, August 23, 1984).

By using the estimated equation (5) for the U.S. transport equipment industry, an implied value of the real exchange rate over the period from 1981 through mid-1984 can be derived on the basis of the assumption that the import penetration ratio is held fixed at 10 percent. 11 In Chart 4 the shadow exchange rate is extrapolated from end-1980 through mid-1984 against an estimated measure of the actual movement of the real exchange rate for the industry over this period. This experiment suggests that the trade restriction would have had little effect on the real exchange rate at first, since the recession in the United States at the time led to a decline in the demand for imports. After early 1983, however, the continuing real appreciation of the U.S. dollar and the strengthening of the U.S. economy would have caused the demand for imports to increase, and the import restriction would have corresponded to a depreciating real exchange rate for the transport equipment industry. By mid-1984 the shadow real exchange rate implied by the trade restriction is estimated to be about 25 percent below the level it actually held without the restriction.

Chart 4.
Chart 4.

Industry-Level Estimated Real Exchange Rates, U.S. Transport Equipment, 1981-mid-1984

Citation: IMF Staff Papers 1985, 003; 10.5089/9781451972863.024.A005

Note: The real exchange rates are defined as an estimate of unit labor cost in the industry divided by the unit value of imports of those goods, with all values converted to domestic currency.Source: Fund staff estimates. See the Appendix for notes on the data in this graph.1 Estimated on the assumption of no changes in trade restrictions.2 Estimated on the assumption of an import penetration ratio fixed at 10 percent.

If it is assumed that the trade restriction is imposed in a sector for which home-country consumption is small relative to the size of the total market, then the restriction would cause a corresponding increase in the domestic price of the good. As is well known, the higher domestic selling price would cause economic rents to be generated for domestic producers and for those foreign producers allowed to fill the quota. Given that the actual value of the real exchange rate appreciated from 1981 through mid-1984 in Chart 4, the rent generated for domestic producers would have gradually risen to the equivalent of as much as 25 percent of the labor cost of gross output in mid-1984.

The short-run effect of the limitation on import penetration in the U.S. transport equipment industry can be simply illustrated. Figure 1 presents a partial equilibrium picture of this industry in the short run. The initial price of the good is P0 (the initial prices of the imported and domestic goods are assumed to be the same).

Figure 1.
Figure 1.

Illustration of a Restriction on Import Penetration, U. S. Transport Equipment Industry

Citation: IMF Staff Papers 1985, 003; 10.5089/9781451972863.024.A005

At this price, domestic consumption would be C0, and domestic production (excluding exports) would be D0. The import penetration ratio would be IP0 = (C0 - D0)/C0. The trade restriction is to set IP1 equal to a constant less than IP0. Given the supply and demand conditions in Figure 1, this implies C1 and D1 and the internal price rises to P1 for the given external price P0. (Of course, the demand and supply conditions could be such that an import penetration ratio would imply several different possible combinations of C, D, and P.) Thus, in the short run the quantitative restriction bestows economic rents on domestic producers whenever IP1 is less than IP0. That is, as the domestic selling price rises, so do the sizes of the rents that are the result of the quantitative restriction on imports. The estimate of the economic rent accruing to domestic producers in the short run is equivalent to the area P1ABP0 in Figure 1.

The quantitative restriction causes the domestic selling price of imports to rise (it is assumed to remain fixed externally), allowing domestic producers to raise their prices (although by less than the rise in the price of imports) and to capture a larger share of the domestic market. The quantitative restriction allows domestic producers to earn economic rents, although the rents may decline in the long run depending on the cost structure and conditions of entry into the domestic industry.

The exercise above is meant only as an illustration and not as an analysis of any actual or proposed U.S. trade policy. 12 Nonetheless, it is interesting to compare the example with the history of the voluntary restraints on Japanese automobile exports to the United States that took effect in 1981. 13 This program limited exports of Japanese passenger cars to the United States to a rate about 8 percent below the 1980 level. After the imposition of this restraint, U.S. automobile producers were able to increase their profits to record levels in 1983. The sales volume for the domestic U.S. auto industry in 1983 was similar to that in 1980, a year when the industry had incurred large losses.

The estimates of the elasticities of the import penetration ratio with respect to the real exchange rate in Table 2 provide some indication of where the greatest economic rents would be generated by quantitative restrictions. The more inelastic is the relation between the real exchange rate and the import penetration ratio, the more a given quantitative restriction on import penetration will cause a divergence between external and internal prices. The estimates for the United States and Germany suggest that the economic rents generated over the long run by a quantitative restriction would likely be the greatest in the textile and clothing industries (with it assumed that cost structures and conditions of entry are the same across countries and industries).

It is also interesting that the empirical estimates reported in the previous section are at least broadly consistent with the popular view that exchange rate volatility can lead to a steady increase in protectionist pressure, even if the average level of a country’s real exchange rate does not appreciate over time. Such heightened protection can happen because, although an appreciation of an exchange rate may lead to protectionist actions, a depreciation is unlikely to generate moves to dismantle existing impediments to trade. If this is the case, real exchange rate fluctuations may lead to the absolute level of protection “ratcheting” continually higher, even if the level of the real exchange rate shows little change in the long run. 14 The effects of exchange rate volatility on protection have been discussed elsewhere, but the relation usually has been described somewhat differently. For example, Anjaria and others (1982; see also Bergsten and Cline (1983)) discussed the possibility that increasing exchange rate volatility might lead firms to experience difficulties in competing internationally because of rapid shifts in exchange rates. In the struggle to survive, these firms might seek protection from imports.

Finally, although the estimates in Table 1 suggest that exchange rate developments may explain some of the pressure for protection, these developments do not justify either generalized or sectoral protection. Moreover, given the recent drift toward protectionism, any extrapolation based on past trends in the association between import penetration and protectionism may not hold in the future. Protectionist measures in the industrial countries, being the outcome of policy deliberations, are not influenced in a mechanical way by the import penetration ratio or by any other variable.

APPENDIX: Data Sources and Definitions

This Appendix provides further details on the sources of the data and on the methods used to calculate the real exchange rates and import penetration ratios for the various industries examined. The real exchange rate indicators for each industry were constructed by using data on labor costs in the following International Standard Industrial Classification (ISIC) categories:

article image

Index numbers for the labor cost of a unit of gross output (LCU) in local currency were derived from data on labor cost and production in United Nations, Yearbook of Industrial Statistics, Vol. 1—General Industrial Statistics (New York, various issues). Industry-specific data were available only on an annual basis. The yearly data were benchmarked by using the procedure of Denton (1971) to form quarterly data. The benchmark series comprised data on normalized unit labor costs for each country’s entire manufacturing sector.

Each LCU index series was divided by an index-series estimate of the unit value of imports in that industry. For the United States, the unit value of imports was an aggregate measure taken from the International Monetary Fund’s Inter-national Financial Statistics (IFS) (Washington, various issues). For the Federal Republic of Germany, data on import unit values in the Standard International Trade Classification (SITC) categories 6, 7, and 8 were used. These data were taken from Federal Statistical Office, Foreign Trade Series 5, Special Trade According to the Classification for Statistics and Tariffs (Wiesbaden, Germany, various issues), and Foreign Trade According to the Standard International Trade Classification (SITC—Rev. II)—Special Trade (Wiesbaden, various issues). For the United Kingdom, data on import values in disaggregated SITC sectors were taken from Central Statistical Office, Monthly Digest of Statistics (London), for years after 1971. Before 1971, data on the aggregate unit value of imports were taken from the IFS.

The import penetration ratios were calculated as real imports divided by real domestic consumption, which was defined as gross output minus exports plus imports. The trade data covered the following SITC Revision I categories:

article image

Except for minor differences, these categories are equivalent to the previously mentioned ISIC categories. Annual trade data from the Organization for Economic Cooperation and Development, Trade Series C (Paris: OECD, various issues) were used in forming the import penetration ratios. These data were benchmarked to form quarterly data using the procedure of Denton (1971). The benchmark data comprised quarterly trade data from the previously mentioned German and British statistical publications and the OECD’s Trade Series A (Paris, various issues). In the case of the United Kingdom, the quarterly import penetration ratios for the iron and steel industry in the year 1980 and for the transport equipment industry in the years 1976-78 proved unreliable; hence they were omitted from the estimations in Table 1 of the text. Estimations for these two industries using annual data over the period 1963-80 did not produce significantly different results from those reported in Table 1. In Chart 3, the graph of the import penetration ratio for the transport equipment industry is interpolated between 1975 and 1979. The data on production for all three countries were taken from the previously mentioned United Nations publication and the OECD’s Indicators of Industrial Activity (Paris, various issues).

The trade variable used is an index series of the volume of merchandise imports plus exports. The data were taken from the IFS.

Dummy variables were used in two of the estimated equations for Germany. For the clothing industry, a dummy variable was used to account for the Multi-Fiber Arrangement (MFA) that went into effect on January 1, 1974. Before that date the dummy variable is equal to unity; afterward it is equal to zero. For the German transport equipment industry, a dummy variable was used to account for rising oil prices. The dummy variable is equal to zero through the fourth quarter of 1973. Afterward it equals 1 except in the third quarter of 1978, third quarter of 1979, and from the second quarter of 1980 through the fourth quarter of 1980, when it equals 2.

REFERENCES

  • Anjaria, Shailendra J., Zubair Iqbal, Naheed Kirmani, and Lorenzo L. Perez, Developments in International Trade Policy, Occasional Paper No. 16 (Washington: International Monetary Fund, November 1982).

    • Search Google Scholar
    • Export Citation
  • Beenstock, Michael, and Peter Warburton, “Long-Term Trends in Economic Openness in the United Kingdom and the United States,” Oxford Economic Papers (London), Vol. 35 (March 1983), pp. 130-42.

    • Search Google Scholar
    • Export Citation
  • Bergsten, C. Fred, and William R. Cline, “Trade Policy in the 1980s: An Overview,” in Trade Policy in the 1980s, ed. by William R. Cline (Washington: Institute for International Economics, 1983), pp. 5998.

    • Search Google Scholar
    • Export Citation
  • Bergsten, C. Fred, and John Williamson, “Exchange Rates and Trade Policy,” in Trade Policy in the 1980s, ed. by William R. Cline (Washington: Institute for International Economics, 1983), pp. 99120.

    • Search Google Scholar
    • Export Citation
  • Berndt, E.K., B.H. Hall, R.E. Hall, and J.A. Hausman, “Estimation and Inference in Nonlinear Structural Models,” Annals of Economic and Social Measurement (New York), Vol. 3 (October 1974), pp. 65365.

    • Search Google Scholar
    • Export Citation
  • Boughton, James M., “Exchange Rate Movements and Adjustment in Financial Markets: Quarterly Estimates for Major Currencies,” Staff Papers, International Monetary Fund (Washington), Vol. 31 (September 1984), pp. 44568.

    • Search Google Scholar
    • Export Citation
  • Cline, William R., ed., Trade Policy in the 1980s (Washington: Institute for International Economics, 1983).

  • Cline, William R., Exports of Manufactures from Developing Countries: Performance and Prospects for Market Access (Washington: The Brookings Institution, 1984).

    • Search Google Scholar
    • Export Citation
  • Corden, W.M., The Revival of Protectionism, Occasional Paper No. 14 (New York: Group of Thirty, 1984).

  • Deardorff, Alan V., Robert M. Stern, and Mark N. Greene, “The Sensitivity of Industrial Output and Employment to Exchange Rate Changes,” in Trade and Payments Adjustment Under Flexible Exchange Rates, ed. by John P. Martin and Alasdair Smith (London: Macmillan for the Trade Policy Research Centre, 1979).

    • Search Google Scholar
    • Export Citation
  • Denton, Frank T., “Adjustment of Monthly or Quarterly Series to Annual Total: An Approach Based on Quadratic Minimization,” American Statistical Association Journal (Washington), Vol. 66 (March 1971), pp. 99102.

    • Search Google Scholar
    • Export Citation
  • Goldstein, Morris, and Mohsin S. Khan, “Income and Price Effects in Foreign Trade,” in Handbook of International Economics, Vol. 2, ed. by Ronald W. Jones and Peter B. Kenen (Amsterdam: North-Holland, 1984; New York: Elsevier, 1984), pp. 10411105.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, Issues in the Assessment of the Exchange Rates of Industrial Countries: A Study by the Research Department of the International Monetary Fund, Occasional Paper No. 29 (Washington, July 1984).

    • Search Google Scholar
    • Export Citation
  • Stern, Robert M., Jonathan Francis, and Bruce Schumacher, Price Elasticities in International Trade (London: Macmillan for the Trade Policy Research Centre, 1976).

    • Search Google Scholar
    • Export Citation

SUMMARIES

Interest Rate Determination in Developing Countries: A Conceptual Frameworksebastian edwards and mohsin s. khan (pages 377-403)

As some developing countries move toward more liberalized financial systems, policymakers in these countries face the question of how interest rates respond to foreign influences and domestic policies. Most existing studies of interest rates typically treat only the extreme cases, either of a fully open economy, in which some form of interest rate arbitrage holds, or of a completely closed economy, in which interest rates are determined solely by domestic monetary factors. Developing economies, however, in general fall somewhere between these two extremes, so that the standard models of interest rate determination would not seem to be relevant to them.

The purpose of this paper is to outline a theoretical framework that can serve as a starting point for analyzing interest rate behavior in those developing countries that are in the process of removing controls on the financial sector and restrictions on capital flows. The approach suggested here combines elements of models developed for both closed and open economies; thus it is able to incorporate the influences on domestic interest rates of foreign interest rates, expected changes in exchange rates, and domestic monetary developments. An interesting feature of the model presented is that the approximate degree of financial openness, defined as the extent to which domestic interest rates are linked to foreign interest rates, can be determined from the data of the country analyzed.

To illustrate the empirical validity of the proposed model, it was applied to two countries—Colombia and Singapore. These two countries are quite different in their degrees of financial development and openness, and thus they provide a useful first test of the general nature of the model. The model is able to represent both these cases quite adequately. The estimates indicate that in Colombia both foreign and domestic factors are important, whereas domestic interest rates in Singapore are fully determined by foreign interest rates and by variations in the exchange rate. These results are precisely those expected, given the characteristics of the respective financial systems in the two countries.

Exchange Rate Changes and Exports of Selected Japanese Industriesdaniel citrin (pages 404-29)

This paper presents the results of an empirical investigation of the impact over time of exchange rate variation on export prices and volumes of three major Japanese industries—motor vehicles, consumer electronics, and iron and steel. Statistical analysis is based on a theoretical model that specifies the following dynamic elements in the adjustment of export prices and volumes: the extent to which, over time, suppliers pass through an exchange rate change to the price of exports quoted in foreign currencies; the impact of relative export price expectations on the response of export orders (demand) to relative export price changes; lags in the adjustment of export orders (demand) to relative export price changes; and delivery lags between orders and shipments.

Since doubt on the efficiency of the exchange rate as a tool for achieving adjustment in Japan’s trade account may be a motive for the adoption of various protectionist measures by some of Japan’s major trading partners, determining the extent to which the exchange rate influences trade flows is especially relevant in the Japanese context. Consequently, the study looks at five specific export products: subcompact passenger cars, color television sets, and, in the steel industry, heavy steel plate, tin plate, and galvanized steel sheet. Analysis on a disaggregate basis reflects theoretical considerations and a recognition that tensions between Japan and its trading partners have tended to focus on specific industries in recent years.

The statistical analysis suggests several conclusions. For all five Japanese export items, the impact of exchange rate changes on exports is subject to lags on both the supply and the demand side, with the adjustment of demand being particularly slow. Furthermore, prices of foreign competitors appear to have a significant influence on the pricing decisions of suppliers. As a result, in the long run as well as in the short run, exchange rate changes are not fully passed through to export prices quoted in foreign currency. The analysis indicates that exchange rate effects differ by product. The exchange rate does seem to be an effective tool for adjusting exports of Japanese subcompact passenger cars and color televisions, even though adjustment may be particularly slow in the case of automobiles. Nevertheless, it does not seem to be as effective with respect to Japan’s iron and steel industry. In fact, for the three products analyzed in this industry, export values in foreign currency are estimated to increase subsequent to appreciation of the yen exchange rate.

Debt-Equity Ratios of Firms and Interest Rate Policy: Macroeconomic Effects of High Leverage in Developing Countriesv. sundararajan (pages 430-74)

The paper analyzes the macroeconomic consequences that flow from enterprises’ financing their investment with a large share of debt in relation to equity. For developing countries characterized by segmented financial markets, controls on the banking system, and substantial reliance on debt, including external debt, the paper develops a model of saving, investment, portfolio adjustments by savers, and adjustments in the financial structure of firms. The model is used to analyze the impact of interest rate policy on stability and investment incentives.

The major conclusions are as follows. The debt-equity ratios of firms make a sizable difference in the impact of national stabilization policies, particularly interest rate policies. When debt ratios used by firms are large, pursuit by the authorities of a passive interest rate policy—that is, maintaining the controlled interest rate unchanged when inflation changes—can lead to macroeconomic instability characterized by perverse effects of monetary policy and accelerating inflation or deflation. Therefore, in economies in which firms are highly leveraged, appropriate adjustments in the real administered interest rate become necessary to achieve macroeconomic stability. An increase in the real interest rate to ensure stability, however, reduces saving and investment whenever the debt-equity ratio of firms in the aggregate exceeds a safe limit. This limit depends mainly on the interest sensitivity of saving, but it is also influenced by a variety of other considerations, such as the initial conditions in domestic financial markets, induced adjustments in the debt ratio, the maturity structure of domestic and foreign currency loans, and exchange rate policy.

In view of these implications of the high leverage of nonfinancial firms, an evaluation of the financial structure of firms and the underlying institutional framework of the financial system is important for a proper assessment of the impact of stabilization policies. Often the effectiveness of stabilization policies, particularly of interest rate policies, can be enhanced by implementing appropriate financial reform measures that include steps to lower the debt-equity ratios of firms (for example, promoting corporate saving or establishing debt-equity norms), to reduce segmentation in the financial markets, and to minimize interest subsidies. Such policies can contribute not only to macroeconomic stability, but also eventually to reducing the cost, in growth forgone, of stabilization policies.

Effects of Exchange Rate Volatility on Trade: Some Further Evidencepadma gotur (pages 475-512)

A recent survey of the empirical studies examining the effects of exchange rate volatility on international trade concluded that “the large majority of empirical studies… are unable to establish a systematically significant link between measured exchange rate variability and the volume of international trade, whether on an aggregated or on a bilateral basis” (International Monetary Fund, Exchange Rate Volatility and World Trade, Washington, July 1984, p. 36). A recent paper by M.A. Akhtar and R.S. Hilton (“Exchange Rate Uncertainty and International Trade,” Federal Reserve Bank of New York, May 1984), in contrast, suggests that exchange rate volatility, as measured by the standard deviation of indices of nominal effective exchange rates, has had significant adverse effects on the trade in manufactures of the United States and the Federal Republic of Germany.

The purpose of the present study is to test the robustness of Akhtar and Hilton’s empirical results, with their basic theoretical framework taken as given. The study extends their analysis to include France, Japan, and the United Kingdom; it then examines the robustness of the results with respect to changes in the choice of sample period, volatility measure, and estimation techniques.

The main conclusion of the analysis is that the methodology of Akhtar and Hilton fails to establish a systematically significant link between exchange rate volatility and the volume of international trade. This is not to say that significant adverse effects cannot be detected in individual cases, but rather that, viewed in the large, the results tend to be insignificant or unstable. Specifically, the results suggest that straightforward application of Akhtar and Hilton’s methodology to three additional countries (France, Japan, and the United Kingdom) yields mixed results; that their methodology seems to be flawed in several respects, and that correction for such flaws has the effect of weakening their conclusions; that the estimates are quite sensitive to fairly minor variations in methodology; and that “revised” estimates for the five countries do not, for the most part, support the hypothesis that exchange rate volatility has had a systematically adverse effect on trade.

Real Exchange Rates, Import Penetration, and Protectionism in Industrial Countrieseric v. clifton (pages 513-36)

The paper addresses the interaction between exchange rate appreciation and increased protection, specifically nontariff trade barriers, in terms of a two-stage process. In the first stage, an appreciating real exchange rate leads to increases in import penetration beyond what would typically accompany the normal growth of international trade. In the second stage, rising import penetration leads to increased protection, a result that has been fairly well established by recent empirical studies.

The paper tests for the occurrence of the first stage by estimating industry-level import penetration ratios as functions of industry-level real exchange rates and the level of a country’s aggregate international trade. For the statistical tests, indices of real exchange rates at the industry level for textiles, clothing, iron and steel, and transport equipment are used that were derived for the United States, the Federal Republic of Germany, and the United Kingdom. The empirical work suggests that, as the real exchange rate of a given domestic industry begins to appreciate, import penetration—as distinct from the level of imports—in that industry is likely to increase. Over time, of course, the level of import penetration can be expected to rise in sectors in which domestic producers are relatively less efficient than foreign producers as international trade expands in response to the forces of comparative advantage. The estimates in the paper suggest, however, that an appreciating real exchange rate is associated with increases in import penetration beyond what can be accounted for by the secular growth of international trade.

The analysis also shows how the empirical results can be used to estimate some of the economic effects of trade restrictions. A quantitative illustration is developed to demonstrate how a policy to restrict import penetration into markets served by a given domestic industry will lead to measurable increases in economic rents for domestic producers in the form of a depreciation of the “shadow” real exchange rate for that industry.

RESUMES

Détermination du taux d’intérêt dans les pays en développement: cadre théoriquesebastian edwards en mohsin s. khan (pages 377-403)

Au moment où certains pays en développement se rapprochent de systèmes financiers plus libéraux, leurs dirigeants se préoccupent de la façon dont les taux d’intérêt réagissent aux influences extérieures et aux politiques intérieures. Dans la plupart des études consacrées aux taux d’intérêt, les auteurs ne traitent habituellement que les cas extrêmes: soit une économie pleinement ouverte, oú la détermination des taux en question fait l’objet d’un arbitrage sous une forme ou sous une autre, soit, au contraire, une économie complètement fermée, oú seuls les facteurs monétaires intérieurs les déterminent. Les économies en développement se situent cependant, en général, entre ces deux pôles, de sorte que les modèles types de détermination ne semblent pas leur être applicables.

Les auteurs de la présente étude se sont donné pour tâche d’esquisser un cadre théorique susceptible de servir de base à l’analyse du comportement des taux d’intérêt dans les pays en développement où les autorités sont en train d’abolir les contrôles qu’elles exeréaient sur le secteur financier, ainsi que les restrictions en matière de mouvements de capitaux. La méthode qu’ils proposent associe les éléments de modèles élaborés aussi bien pour les économies fermées que pour les économies ouvertes; elle peut donc tenir compte des influences exercées sur les taux d’intérêt intérieurs par leurs contreparties extérieures, les variations prévues des taux de change et l’évolution monétaire intérieure. Le modèle présenté se distingue par une caractéristique intéressante: en se basant sur les données du pays analysé, on peut déterminer son degré d’ouverture financière approximative, défini comme la mesure dans laquelle les taux d’intérêt intérieurs sont liés à ceux du dehors.

Pour montrer la validité empirique du modèle proposé, les auteurs l’ont appliqué à deux pays: la Colombie et Singapour. Comme ces deux pays se trouvent à des degrés de développement financier et d’ouverture tout à fait différents, ils fournissent un premier test utile de la nature générale du modèle, qui est capable de représenter ces deux cas de façon très satisfaisante. D’après les estimations, en Colombie les facteurs extérieurs et intérieurs sont, les uns comme les autres, importants, tandis qu’à Singapour les taux d’intérêt intérieurs sont entièrement déterminés par les taux de l’étranger et les variations du taux de change. Etant donné les particularités des systèmes financiers respectifs dans les deux pays, ces résultats correspondent exactement à ceux que l’on attendait.

Variations du taux de change et exportations de diverses industries japonaisesdaniel citrin (pages 404-29)

L’auteur présente les résultats d’une recherche empirique relative aux effets que produisent, à la longue, les fluctuations du taux de change sur les prix et les volumes à l’exportation de trois grandes industries japonaises: les automobiles, l’électronique grand public, le fer et l’acier. Il fonde son analyse statistique sur un modèle théorique spécifiant les éléments dynamiques suivants dans l’ajustement des prix et des volumes à l’exportation: la mesure dans laquelle, à la longue, les fournisseurs répercutent une modification du taux de change sur les prix d’exportation libellés en devises; les effets des anticipations, en matière de prix relatif à l’exportation, sur la réaction des commandes de l’étranger (demande) aux variations du prix relatif à l’exportation; les retards de l’ajustement des commandes de l’étranger (demande) aux variations du prix relatif à l’exportation; et les décalages de livraison entre commandes et expéditions.

Les doutes nourris au sujet de l’efficacité du taux de change comme instrument d’ajustement de la balance commerciale du Japon peuvent inciter certains de ses principaux partenaires commerciaux à adopter diverses mesures protectionnistes: dans le contexte de ce pays, il importe donc tout particulièrement de déterminer jusqu’à quel point le taux de change influence les courants d’échange. L’auteur, dans son étude, examine cinq produits d’exportation: les petites automobiles, les récepteurs de télévision en couleurs et, dans l’industrie de l’acier, la grosse tôle, la ferblanterie et la tôle d’acier galvanisé. L’analyse sur base désagrégée s’inspire de considérations théoriques et reconnaît, implicitement, que les tensions entre le Japon et ses partenaires commerciaux ont eu pour origine, ces dernières années, certaines industries bien précises.

Diverses conclusions se dégagent de l’analyse statistique. Pour les cinq produits d’exportation sur lesquels porte l’étude, l’incidence des variations du taux de change est sujette à des décalages, tant du côté de l’offre que de la demande; l’ajustement de celle-ci est particulièrement lent. Qui plus est, semble-t-il, les prix exigés par les concurrents étrangers influencent beaucoup les décisions des fournisseurs en matière de calcul des prix. A longue échéance comme à court terme, donc, les variations de taux de change ne sont pas intégralement répercutées par le biais des prix à l’exportation exprimés en devises. L’analyse montre que les effets du taux de change varient selon le produit. Il semble vraiment que ce taux constitue un instrument efficace lorsqu’il s’agit d’ajuster les exportations de petites voitures et de récepteurs de télévision japonais, même si l’ajustement est des plus lents dans le cas des automobiles. Il ne semble pas aussi efficace, en revanche, pour ce qui est de la sidérurgie nipponne. En fait, pour les trois produits analysés dans cette industrie, on estime que les valeurs à l’exportation en devises n’augmentent qu’après une appréciation du taux de change du yen.

Ratio d’endettement des entreprises et politique de taux d’intérêt: effets macroéconomiques du niveau élevé de ce ratio dans les pays en développementv. sundararajan (pages 430-74)

Cette étude est consacrée à une analyse des conséquences qu’entraîne, sur le plan macroéconomique, le comportement des entreprises qui financent leurs investissements au moyen d’un pourcentage élevé de capitaux d’emprunt par rapport aux capitaux propres. Appliquée aux pays en développement, lesquels sont caractérisés par des marchés de capitaux compartimentés, des systèmes bancaires réglementés et un recours important à l’endettement, notamment l’endettement extérieur, cette étude propose un modèle qui met en parallèle les ajustements opérés par les épargnants sur leurs économies et leurs investissements, et les ajustements correspondants de la structure financière des entreprises. Ce modèle permet d’analyser l’incidence d’une politique de taux d’intérêt sur la stabilité économique et les incitations à investir.

Les principales conclusions auxquelles aboutit l’étude sont les suivantes: l’efficacité des politiques nationales de stabilisation, notamment des politiques en matière de taux d’intérêt, dépend pour une large part des ratios d’endettement des entreprises. Quand ces ratios sont élevés, une politique passive en matière de taux d’intérêt—c’est-à-dire le maintien d’un taux d’intérêt réglementé alors que le taux d’inflation varie—peut entraîner, sur le plan macroéconomique, une certaine instabilité caractérisée par des effets pervers sur le plan monétaire et une accélération de l’inflation ou de la déflation. Par conséquent, dans les pays où les entreprises ont un fort degré d’endettement, il devient nécessaire, pour assurer la stabilité sur le plan macroéconomique, de procéder à des ajustements adéquats du taux d’intérêt réglementé réel. Toutefois, un relèvement du taux d’intérêt réel en vue d’assurer la stabilité entraîne une diminution de l’épargne et de l’investissement chaque fois que le ratio d’endettement global des entreprises dépasse une limite raisonnable. Cette limite dépend essentiellement du degré d’élasticité de l’épargne par rapport aux taux d’intérêt, mais elle est également fonction d’une série d’autres facteurs, notamment la situation initiale des marchés financiers nationaux, les ajustements induits du ratio d’endettement, l’étalement des échéances des emprunts en monnaie locale et en devises, enfin la politique de taux de change.

Etant donné qu’un ratio d’endettement élevé entraîne de telles conséquences, il est important, pour déterminer avec précision l’incidence des politiques de stabilisation, d’évaluer la structure financière des entreprises et le cadre institutionnel du système financier dans lequel elles s’insèrent. L’efficacité des politiques de stabilisation, en particulier des politiques de taux d’intérêt, peut souvent être renforcée par la mise en place de réformes financières appropriées qui comportent notamment des mesures visant à faire baisser le ratio d’endettement des entreprises (par exemple, en encourageant l’épargne des entreprises ou en établissant des normes d’endettement), à réduire la compartimentation des marchés de capitaux et à limiter au maximum les bonifications d’intérêt. Des mesures de ce type peuvent contribuer non seulement à la stabilité sur le plan macroéconomique, mais aussi, finalement, à une réduction du coût en évitant le sacrifice de gains de croissance des politiques de stabilisation.

Effets de l’instabilité des taux de change sur le commerce mondial: nouvelles constatationspadma gotur (pages 475-512)

Un récent aperçu des études empiriques consacrées aux effets de l’instabilité des taux de change sur le commerce international conclut que «dans leur grande majorité, les études empiriques… ne réussissent pas à établir un lien significatif et systématique entre la variabilité mesurée des taux de change et le volume du commerce international, que celui-ci soit exprimé sous forme globale ou bilatérale» (Fonds monétaire international, Exchange Rate Volatility and World Trade, Washington, juillet 1984, page 36). Par contre, un article publié récemment par M. A. Akhtar et R.S. Hilton («Exchange Rate Uncertainty and International Trade», Federal Reserve Bank of New York, mai 1984) soutient que l’instabilité des taux de change, mesurée par l’écart type des indices des taux de change effectifs nominaux, a eu un effet défavorable significatif sur le commerce de produits manufacturés des Etats-Unis et de la République fédérale d’Allemagne.

La présente étude a pour objet d’évaluer la solidité des résultats empiriques présentés par Akhtar et Hilton, en prenant comme donné leur cadre théorique de base. L’auteur étend l’analyse au cas de la France, du Japon et du Royaume-Uni; elle cherche ensuite dans quelle mesure ces résultats restent valables si l’on modifie la période de référence, la mesure de l’instabilité et les techniques d’estimation.

La principale conclusion de cette étude est que la méthode utilisée par Akhtar et Hilton n’établit pas de lien significatif et systématique entre l’instabilité des taux de change et le volume du commerce international. Ceci ne veut pas dire que l’on ne puisse pas constater dans certains cas particuliers des effets défavorables significatifs, mais plutôt que, pris dans leur ensemble, les résultats sont peu significatifs ou peu stables. Plus précisément, cette étude laisse entendre qu’une application systématique de la méthode d’Akhtar et Hilton à trois pays supplémentaires (France, Japon et Royaume-Uni) donne des résultats mitigés; que leur méthode semble présenter plusieurs défauts et que la correction de ces défauts a pour effet d’affaiblir la portée de leurs conclusions; que leurs estimations sont très sensibles à des variations relativement mineures de la méthode utilisée et que la plupart des estimations «révisées» pour les cinq pays ne confirment pas l’hypothèse selon laquelle l’instabilité des taux de change aurait eu un effet systématiquement négatif sur le commerce international.

Taux de change réels, pénétration des importations et protectionnisme dans les pays industrialiséseric v. clifton (pages 513-36)

Cette étude traite de l’interaction entre la hausse du taux de change et la montée du protectionnisme, principalement les barrières commerciales non tarifaires, selon un processus en deux étapes. Dans un premier temps, l’augmentation du taux de change conduit à un accroissement de la pénétration des importations supérieur à celui qui accompagnerait en principe la croissance normale du commerce international. Pendant la seconde étape, l’accroissement de la pénétration des importations conduit à une montée du protectionnisme, résultat qui a été en grande partie confirmé par des travaux empiriques récents.

L’auteur teste le déroulement de la première étape en estimant les ratios de la pénétration des importations au niveau des industries en fonction des taux de change réels dans l’industrie et du volume du commerce extérieur global d’un pays. Pour les tests statistiques, l’auteur utilise des indices de taux de change réels pour les industries du textile, de l’habillement, du fer et de l’acier et des matériels de transport; ces indices ont été calculés pour les Etats-Unis, la République fédérale d’Allemagne et le Royaume-Uni. Il ressort des données étudiées que, lorsque le taux de change réel pour une industrie nationale donnée commence à s’apprécier, la pénétration des importations—qui est distincte du volume des importations—dans cette industrie a tendance à s’accroître. Il est, évidemment, normal qu’au fil des années le degré de pénétration des importations augmente dans les secteurs où les producteurs nationaux sont relativement moins efficients que les producteurs étrangers, puisque le commerce international se développe du fait du jeu des avantages comparatifs. Toutefois, d’après les estimations présentées dans le document, il semble bien qu’une hausse du taux de change réel s’accompagne d’un accroissement de la pénétration des importations supérieur à celui qui peut s’expliquer par la croissance tendancielle du commerce international.

Dans son analyse, l’auteur indique aussi comment les résultats empiriques peuvent servir à estimer certains effets économiques des restrictions commerciales. A l’aide d’un exemple chiffré, il montre comment une politique visant à limiter la pénétration des importations sur les marchés approvisionnés par une industrie intérieure donnée conduira à des augmentations mesurables des rentes économiques des producteurs nationaux sous forme d’une baisse du taux de change réel «virtuel» pour cette industrie.

RESUMENES

Determinación de los tipos de interés en los países en desarrollo: Un marco conceptualsebastian edwards y mohsin s. khan (páginas 377-403).

A medida que algunos países en desarrollo van adoptando sistemas financieros más liberales, quienes elaboran su política económica tienen que determinar la forma en que los tipos de interés reaccionan ante las influencias exteriores y de la política interna. Lo tradicional en la mayoría de los estudios existentes sobre tipos de interés es considerar sólo los casos extremos: una economía totalmente abierta en la que se da alguna forma de arbitraje de los tipos de interés, o una economía totalmente cerrada en la cual los tipos de interés resultan exclusivamente de la acción de factores monetarios internos. Pero las economías en desarrollo, por lo general, se encuentran a mitad de camino entre esos dos extremos, por lo cual no les serán aplicables los modelos estándar de determinación de los tipos de interés.

La finalidad del presente trabajo consiste en esbozar un marco teórico que sirva de punto de partida para analizar la evolución de los tipos de interés en los países en desarrollo que han comenzado a eliminar los controles al sector financiero y las restricciones a las corrientes de capital. En el enfoque aquí sugerido se combinan elementos extraídos de modelos elaborados para economías cerradas y para economías abiertas, lo cual permite incorporar los efectos de los tipos de interés externos, de la variación prevista de los tipos de cambio y de la evolución monetaria interna sobre los tipos de interés internos. Una característica interesante del modelo presentado es que permite determinar el grado aproximado de apertura financiera—que se define como la medida en que los tipos de interés internos están vinculados a los externos—mediante el examen de los datos del país analizado.

A modo de ejemplo de la validez empírica del modelo propuesto, se le aplicó a dos países: Colombia y Singapur. Estos dos países difieren considerablemente en cuanto al grado de apertura y desarrollo financieros, por lo cual resultan idóneos para una primera comprobación de la aplicabilidad general del modelo. Este logra representar ambos casos muy adecuadamente. Las estimaciones indicaron que en Colombia tanto los factores externos como los internos revisten importancia, en tanto que en Singapur los tipos de interés internos están determinados exclusivamente por los tipos de interés externos y por las variaciones del tipo de cambio. Esto es precisamente lo que cabía esperar de acuerdo con las características del sistema financiero de estos dos países.

Las variaciones de los tipos de cambio y las exportaciones de industrias japonesas seleccionadasdaniel citrin (páginas 404-29)

El presente trabajo expone los resultados de una investigación empírica acerca de la influencia a lo largo del tiempo de la variación de los tipos de cambio sobre los precios y los volúmenes de exportación de tres de las principales industrias japonesas: la del automóvil, la de aparatos electrónicos para el consumidor y la siderurgia. El análisis estadístico se basa en un modelo teórico que especifica los siguientes elementos dinámicos del ajuste de los precios y volúmenes de exportación: el grado en que, con el transcurso del tiempo, los proveedores trasladan las variaciones del tipo de cambio a las exportaciones con precio marcado en moneda extranjera; el impacto de las expectativas relativas de los precios de exportación sobre la reacción de los pedidos (la demanda) de exportación ante la variación relativa de los precios de exportación; el desfase del ajuste de los pedidos (la demanda) de exportación ante la variación relativa de los precios de exportación, y el desfase entre el pedido y la entrega.

Como las dudas acerca de la eficacia del tipo de cambio como instrumento para lograr el ajuste de la cuenta comercial de Japón pueden hacer que algunos de los principales países con los cuales éste comercia adopten diversas medidas proteccionistas, es especialmente importante en el contexto japonés averiguar en qué medida el tipo de cambio influye sobre las corrientes comerciales. Para ello se examinan en el documento cinco productos de exportación específicos: automóviles de pasajeros subcompactos, televisores a color y, en la siderurgia, chapa pesada, chapa de estaño y lámina de acero galvanizado. Se ha optado por el análisis desagregado en virtud de consideraciones teóricas y en reconocimiento de que en los últimos años las tensiones reinantes entre Japón y los países con los cuales éste comercia se han concentrado por lo general en industrias específicas.

Del análisis estadístico se desprenden varias conclusiones. El impacto de la variación del tipo de cambio sobre la exportación de los cinco productos japoneses mencionados presenta desfases tanto en el lado de la oferta como en el de la demanda, siendo particularmente lento el ajuste en esta última. Además, los precios de demanda de los competidores extranjeros parecen ejercer una influencia significativa sobre las decisiones de los proveedores en materia de precios. Como consecuencia, el efecto de la variación de los tipos de cambio no se traslada enteramente, ni a largo ni a corto plazo, a los precios de las exportaciones citados en divisas. Del análisis se deduce que los efectos de los tipos de cambio varían según los productos de que se trate. Efectivamente, el tipo de cambio parece ser un instrumento eficaz para ajustar la exportación de automóviles de pasajeros subcompactos y de televisores en color japoneses, si bien el ajuste puede ser especialmente lento en el caso de los automóviles. En cambio, parece ser menos eficaz en lo que se refiere a la industria siderúrgica. De hecho, se estima que los valores de exportación en divisas de los tres productos analizados en esta industria sólo aumentan cuando se aprecia el tipo de cambio del yen.

Las razones deuda/capital de las empresas y la política de tipo de interés: Efectos macroeconómicos de los coeficientes de endeudamiento elevados en los países en desarrollov. sundararajan (páginas 430-74)

En este trabajo se analizan las consecuencias macroeconómicas derivadas de que las empresas financien sus inversiones con una proporción elevada de deuda en relación con los recursos propios. Se construye un modelo de ahorro, inversión, ajuste de la cartera del ahorrista y ajuste de la estructura financiera de las empresas para países en desarrollo que se caracterizan por mercados financieros segmentados, controles del sistema bancario y planificación económica basada sustancialmente en la deuda, incluida la deuda externa. El modelo se usa para analizar el impacto de la política de tipo de interés en la estabilidad y los incentivos a la inversión.

Las principales conclusiones son las siguientes. Las razones deuda/capital de las empresas hacen variar considerablemente el impacto de las políticas de estabilización nacional, en especial, las de tipo de interés. Cuando las empresas utilizan elevados coeficientes de endeudamiento, la aplicación por las autoridades de una política pasiva de tipo de interés—o sea, el mantenimiento de un tipo de interés controlado invariable cuando la inflación varía—puede conducir a la inestabilidad macroeconómica, caracterizada por efectos perversos de la política monetaria y aceleración de la inflación o la deflación. De modo que en las economías cuyas empresas tienen un elevado coeficiente de endeudamiento es necesario ajustar en forma apropiada el tipo de interés real administrado para que haya estabilidad macroeconómica. Un aumento del tipo de interés real con ese fin, sin embargo, reduce el ahorro y la inversión cuando la razón deuda/ capital de las empresas en conjunto supera un límite de seguridad. Este límite depende principalmente de la sensibilidad del ahorro respecto al tipo de interés, pero también de varias otras consideraciones, tales como las condiciones iniciales de los mercados financieros nacionales, los ajustes inducidos del coeficiente de deuda, la estructura de vencimientos de los préstamos en moneda nacional y extranjera y la política de tipo de cambio.

Dadas estas repercusiones de los coeficientes de endeudamiento elevados de las empresas no financieras, es importante evaluar la estructura financiera de las empresas y el marco institucional básico del sistema financiero para determinar adecuadamente el impacto de las políticas de estabilización. Muchas veces es posible acrecentar la eficacia de las políticas de estabilización, especialmente las de tipo de interés, aplicando medidas adecuadas de reforma financiera entre las cuales figuren medidas para reducir las razones deuda/capital de las empresas (por ejemplo, la promoción del ahorro empresarial o la adopción de normas sobre las razones deuda/capital), para disminuir la segmentación de los mercados financieros y para minimizar las subvenciones de intereses. Esas políticas además de coadyuvar a la estabilidad macroeconómica, también pueden en definitiva reducir el costo en pérdida de crecimiento de las políticas de estabilización.

Efectos de la inestabilidad de los tipos de cambio en el comercio internacional: Alguna evidencia adicionalpadma gotur (páginas 475-512)

En un examen reciente de los estudios empíricos sobre los efectos de la inestabilidad de los tipos de cambio en el comercio internacional se llega a la conclusión de que “la gran mayoría de estos análisis empíricos no consiguen demostrar sistemáticamente un vínculo significativo entre los diferentes grados de variabilidad cambiaría y el volumen del comercio internacional, tanto sea en términos agregados como bilaterales.” (Fondo Monetario Internacional, Exchange Rate Volatility and World Trade, Washington, julio de 1984, pág. 36). Un estudio reciente de M.A. Akhtar y R.S. Hilton (“Exchange Rate Uncertainty and International Trade,” Banco de la Reserva Federal de Nueva York, mayo de 1984) indica, por el contrario, que la inestabilidad de los tipos de cambio, expresada según la desviación estándar de los índices de los tipos de cambio efectivos nominales, ha tenido efectos negativos considerables en el comercio de productos manufacturados de Estados Unidos y de la República Federal de Alemania.

El presente estudio tiene por objeto comprobar la solidez de los resultados empíricos de Akhtar y Hilton, tomando como base de partida su marco teórico básico. El estudio amplía su análisis incluyendo a Francia, Japón y el Reino Unido, pasando luego a examinar la solidez de los resultados con respecto a variaciones en la selección del período de la muestra, medida de la inestabilidad y técnicas de estimación.

La conclusión principal del análisis es que la metodología de Akhtar y Hilton no logra establecer un vínculo significativo sistemático entre la inestabilidad de los tipos de cambio y el volumen del comercio internacional. Esto no quiere decir que no puedan obsevarse en casos específicos efectos negativos importantes, sino más bien que, en términos generales, los resultados no suelen ser ni considerables ni estables. En concreto, de los resultados se desprende que la aplicación directa de la metodología de Akhtar y Hilton a tres nuevos países (Francia, Japón y el Reino Unido) arroja resultados dispares; que esta metodología parece ser defectuosa en varios aspectos y que la corrección de tales deficiencias tiene como efecto el debilitamiento de sus conclusiones; que las estimaciones son muy sensibles a modificaciones poco importantes de la metodología, y que las estimaciones “revisadas” para los cinco países no confirman, en su mayor parte, la hipótesis de que la inestabilidad de los tipos de cambio ha ejercido un efecto negativo sistemático en el comercio exterior.

Tipos de cambio reales, penetración de las importaciones y proteccionismo en los países industrialeseric v. clifton (páginas 513-36)

En este trabajo se examina la interacción entre la apreciación del tipo de cambio y el aumento del proteccionismo, específicamente las barreras no arancelarias al comercio, como un proceso en dos etapas. En la primera etapa, un tipo real de cambio que se aprecie da lugar a aumentos de la penetración de las importaciones superiores a los que normalmente acompañarían al crecimiento normal del comercio internacional. En la segunda etapa, el aumento de la penetración de las importaciones origina un mayor proteccionismo, resultado bastante respaldado por estudios empíricos recientes.

Se efectúan pruebas de que ha ocurrido la primera etapa estimando los coeficientes de penetración de las importaciones a nivel de las industrias como funciones de los tipos reales de cambio al nivel de las industrias y el nivel del comercio internacional agregado de un país. En las pruebas estadísticas se utilizan índices de los tipos de cambio reales a nivel de las industrias textil, de prendas de vestir, siderúrgica y de equipo de transporte, que se calcularon para Estados Unidos, la República Federal de Alemania y el Reino Unido. El trabajo empírico parece indicar que al empezar a apreciarse el tipo de cambio real de una determinada industria nacional, la penetración de las importaciones—que se diferencia del nivel de importaciones—de esa industria posiblemente aumente. Con el tiempo, desde luego, es de prever que aumente el nivel de la penetración de las importaciones en los sectores en que los productores nacionales son relativamente menos eficientes que los extranjeros, a medida que el comercio internacional se acrecienta ante el impulso de la ventaja comparativa. Sin embargo, las estimaciones de este trabajo indican que un tipo de cambio real que se aprecia está relacionado con aumentos de la penetración de las importaciones superiores a los explicables por el crecimiento secular del comercio internacional.

El análisis indica también cómo pueden utilizarse los resultados empíricos para estimar algunos de los efectos económicos de las restricciones al comercio. Se elabora una ilustración cuantitativa para demostrar la forma en que una política destinada a restringir la penetración de las importaciones en los mercados abastecidos por una determinada industria nacional dará origen a un incremento mensurable de la renta económica de los productores nacionales en forma de depreciación del tipo de cambio real de “sombra” correspondiente a esa industria.

In statistical matter (except in the résumés and resúmenes) throughout this issue,

Dots (…) indicate that data are not available;

A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

A single dot (.) indicates decimals;

A comma (,) separates thousands and millions;

“Billion” means a thousand million, and “trillion” means a thousand billion;

A short dash (-) is used between years or months (for example, 1981-83 or January-October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

A stroke (/) is used between years (for example, 1981/82) to indicate a fiscal year or a crop year;

Components of tables may not add to totals shown because of rounding.

*

Mr. Clifton, an economist in the Western Hemisphere Department, holds degrees from the University of Kentucky and Indiana University. This paper was prepared while he was with the Research Department.

1

This measure is similar to the measure of “real openness” devised by Beenstock and Warburton (1983). Their measure was real imports plus real exports, divided by real gross national product (GNP). Beenstock and Warburton pointed out that this type of measure has the advantage of abstracting from terms of trade movements and responding only to changes in trade volumes. In the real trade measure used in this study, real imports and exports are not divided by real GNP because real GNP contains real net exports, which would be correlated with the real exchange rate variable.

Over a very long sample period it would be appropriate to scale T because IP is theoretically bounded from above by unity. As IP is measured in practice (as in the Market Penetration System Data Base maintained by the World Bank’s Economic Analysis and Projections Department), however, it is not bounded from above because of the possibility that imports are added to inventory or are re-exported. Over the sample period examined in this paper, the relation between IP and T is approximately log-linear. Estimation of the model using a scaled version of T did not produce significantly different results.

2

Such an approach makes the implicit assumption that the selling price of the domestic good is a given proportional markup over the labor cost of production. Of course, restricting the indicator to labor cost alone misses other aspects of the cost of production. Labor cost is, however, a major element in determining the overall cost structure and international competitiveness of the domestic industry. See International Monetary Fund (1984) for a discussion of real exchange rate measures based on unit labor cost.

3

Equivalently, equation (2) can be viewed as the reduced-form relation that summarizes both the supply and the demand functions for the share of imports in the domestic consumption of product C, in the case where the elasticity of the supply of imports is assumed to be infinite. As noted by Goldstein and Khan (1984), it is more plausible to argue that the elasticity of supply is infinite in the case of a country’s imports than in the case of its exports.

4

The issues associated with using this type of lag structure have been extensively covered in the literature, recently by Goldstein and Khan (1984). As noted in footnote 5, alternative specifications of the lag structure did not produce significant variations in the estimates; the choice of a simple partial adjustment model, therefore, appears to have been justified.

5

For example, a version of equation (5) with a dummy variable to account for the effects of trade restrictions was estimated for each case, but the coefficients on the dummy variables were not significant except in the case of the German clothing industry (see Section III). A more complex form of the model, with equation (3) as

Δ2lnIPt=δλ(lnIPt*lnIPt1)δΔlnIPt,

where Δ is the difference operator, was also estimated. This examination did not produce significantly different estimates of β1 and β2. The specification of the adjustment process more simply as text equation (3), which has a geometrically declining lag, does not appear to have biased the estimates of β1 and β2 significantly. Similarly, forms of the model with equation (4) as

lnIPt*=β0+β1lnTt1+β2lnRt1

and

lnIPt*=β0+β1lnTt+β2lnRt1

were also estimated and did not produce significantly different results.

6

The findings of Artus and Knight in International Monetary Fund (1984, Table 2, p. 15) support the assumption that єE, as defined here, is negative. Results reported by Deardorff, Stern, and Greene (1979, Table 5.2, p. 136) support the assumption that єP, as defined here, is negative in the industries examined.

7

Slightly shorter time periods were used for the iron and steel sector (1963-79) and the transport equipment sector (1963-75) in the United Kingdom. For details, see the Appendix.

8

These sectors are as defined at the two-digit Standard International Trade Classification (SITC) level and the three-digit International Standard Industrial Classification (ISIC) level.

9

The statistic that is referred to as the “t-statistic” is actually asymptotically normally distributed.

10

The difference between the shadow real exchange rate and the actual real exchange rate can provide a general impression of the relative severity of protection in various industries. For example, import penetration in two industries might be limited to the same level, but, because of differences between the supply and demand characteristics of the two industries, one receives substantially greater protection. That more protected industry would have a shadow real exchange rate that was relatively more depreciated from its actual real exchange rate.

11

Because of the variable T in the estimated equation, the severity of the import restriction can change over time even if the restriction remains fixed. For example, changes in the overall propensity to import would change the stringency of the import restriction even if factors specific to the industry remain unchanged.

12

The U.S. transport equipment industry was chosen for the example because for it the effects of the posited import restrictions would be particularly severe. In some other cases, a restriction on import penetration might have had little effect over the period from 1981 through mid-1984.

13

The illustration is based on the entire U.S. transport equipment industry, not just on automobiles; the decline in imports in the example is much larger than the decline that actually occurred in the U.S. automobile industry.

14

The “ratchet” effect discussed here is also described in Bergsten and Williamson (1983) and in Corden (1984). A formal test of this hypothesis is not attempted here (or in the two works cited).

IMF Staff papers: Volume 32 No. 3
Author: International Monetary Fund. Research Dept.
  • View in gallery

    Import Penetration Ratios and Real Exchange Rates by Industry, United States, 1963-80

  • View in gallery

    Import Penetration Ratios and Real Exchange Rates by Industry, Federal Republic of Germany, 1963-80

  • View in gallery

    Import Penetration Ratios and Real Exchange Rates by Industry, United Kingdom, 1963-80

  • View in gallery

    Industry-Level Estimated Real Exchange Rates, U.S. Transport Equipment, 1981-mid-1984

  • View in gallery

    Illustration of a Restriction on Import Penetration, U. S. Transport Equipment Industry