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The Developing Economies

Volume 39, Number 2 (June 2001)

The Developing Economies ■ The Developing Economies Volume 39, Number 2 (June 2001)
■ B5
■ 105pp.
■ Published in June 2001
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Takao Fukuchi, "A World Equation," pp. 143-67.

This paper discusses the long-run regional incidence of international factor movement based on the PVU-economy model (1 good, m factors, n countries), and its reduced-form world equation. I applied it to 1990 and 1996 data for 32 countries, and estimated the movement elasticity of labor and capital as 0.00012 and 0.00027. The resulting convergence speed of relative labor productivity showed that a 0.02% convergence rule prevails in the world, while a 2% rule prevails within countries. Although the movement elasticity is small, the forecast based on these values exhibits a strong East/South Asian thrust in which China and India largely increase their long-run GDP shares. The PVU-economy model is an N-countries-related digital long-run growth (NDLG) model, and proposes: (i) an interregional analysis (IRA) to supplement Leontief interindustry analysis (IIA), (ii) the (1-m-n) scheme to supplement the (2-2-2) Ricaradian scheme, (iii) a new convergence model to supplement the neoclassical growth model.

S. I. Cohen, "Stock Performance of Emerging Markets," pp. 168-88.

The purpose of this study is to systematize empirical evidence on stock performances in emerging markets (EM), and develop approaches that highlight intraregional and interregional dependencies. The evidence for 1984-93 shows attractive performances for EM. This stands in sharp contrast with the depressed mood five years later triggered by two major financial crises.
Performance shifts in regional portfolio investment need to be interpreted in the light of diversification advantages, which international investors have in the context of high–risk EM, as compared to the more converging performances of industrial markets. Relative market performance rates are shown to be helpful in tracing induced shifts and diversification advantages behind them.
The paper also considers four Eastern European newcomers in the EM. Their performance shows high correlations with Latin America. This association is not reflective of economic interdependencies in the real sphere, but is due to diversification strategies of international investors.

Mark J. Holmes, "Principal Components, Stationariy, and New Evidence of Purchasing Power Parity in Developing Countries," pp. 189-98.

This study tests for purchasing power parity among a sample of thirty developing countries. For this purpose, a new test is employed which allows one to confirm or reject purchasing power parity on the basis of whether or not the first largest principal component, based on the growth of real exchange rates, is stationary. Using quarterly data covering the period 1973-97, this study finds general support for relative purchasing power parity. Furthermore, these findings modify the view that purchasing power parity is most likely to be found among high inflation countries. Evidence based on this new test suggests that purchasing power parity has held for both high and low inflation countries.

A. F. Odusola and A. E. Akinlo, "Output, Inflation, and Exchange Rate in Developing Countries: An Application to Nigeria," pp. 199-222.

This paper uses vector autoregression (VAR) and its structural variant to analyze the links amongst exchange rate, inflation, and output in Nigeria. The results of the study revealed that official and parallel exchange rate shocks were contractionary in the short run but expansionary in both medium and long terms. Output and parallel exchange rate were major determinants of inflation dynamics in Nigeria. Moreover, official exchange rate shocks increased domestic prices, money supply, and parallel exchange rate. Lastly, domestic lending rate and inflation reduced output in the economy.