The Developing Economies

Volume 37, Number 3 (September 1999)

■ The Developing Economies Volume 37, Number 3 (September 1999)
■ B5
■ 105pp
■ September 1999

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An Econometric Model for India with Emphasis on the Monetary Sector (215KB) / Thangavel Palanivel and Lawrence R. Klein

Book Reviews


Takao Fukuchi and Masayo Satoh, "Technological Distance between Indonesia and Brazil: A Comparative Study of Technical Input Structure," pp. 253-74.

We measured the technological distance between Brazil and Indonesia based on a new definition, and compared it with the economic distance. Indonesia lags behind Brazil by thirty-three years in per capita income, which is the economic distance a la Patel. Similarly we defined technological distance as the years of difference separating a technology when it is at its most similar in the two countries. We compared a series of input coefficient matrices for twenty-eight sectors in Brazil and Indonesia, and calculated the total similarity indices for different pairs of dates, and found that the similarity index became highest when the difference was fifteen years. According to the convergence hypothesis, technological distance is smaller than economic distance because current technology is an international public good. Our conclusion that technological distance is smaller than economic distance empirically supports the view of the convergence hypothesis.

Thangavel Palanivel and Lawrence R. Klein, "An Econometric Model for India with Emphasis on the Monetary Sector," pp. 275-336.

The objective of this paper is to build an econometric model for India with emphasis on the monetary sector for the period 1970/71 to 1994/95. The model is used to project growth paths for the economy from 1998/99 through 2001/2 under alternative policy assumptions. Broadly our model predicts that, although the economy is undergoing a difficult period due to an exceptionally turbulent and unfavorable domestic and external environment, the economy is moving to a higher growth path with a tolerable inflation rate. But, in our view, continued growth depends on whether the country gets back onto the reform agenda which has been held in abeyance for over the last three years. The economy has benefited from the reforms that were put in place in the first half of 1990s. Further gains can not be expected unless more and bolder policy initiatives are taken, particularly in the infrastructure and financial sectors.

Kozo Kunimune, "Exchange Rate Stabilization and IMF High Interest Rate Policy: A Critical Reconsideration Using a Dynamic Model," pp. 337-54.

This paper examines whether the IMF high interest rate policy was suitable for crisis-ridden East Asian economies. Using an "overshoot" model similar to that of Dornbusch's (1976), it shows that this sort of policy might cause an unnecessary deflationary adjusting process and have no effect on containing the real depreciation of exchange rates in the long run. The study also demonstrates that Thai economic data coincides quite well with the model presented here. Finally, it points out that the high interest policy itself might provoke high risk-premium, the existence of which, in turn, justifies the policy. This means that the policy has a self-fulfilling property. In conclusion, a "one-size-fits-all" adaptation of high interest rate policy in a currency crisis is very dangerous in general, and was inappropriate for East Asia. The desirable policy would have been to let currencies depreciate and keep interest rates stable.

Ruhul A Salim and K. P. Kalirajan, "Sources of Output Growth in Bangladesh Food Processing Industries: A Decomposition Analysis, " pp. 355-74.

In this paper the performance of firms in the Bangladesh food processing industries is evaluated in terms of total factor productivity (TFP) growth which is decomposed into the changes in productive capacity realization (PCR) and technical progress (TP). Empirical results show that there is some technological progress in a number of food processing industries. However, the overall poor performance of this sector is due to the low rate of capacity realization of several individual firms, even after the implementation of economic reforms. The results also indicate that output growth in recent years was mainly due to input growth.