Estimating the shadow price of foreign exchange: An illustration from India

Although there has been a rapid growth in the literature urging the use of shadow prices in cost‐benefit analysis, little attention has been devoted to the estimation of shadow prices or to the feasibility of alternative methodologies for estimating a particular shadow price. This paper is a modest contribution toward meeting this gap. By applying a variety of methodologies, a range of values is determined for the shadow price of foreign exchange for India. The paper also demonstrates a general approach to estimating shadow prices, which in turn emerges from an explicit consideration of the costs and expected benefits of the required research and analysis.     

The inflationary impact of repetitive devaluation

It is suggested that in countries which have sustained a significant inflationary condition and, as a consequence, have frequently changed their foreign‐exchange rate, price expectations may be developed on the basis of these changes. In order to examine this hypothesis a macroeconomic model is built and econometric tests are undertaken using quarterly data for Brazil, Chile, and Uruguay. The author warns that since repetitive devaluation‐type policies can fuel price expectations, they may only lead to increased domestic inflationary pressures, balance of trade deficits, and further rounds of devaluation.     

Exchange Rate Pass-through to Import Prices,and Monetary Policy in South Africa

Abstract

Understanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses. This article examines exchange rate pass-through to the monthly import price index in South Africa during 1980–2009. Short-horizon pass-through estimates are calculated using both single equation equilibrium correction models and systems (Johansen) models, controlling for both domestic and foreign costs. Average pass-through is incomplete at about 50 per cent within a year and 30 per cent in six months, and in the long-run, from the Johansen analysis including feedback effects, is about 55 per cent. There is evidence of slower pass-through under inflation targeting; pass-through is found to decline with recent exchange rate volatility and there is evidence for asymmetry, with greater pass-through occurring for small appreciations.     

Output effects of devaluation: Evidence from Asia

We study the effect of devaluation on output in six developing countries of Asia. In an empirical model that includes monetary, fiscal, and external variables, we examine the impact of devaluation as the effect of real exchange depreciation and alternatively as the effect of nominal devaluation and changes in the foreign‐to‐domestic price ratio. We find that with few exceptions a devaluation fails to make any effect on output over any length of time — short run, intermediate run or long run. Whatever effect on output we are able to uncover comes from the relative price level (the ratio of foreign to domestic prices) but not from nominal devaluation.     

Exchange rate policy and price level changes: Casualty tests for Turkey in the post‐liberalisation period

The purpose of the present study is to examine the relationship between exchange rate changes and price level changes in Turkey during the 1980s using some modified Granger causality tests. During this period, Turkish exchange rate policy was characterised by considerable flexibility, in contrast to the long‐standing policy of fixing the exchange rate until a foreign exchange crisis necessitated devaluation. The weight of the evidence presented suggests that Granger causality runs from price level changes to exchange rate changes but that there is not feedback causality from exchange rate changes to price level changes. This conclusion is not altered by the inclusion of a money supply variable. Thus, for Turkey, exchange rate adjustment does not seem to have created a vicious cycle of currency depreciation leading to inflation as is often feared. Whether this result will hold for other developing countries which adopt flexible exchange rate regimes will require further testing.     

Financial market efficiency in an Agrarian economy: Microeconometric analysis of the Pakistani Punjab

The shadow price of capital in production is a useful indicator of the efficacy of the rural financial system. Using data on participants and non‐participants in a small farm credit programme from the Pakistani Punjab, this article estimates the shadow price of capital. Endogenous switching regressions techniques are employed to control for the likely heterogeneity of borrowers versus non‐borrowers. Results indicate that an individual selected at random from the population of small farmers would experience a 200 per cent rate of return on the first rupee borrowed from the small farm credit programme, indicating a high shadow price of capital and a prima facie case for small farm credit programmes.     

Governance,economy, and foreign aid

Much of the current donor discussion of governance takes place outside of a historical or theoretical context. This article locates the governance issue within recent political science, development management, and institutional economics literature. The review focuses on accountability, participation, transparency, and predictability or the rule of law, and includes a discussion of the impact of these variables upon economic performance. It concludes that donors can best assist good governance to develop by helping to foster conditions under which developing societies can push their governments to deliver the accountability, transparency and rule of law that sustainable development requires. Deborah Brautigam is assistant professor in the department of political science at Columbia University. She has written and published on various aspects of foreign aid and development, in particular, on China’s foreign aid program in West Africa. Her current research is on the comparative politics of industrial adjustment in Asia and Africa.     

Private foreign asset accumulation,not just capital flight: Evidence from the Philippines

External debt problems have been accompanied in many developing countries with large private capital outflows. The latter phenomenon is usually identified in the literature as ‘capital flight’. This article argues that private foreign asset accumulation is a more appropriate term and compares a great variety of definitions and measurement methods and applies these to Philippine data for 1971–88. Outcomes show striking differences in assessment of the magnitude of the phenomenon. In the preferred definition of this study applied to the Philippines, unrecorded workers remittances from abroad, a factor omitted in other studies, represent a major source of foreign exchange earnings which indirectly support private foreign asset accumulation. Other definitions appear to severely underestimate private capital outflows. Econometric evidence on the causes of private foreign asset acquisition shows a strong sensitivity to the applied definition. Regression analysis for six alternative definitions shows that the expected real exchange rate depreciation and the real foreign‐domestic interest rate differential are ‐ in line with portfolio theory ‐ important determinants in the case of nearly all alternative measures, except for those that attempt to define a narrow ‘capital flight’ concept. Other determinants found significant are the availability of external finance and the previous year stock of private foreign assets. Debt‐fuelled private capital outflows are associated with the political economy of public external borrowing and the segmented nature of the foreign exchange market in the Philippines. Stock‐adjustment behaviour in the acquisition of private foreign assets in turn is interpreted as being a result of a simultaneous decision‐making process determining consumption demand and portfolio choice of high‐income Philippine households to satisfy demands related to their international lifestyles. These results have important welfare implications and policy consequences.     

Effective exchange rates for exports in Pakistan

Effective exchange rates for exports in Pakistan can be calculated which take into account the major export incentive measures in operation and their divergent treatment of specific exports. This quantification of export policies into an overall measure of the implicit (effective) foreign exchange rate structure permits an evaluation of the impact of export promotion measures on foreign exchange earning capacity. The major export incentive schemes were found to provide the highes’ subsidies to those exports with the highest total import components and the lowest relative earnings of net foreign exchange. Thus de velopment policy in some cases failed adequately to encourage these producers with relatively higher levels of domestic value‐added to export their products.     

A note on the functioning of international commodity price stabilisation agreements in periods of fluctuating monetary exchange rates

A belief held by many government officials and development economists is that sizeable and irregular commodity price fluctuations have important detrimental effects on both exporting and importing countries. Given the nature of these adverse effects attempts have been made to negotiate international price stabilisation agreements under which some central authority would make market interventions to offset the random price fluctuations. However, this study argues that the utility of such agreements should be re‐examined due to the effects of floating exchange rates. Empirical evidence is also presented which shows that recent exchange rate variability has had at least as much of a destabilising influence on commodity export earnings as fluctuating prices, and that the effects are borne unevenly by exporters of the same commodity due to their association with different currency blocks. When examined from the viewpoint of commodity importers the price and exchange rate effects are also found to be very different for individual countries.     

A macroeconomic analysis of agricultural terms of trade in Turkey, 1952–90

A two‐sector model of terms of trade (TOT) determination is developed and tested using time‐series data for Turkey. Empirical results support the structuralist ‘flex‐price agriculture fix‐price industry’ models. TOT is found to be sensitive to changes in nominal demand and the exchange rate. Rising nominal demand turns the TOT in favour of the agricultural sector provided that there are no supply constraints in the industrial sector. If industrial supply is constrained by import bottlenecks, then aggregate demand expansion turns the TOT in favour of the industrial sector. Devaluation turns the TOT against the agricultural sector primarily via the cost‐push factors in the industrial sector.     

The use of export projections in allocating foreign aid among and domestic resources within developing countries

Foreign exchange shortages have been considered by many economists as the effective restraint to growth in the developing world. This is especially the case insofar as less developed countries (LDC's) are limited in their capacity to purchase imports from abroad that are needed to complement domestic factors of production. Exports obviously play an important role in this context since they constitute the primary source of foreign exchange for most LDC's. It is for this reason that a number of projections of future export earnings of LDC's have been made. These projections are presumably useful in decision making of various kinds. However, there is not much evidence that would indicate ways in which the projections have been or might conceivably be used. The purpose of this paper, accordingly, is to examine two such possible uses of export projections in connection with: (i) the allocation of foreign aid by donor countries among LDC's; and (2) the allocation of resources over time in individual LDC's.     

The effectiveness of rural versus urban nonprofit organisations in the Democratic Republic of Congo

The Democratic Republic of Congo (DRC) is a country with high natural resources, but it has suffered from decades of civil wars and social turmoil, being heavily aid-dependent. In the DRC, several Nonprofit Organisations (NPOs) are major players in fighting poverty and enhancing welfare. This research aims to analyse the effectiveness of small NPOs in improving poor peoples’ lives through health, education, and economic activities. Two NPOs working in the DRC, one in a rural and the other in an urban area, are compared by researching the aid sites and surveying 201 households (aid beneficiaries). Our case observations and the survey results facilitate analysing the mission accomplishment, effectiveness, and accountability of the NPOs although we admit that the DRC conditions make exact measurements difficult. Multivariate analyses are used to study the differences in aid impacts. There are significant differences in the beneficiaries’ perception of the NPO effectiveness in improving health while no significant differences in education impact were found. This is probably because both case NPOs have succeeded in getting a large proportion of the children of their area registered in the education centres created by the NPOs. Differences were observed in the accountability and reporting style of the NPOs.     

Unanticipated capital flows and the Mexican economy: An empirical investigation

This research explores the differential impact of unanticipated and anticipated foreign capital flows on Mexico's economy for the period 1965–85. If unanticipated flows cause appreciation of the real exchange rate and do not affect domestic expenditure, one can assume that the country's foreign exchange constraint is not binding. Based on empirical evidence, this hypothesis can be rejected. The implication is that Mexico's problems probably do not stem from overborrowing. Anticipated capital flows do affect private spending, but a negative coefficient suggests that the private sector has borne the brunt of post‐crisis adjustment. The results show that the Mexican government has dominated the expenditure of foreign loans throughout the period.     

Active resistance to democratic diffusion

Recent research on the international diffusion of democracy has focused on demonstrating how diffusion can change regime outcomes. Although there is still debate within the field of democratization over how important democratic diffusion is relative to domestic factors, autocratic leaders believe that democratic diffusion can be a threat to their rule. It is clear that some countries, such as North Korea, prevent diffusion by severely restricting interactions with foreigners and forbidding access to external sources of information. The more intriguing question is how the states that have economic, diplomatic, and social linkages with democratic states prevent democratic diffusion. In other words, what methods do globally-engaged, autocratic governments use to limit exposure to and reduce receptivity to democratic diffusion?In addition to using coercion and economic patronage, autocratic states utilize two non-material mechanisms to prevent democratic diffusion: 1) restricting exposure to democratic ideas and 2) developing alternative narratives about democracy to reduce local receptivity to democratic diffusion. Sophisticated autocratic leaders can limit receptivity to democratic diffusion if they convince citizens that those ideas are “foreign,” will cause “chaos,” or if they believe they already have their own form of democracy. I explore these methods of establishing firewalls to prevent diffusion by examining the cases of China and Kazakhstan, two countries where a high level of economic linkage coincides with a successful continuation of autocratic rule, despite the global spread of democratic norms. China has developed extensive methods to restrict access to foreign ideas about democracy while Kazakhstan has mainly focused on developing an alternative narrative about democracy. This article contributes to the literature on authoritarian persistence and democratic diffusion by investigating the internal methods autocratic leaders adopt to ensure that democratic diffusion does not threaten their rule.     

Impacts of in-kind transfers on household food consumption: Evidence from targeted food programmes in Bangladesh

This article examines the impact of wheat transfers and cash incomes on wheat consumption and wheat markets. Using propensity score matching techniques, the MPC for wheat is on average 0.33, ranging form essentially zero for Food For Work (a programme with large transfers) to 0.51 for Food For Education. Econometric estimates indicate that the total marginal propensity to consume (MPC) wheat out of small wheat transfers to poor households is approximately 0.25, while MPCs for wheat out of cash income are near zero. This increase in demand for wheat reduces the potential price effect of the three major targeted programmes by about one-third.     

The UN at war: examining the consequences of peace-enforcement mandates for the UN peacekeeping operations in the CAR,the DRC and Mali

The UN peacekeeping operations in the Central African Republic (CAR), Democratic Republic of Congo (DRC) and Mali were in 2013 given peace enforcement mandates, ordering them to use all necessary measures to ‘neutralise’ and ‘disarm’ identified groups in the eastern DRC and to ‘stabilise’ CAR and northern Mali. It is not new that UN missions have mandates authorising the use of force, but these have normally not specified enemies and have been of short duration. This article investigates these missions to better understand the short- and long-term consequences, in terms of the willingness of traditional as well as Western troop contributors to provide troops, and of the perception of the missions by host states, neighbouring states, rebel groups, and humanitarian and human rights actors. The paper explores normative, security and legitimacy implications of the expanded will of the UN to use force in peacekeeping operations. It argues that the urge to equip UN peacekeeping operations with enforcement mandates that target particular groups has significant long-term implications for the UN and its role as an impartial arbitrator in post-conflict countries.     

What are we trying to Measure?

Completely flexible exchange rates may be "excessively" volatile, with the implied currency misalignments leading to real inefficiencies in resource allocation and detrimental effects on economic growth. This paper analyses whether international currency taxation would be effective in calming exchange rate volatility and avoiding currency crises within the context of a simple model of exchange rate determination. It is found that the effects of a tax on foreign exchange volatility depend on the nature of speculation and whether the focus is on capital inflows or outflows.     

Russian hegemonies: historical snapshots, regional security and changing forms of Russia's role in the post-Soviet region

The broad purpose of this study is to exemplify changing forms of hierarchical rule manifested in post-Soviet Russia's varying provision of regional security related to military conflicts. Russia's regional role varies in form and in thickness. Although the endurance of Soviet legacy can be observed in four major areas (stabilising borders, economic interest, unification of fellow Slavs and fluctuating alliances), there is enough variance to suggest that over-deterministic theories about Russian regional foreign policy do not account for conjunctural factors that can contribute to change. Instead, we can view the Soviet and post-Soviet regional dynamic as one that is on a fluid anarchy–hierarchy spectrum.     

Linkages between Globalisation,Carbon Dioxide Emissions and Governance in Sub-Saharan Africa

ABSTRACT

This study investigates linkages between environmental degradation, globalisation and governance in 44 countries in Sub-Saharan Africa using data for the period 2000–2012. The Generalised Method of Moments is employed as empirical strategy. Environmental degradation is proxied by carbon dioxide emissions whereas globalisation is appreciated in terms of trade openness and net foreign direct investment inflows. Bundled and unbundled governance indicators are used, namely: political governance (consisting of political stability/no violence and “voice & accountability”), economic governance (encompassing government effectiveness and regulation quality), institutional governance (entailing corruption-control and the rule of law) and general governance (a composite measurement of political governance, economic governance and institutional governance). The following main finding is established. Trade openness modulates carbon dioxide emissions to have positive net effects on political stability, economic governance, the rule of law and general governance.