Subsidization as exchange

The relationship between a subsidy-receiving firm and the government granting the subsidy can be conceptualized as an agency relation, with the government in the role of the principal, and the firm in the role of the agent. The economic theory of agency relations suggests what formal characteristics of the subsidy scheme and what conditions of the subsidy contracts are to be expected if the government wants to discipline effectively the behaviour of subsidy-receiving firms. These expectations are discussed using the example of a Dutch research subsidy scheme. It appears that most, of the expected conditions are indeed embodied in the formal subsidy scheme and in the subsidy contracts. However, there are signs that the informal relationship between the parties concerned deviates in important ways from what the formal documents would make us believe. Conclusions pertaining to the usefulness as well as the limitations of the proposed conceptualization of subsidy relations are drawn, and recommendations with regard to the design and implementation of subsidy schemes are made.     

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.     

An investigation in exchange rate behavior of emerging countries

This study deals with the relative performance of major exponential smoothing models (Simple exponential (SES), Holt's double parameter exponential (HTPES) and Winter's three parameter exponential (WTPES) used in forecasting exchange rates of emerging countries.     

‘Effective exchange rates for exports in Pakistan’ a comment

In his article ‘Effective Exchange Rates for Exports in Pakistan’ [1972], Walter Hecox has incorrectly implied that the ranking of export sectors by their net foreign exchange earnings yield a measure of their export efficiency. This note argues that the proper measures for export ranking is the domestic resource cost criterion, and that rankings by the two measures differ substantially.     

The exchange rate and the balance of trade: The Turkish experience

In this article, we examine the responsiveness of Turkey's trade balance to devaluation accompanied by trade liberalisation. Our results show that the trade balance was responsive to changes in the exchange rate that were brought about by the economic reforms introduced in the 1980s, suggesting that exchange rate policy was able to create and maintain a satisfactory balance of trade position in the 1980s and early 1990s.     

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.     

Humanitarian symbolic exchange: extending Responsibility to Protect through individual and local engagement

Moral common sense frames the relationship between privileged and at-risk populations underpinning contemporary Responsibility to Protect (R2P) discourse. This article develops an alternative by considering the relationship between archetypes of would-be rescuers and victims through Jean Baudrillard’s theorisation of symbolic exchange. Baudrillardian analysis connects personal morality and affective intersubjective symbolic exchange with the politics of international order. This leads, first, to an argument that current foundations for advocating R2P risk participating in a problematic moral economy of symbolic exchange between would-be rescuers and victims. Nonetheless, and secondly, the article deploys symbolic exchange to develop suggestions for partially re-figuring R2P’s humanitarian impulse by engaging ‘locally’ – both through one’s self (in the ethical relation suggested by Emmanuel Levinas) and with diverse forms of political order (following Jacques Rancière’s conception of politics). Doing so supports moves to engage a wide array of individual actors in a more interactive and less hierarchical form of R2P, to drive deeper consideration of local complexities of R2P through engagement with diverse local forms of political order, and to develop a more inclusive understanding of ‘humanity’ in order to bolster R2P’s normative foundations.     

OECD imports of leather: Indian performance and real exchange rates of the Indian rupee

This article reports an econometric investigation of shares by source in imports of leather and leather manufactures into OECD markets over the period 1974–87, at four‐digit SITC level. The Indian share at each destination relative to that of other major exporters, taken serially and independently, is tested for sensitivity to relative price fluctuations as measured by the real bilateral exchange rate between the Indian rupee and the currency of the fellow exporter. The pattern of findings by product category and destination provides important guidelines for exchange rate policy and export strategy.     

The impact of direct trade controls and an overvalued exchange rate on factor proportions in manufacturing

This paper is an analysis of certain aspects of manufacturing development under a regime of import and foreign exchange controls, where such controls are accompanied by an overvalued exchange rate. The analytical framework is a modification of the ‘effective rate of protection’ analysis. The argument proceeds from the fact that the overvalued rate represents a subsidy on imported capital equipment and intermediate goods. Two implications are drawn from the analysis. First and most important, the subsidy on imported intermediate goods will exacerbate the oft‐noted tendency of import‐substitute industry to take the form of ‘processing and packaging’ operations with minimal domestic value added. Second, the subsidy on imported capital equipment will give entrepreneurs an incentive to substitute imported capital equipment for domestic labour.     

Commodity export dependence and the choice of exchange rate regime: Viewing the poles from Saudi Arabia

As financial crises followed capital account opening in the 1990s the hard peg of a currency board regime was seen as the remaining ‘polar’ alternative to flexible exchange rates. With the Argentine peso devaluation of early 2002 suggesting that the fundamental requirement may be peg abandonment through either floating or ‘dollarisation’, the issue as it confronts highly open LDSs reliant on a narrow export base of primary commodities has been substantially neglected. Under pressure to increase financial openness, and with exchange rate variability posing a threat to their price level stability, the study asks whether pegging could remain an effective choice for such economies. Saudi Arabia has combined extreme commodity dependence with financial openness under a rigid peg and her experience is examined for the wider lessons it may contain. While sensitive to fluctuating confidence in the exchange rate evidence on demand for the Riyal suggests that, with appropriate policy support, currency pegs remain appropriate for commodity-dependent economies.     

Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium

This article analyses the factors that determine the long-run real exchange rate in Argentina, Colombia and Mexico, distinguishing between real and nominal determinants. Cointegration analysis is utilised to establish that the real exchange rate has an equilibrium relationship with real variables (the terms of trade, capital flows, productivity, and government share of GDP) which excludes nominal variables (nominal exchange rate, money) and central bank intervention. Variance decompositions reveal that among the real variables that determine the real exchange rate, the terms of trade and productivity explain much of the variation in the real exchange rates. When nominal variables are included in the model, the nominal exchange rate accounts for most of the variation in the real exchange rates of all three countries. The impulse response functions are broadly consistent with theoretical predictions and shocks to the nominal variables have only transitory effects on the real exchange rate.     

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.