The Role of Trade and International Economic Policy in Indian Economic Performance*

India's economic policies have undergone major reforms since the early 1990s. Before that, government regulation and control of economic activity was pervasive, and the trade sector did very poorly. One consequence was that imports were highly restricted and their scarcity was itself a major constraint on growth. After the crisis of the early1990s, trade policy was substantially liberalized. In this paper, the pre‐1990s regime is first briefly described. Thereafter, the economic policy reforms that impinged most directly on the trade sector are set forth, and the response of exports and imports to those changes is outlined. Exports have grown rapidly, from about 5% of the gross domestic product to around 15%, and they continue to grow at an average annual rate of 20%. Improved performance of the trade sector has been a major contributing factor to India's dramatically accelerated growth performance. A final section of this paper assesses the current situation, and sets forth the major policy challenges that will need to be met if that performance is to be sustained, if not improved upon.     

Coffee exports and industrialization in Brazil

We investigate the dynamic relationship between coffee exports and machinery imports in Brazil from 1869 to 1939. Our tests reveal cointegration and bidirectional causality in the temporal sense. This evidence suggests that foreign exchange real revenues from coffee exports were important for the onset of industrialization, as machinery imports proxy for real investment demand. Capital growth, in turn, also helped to boost the country’s exports.     

Understanding Japan's Capital Goods Exports

Japan is the leading supplier of sophisticated capital goods to East Asian countries. These goods embody advanced technologies and facilitate learning and productivity growth. Capital goods also represent 30–40% of Japan's exports. This paper investigates the determinants of these exports. Results from dynamic ordinary least squares estimation indicate that exports depend on exchange rates, income in the importing countries and downstream countries' exports to the rest of the world. Results from out‐of‐sample forecasts indicate that Japanese exports crashed in 2009 because of the perfect storm of a yen appreciation, a global slowdown and a collapse in Asia's exports.     

Do people gamble more in good times? Evidence from 27 European countries

We provide evidence of a positive relationship between the intensity of gambling and economic growth in 27 European countries for 2005–2013. Our proxy for gambling is represented by government revenues from taxes on lotteries, betting and gambling. This variable is linked to GDP growth in a panel regression framework and pooled OLS. However, when we split our sample to account for the heterogeneity among European countries, we found that the positive ‘gambling – GDP growth’ relationship is driven extensively by the Central and Eastern European countries. It appears that people in these countries tend to gamble more when the economy is expanding.     

Development of Sunflower Oil Exports in Russia and the EEU: Main Trends,Prospects, and Evaluations by the Gravity Model

ABSTRACT

The purpose of this paper is to assess the major trends, factors, and prospects of development of Russian and EEU sunflower oil exports. The sanctions resulted in an increase of sunflower oil exports in 2014 to a peak value, which allowed the producers to accumulate revenues in hard currency. The gravity models findings for Russia and for the EEU show that the sanctions stimulated the growth of sunflower oil exports. As distinct from a common language, a common border also encourages the development of Eurasian exports to third countries. The tariff size in the importer country is strongly and negatively connected with exports both from Russia and from the EEU. The effect of regional integration within the EEU is insignificant for the development of sunflower oil exports, while regional integration processes in the CIS have a positive impact on exports.     

Effects of the Mexican Apple Tariff on the World Apple Market

In response to the USA blocking Mexican trucks from traveling to the inland part of the USA, Mexico imposed tariffs on US fresh apple exports. This study analyzes the impacts of the Mexican tariff on USA, Mexican and world apple markets by using theoretical analysis and developing a spatial equilibrium trade model. The results show that this tariff increases apple prices in Mexico, to the benefit of Mexican producers but harming Mexican consumers. Even though Mexico collects revenues from its tariff, the overall welfare impact is negative because consumers' loss outweighs producers' gain and tariff revenues. Since the USA exports less to Mexico, its prices and production decline, but consumption increases. To mitigate the export market loss to Mexico, the USA redirects its exports to other importing countries, displacing other apple exporting countries' trade with these importing countries.     

Sovereign rents and quality of tax policy and administration

Windfall revenues from foreign aid or natural resource exports can weaken governments’ incentives to design or maintain efficient tax systems. Cross-country data for developing countries provide evidence for this hypothesis, using a World Bank indicator on “efficiency of revenue mobilization.” Aid’s negative effects on quality of tax systems are robust to correcting for potential reverse causality, to changes in the sample, and to alternative estimation methods. Revenues from natural resources are also associated with lower-quality tax systems, but results are somewhat sensitive to the choice of resource dependence indicators, and to a few extreme values in the data. Disaggregating by resource type, revenues from fuel exports are found to be more strongly associated than revenues from metals and ores exports with inefficient tax systems.     

Corruption, inflation and growth

We present a model in which the embezzlement of tax revenues by public officials leads the government to rely more on seigniorage to finance its expenditures. This raises inflation which depresses investment and growth via a cash-in-advance constraint.     

Why are tax revenues of local governments so low?

Using a unique data set on federal grants and tax revenues of more than 5000 Brazilian cities, we find that the federal government imposes an implicit tax of almost 10% on city governments’ tax revenues: for every dollar that a city collects from its residents, the federal government withdraws grants worth 9 cents from the city. Our findings suggest that local government tax revenues are low not because federal grants crowd out tax revenues, but because tax revenues crowd out federal grants.     

Optimal Protection of Property Rights in a General Equilibrium Model of Growth*

We incorporate weak property rights into an otherwise standard general equilibrium model of growth and second‐best optimal policy. In this setup, the state plays two of its key roles: it protects property rights and provides public services. The government chooses policy (the income tax rate, as well as the allocation of collected tax revenues between law enforcement and public services) to maximize the growth rate of the economy. The focus of our analysis is on how weak property rights generate multiple decentralized competitive equilibria, the different properties of these equilibria, and the implications of second‐best optimal policies.     

Dynamics of Government revenues and expenditures in industrial economies

The sources of growth in government revenues and expenditures in 22 OECD countries is addressed. The question of whether the revenue constraint is binding on the growth of government expenditures, or whether the ‘displacement’ effect of expenditure growth is binding is considered. Controls for the effects of the output gap and inflation rate on government revenues and expenditures in each of the 22 countries are presented. A major conclusion is that reductions in spending are essential to reducing budget deficits and controlling government size.     

Dynamic relationships between oil revenues,government spending and economic growth in an oil-dependent economy

The aim of this paper is to empirically examine the dynamic relationships between oil revenues, government spending and economic growth in the Kingdom of Bahrain. Oil revenues are the main source of financing government expenditures and imports of good and services. Increasing oil prices in the recent years have boosted public expenditures on social and economic infrastructure. In this paper, we investigate whether the huge government spending has enhanced the pace of economic growth or not. To this end, we use a multivariate cointegration analysis and error-correction model and data for 1960–2010. Overall results suggest that oil revenues remain the principal source for growth and the main channel which finance the government spending.     

Thailand after 1997

The years following 1997 divide themselves into three roughly equal periods. The first was the painful period of deleveraging from the excesses of the bubble before the crisis, from which the economy emerged with more dependence on exports. The second period covered the government under Thaksin Shinawatra, who faced a mostly favorable external environment, and was therefore able to pursue many populist policies. Eventually, he was brought down by the military. The brief military government was followed by a number of short‐lived governments, the last one of which was left to tackle the consequences of the global financial crisis, which led to a very deep downturn but a quick recovery.     

Exchange rate undervaluation and manufactured exports: A deliberate strategy?

Recent literature suggests that a proactive exchange rate policy in accordance with price incentives (i.e. undervaluation) can foster manufactured exports and growth. This paper is built on these recent developments and investigates, using a sample of 52 developing countries, whether such a proactive exchange rate policy is adopted. The results show that during the period 1991–2005 a number of countries has used undervaluation to foster the price competitiveness of manufactured exports.     

SOCIAL STATUS,EDUCATION AND GOVERNMENT SPENDING IN A TWO‐SECTOR MODEL OF ENDOGENOUS GROWTH*

This paper extends the relative wealth specification of status preference to the two‐sector Uzawa (1965 )– Lucas (1988 ) model and examines the effectiveness of government spending on economic growth. It is found that the desire for relative wealth‐induced social status and/or the education component of relative wealth‐induced social status are important ingredients in determining the growth rate effects of government spending. Provided that the agent is concerned with his or her relative social position, the education‐induced social status plays a more important role than the physical‐asset‐induced social status in determining the validity of public spending on growth. If individuals do not care about their education‐driven social rewards, then an increase in government spending has no effect on the balanced growth rate regardless of the presence of the physical‐asset‐induced social status. A rise in government spending reduces the long‐run growth rate if the education‐induced social status is present.     

Toward Myanmar's New Stage of Development: Transition from Military Rule to the Market

The economic reforms implemented by the Thein Sein government face several challenges, some of which continue from the past military regime and some of which are new. The government is starting to overhaul institutions in order to obtain market‐based macroeconomic policy tools, which will possibly eliminate a long‐lasting fundamental cause of economic instability. One essential challenge is to design policies to encourage private capital, and to promote the agricultural and manufacturing sectors, which have already shown a high potential. At the same time, a regulatory framework and a well‐functioning financial system, which are essential to encourage private capital with market discipline, must be developed. A recent rise in natural resources exports created both a fiscal cushion and balance‐of‐payments surplus, which seems to have promoted reforms. However, the government should be aware that the recent favorable conditions may not last for a long future.     

Reform Unleashed Korean Growth

Before the reform in the 1960s, twin vicious circles perpetuated the shortages of foreign exchange and labor skill, and prevented the Korean economy from realizing its considerable growth potential. The breakthrough came when the Japanese labor shortage facilitated Korean exports, after economic normalization between the two countries. The reformed institutions reduced rent‐seeking and refocused Korean managerial efforts to pioneering activities. The Korean takeoff scenario is a shared theme among all four Asian newly industrialized economies cited by Lucas (1988) as showcases.     

Public Debt,Productive Public Spending and Endogenous Growth

We analyse the effects of public debt in a basic endogenous growth model with productive public spending. We demonstrate that a discretionary policy in general violates the intertemporal government budget constraint along a balanced growth path. A balanced government budget gives a unique saddle point stable growth path. With a rule‐based policy, two saddle point stable balanced growth paths can occur, depending on the intertemporal elasticity of substitution of consumption and on the primary surplus policy. Higher debt goes along with smaller long‐run growth and we derive a condition such that a deficit‐financed increase in public spending raises the growth rate.     

Is China different? A meta-analysis of export-led growth

We examine whether China has benefited more from exports than other countries. The results show that exports have been more significant for growth in China than in other countries, even when China is compared with other transition economies.     

Export sophistication and economic growth: Evidence from China

We consider the effect of export sophistication on economic performance by appealing to regional variation within one single country (China) over the 1997-2009 period. We find evidence in support of Hausmann, Hwang and Rodrik (2007), in that regions specializing in more sophisticated goods subsequently grow faster. We find substantial variation in export sophistication at the province and prefecture level, controlling for the level of development, and that this sophistication in turn drives growth. Our results suggest that these gains are limited to the ordinary export activities undertaken by domestic firms: no direct gains result from either processing trade activities or foreign firms, even though these are the main contributors to the global upgrading of China's exports. As such, the extent of assembly trade and foreign entities should be distinguished in order to measure the true movement in a country's technology and the contribution of exports to economic growth.