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ECONOMIC PROGRESS AND GROWTH INTERNATIONAL STUDIES IN ECONOMIC MODELLING Series Editor H. M. Scobie Executive Director European Economics and Financial Centre P. O. Box 2498 London W2 4LE Tel: (071) 229-0402 Fax: (071) 221-5118 1 Economic Modelling in the OECD Countries H. Motamen-Scobie 2 Modelling the Labour Market Edited by M. Beenstock 3 Input-Output Analysis Current developments Edited by M. Ciaschini 4 Models of Disequilibrium and Shortage in Centrally Planned Economies C. Davis and W. Charemza 5 Economic Modelling at the Bank of England Edited by S. G. B. Henry and K. D. Patterson 6 Recent Modelling Approaches in Applied Energy Economics Edited by O. Bjerkholt, O. 0lsen and J. Vislie 7 International Commodity Market Models Advances in methodology and applications Edited by O. Giivenen, W. C. Labys and ).-B. Lesourd 8 Dynamic Models for the Inter-relations of Real and Financial Growth H. Ekstedt and L. Westberg 9 Economic Models and Trade Unions Edited by P. Garonna, P. Mori and P. Tedeschi 10 International Energy Economics Edited by Thomas Sterner 11 International Trade Modelling Edited by M. G. Dagenais and P.-A. Muet 12 Continuous Time Econometrics Theory and applications Edited by Giancarlo Gandolfo 13 Empirical Approaches to Fiscal Policy Modelling Edited by Alberto Heimler and Daniele Meulders 14 Inflation Penelope A. Rowlatt 15 Modelling the Structure of the Economy Maurizio Ciaschini 16 Econometric Modelling of World Shipping Michael Beenstock and Andreas Vergottis 17 Income Redistribution and Social Security An application of microsimulation J. H. M. Nelissen 18 Economic Progress and Growth Edited by H. M. Scobie Economic Progress and Growth Edited by H. M. Scobie European Economics and Financial Centre London, UK CHAPMAN & HALL London· Glasgow· Weinheim . New York· Tokyo' Melbourne' Madras Published by Chapman &< Hall. 2-6 Boundary Row. London SEI SHN. UK Chapman 8< Hall. 2-6 Boundary Row, London SEI 8HN, UK Blackie Academic 8< Professional, Wester Cleddens Road, Bishopbriggs, Glasgow G64 2NZ, UK Chapman 8< Hall GmbH, Pappelallee 3, 69469 Weinheim, Germany Chapman 8< Hall Inc" One Penn Plaza, 41st Floor, New York NY 10119, USA Chapman 8< Hall Japan, Thomson Publishing Japan, Hirakawacho Nemoto Building, 6F, 1-7-11 Hirakawa-cho, Chiyoda-ku, Tokyo 102, Japan Chapman 8< Hall Australia, Thomas Nelson Australia, 102 Dodds Street, South Melbourne, Victoria 3205, Australia Chapman 8< Hall India, R. Seshadri, 32 Second Main Road, CIT East, Madras 600 035, India First edition 1994 © 1994 Chapman 8< Hall Typeset in 10/12 Palatino by Thomson Press (India) Ltd., New Delhi ISBN 0 412 57510 8 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the UK Copyright Designs and Patents Act, 1988, this publication may not be reproduced, stored, or transmitted, in any form or by any means, without the prior permiSSion in writing of the publishers, or in the case of repro graphic reproduction only in accordance with the terms of the licences issued by the Copyright Licensing Agency in the UK, or in accordance with the terms of licences issued by the appropriate Reproduction Rights Organization outside the UK. Enquiries concerning reproduction outside the terms stated here should be sent to the publishers at the London address printed on this page. The publisher makes no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. A catalogue record for this book is available from the British Library 8 Printed on permanent acid-free text paper, manufactured in accordance with ANSIINISO Z 39.48-1992 and ANSI Z 39.48-1984 (Permanence of paper). Contents Contributors vii Introduction to the series ix Preface xi 1 The prototypical developing country model of the the World Bank global economic model 1 Karsten Nimb Pedersen 2 A quarterly econometric model of an LDC monetary system: the case of Egypt 29 Salah El-Sheikh 3 An econometric model of the Sri Lankan economy 65 Nelson Perera 4 A rational expectations model of the Indian economy 111 Anupam Rastogi 5 A computable general equilibrium (CGE) analysis of the Thai economy 177 Mifsuo Ezaki 6 The income distributional consequences of export growth in Brazil 221 Robert David Cruz and Maria]. Willumsen 7 A macroeconometric model for Israel 1962-90: a market equilibrium approach to aggregate demand and supply 241 Michael Beenstock, Yaakov Lavi and Akiva Offenbacher Index 321 Contributors Michael Beenstock Department of Economics, Faculty of Social Sciences, Hebrew University of Jerusalem, Mount Scopus, Jerusalem 91905, Israel Robert David Cruz North-South Center, University of Miami, PO Box 248205, Coral Gables, Florida 33124-3027, USA Salah EI-Sheikh St Francis Xavier University, Antigonish, Nova Scotia, Canada Mitsuo Ezaki Graduate School of International Development, Nagoya University, Furo-cho, Chikusa-ku, Nagoya 464-01, Japan Yaakov Lavi Research Department, Bank of Israel, Israel Akiva Offenbacher Research Department, Bank of Israel, Israel Karsten Nimb Pedersen Analysis and Prospects Division, International Economics Department The World Bank, 1818 H Street, NW, Washington, DC 20433, USA Nelson Perera Department of Economics, University of Wollongong, PO Box II44, Wollongong, NSW 2500, Australia Anupam Rastogi Department of Economics and Accounting, University of Liverpool, PO Box 147, Liverpool L69 3BX, UK Maria J. Willumsen Department of Economics, Florida International University, Miami, Florida 33199, USA Introduction to the series There has been a growing dependence in the past two decades on modelling as a tool for better understanding of the behaviour of economic systems, and as an aid in policy and decision making. Given the current state of the art globally, the introduction of a series such as this can be seen as a timely development. This series will provide a forum for volumes on both the theoretical and applied aspects of the subject. International Studies in Economic Modelling is designed to present comprehensive volumes on modelling work in various areas of the economic discipline. In this respect one of the fundamental objectives is to provide a medium for ongoing review of the progression of the field. There is no doubt that economic modelling will figure prominently in the affairs of government and in the running of the private sector, in efforts to achieve a more rational and efficient handling of economic affairs. By formally structuring an economic system, it is possible to simulate and investigate the effect of changes on the system. This is tum leads to a growing appreciation of the relevance of modelling techniques. Our aim is to provide sufficient space for authors to write authoritative handbooks, giving basic facts with an overview of the current economic models in specific areas and publish a useful series which will be consulted and used as an accessible source of reference. The question may arise in some readers' minds as to the role of this series vis-a-vis other existing publications. At present, no other book series possesses the characteristics of International Studies in Economic Modelling and as such cannot fill the gap that will be bridged by it. Those journals which focus in this area do not present an exhaustive and comprehensive overview of a particular subject and all the developments in the field. Other journals which may contain economic modelling papers are not sufficiently broad to publish volumes on all aspects of modelling in a specific area which this series is designed to cover. A variety of topics will be included encompassing areas of both micro and macro economics, as well as the methodological aspects of model construction. Naturally, we are open to suggestions from all readers of, and contributors to, the series regarding its approach and content. x Introduction to the series Finally, I would like to thank all those who have helped the launch of this series. The encouraging response received from authors who have contributed the forthcoming volumes and from the subscribers to the series has indicated the need for such a publication. H. M. Scobie European Economics and Financial Centre London, 1994 Preface This volume puts forward a group of models applied to different economies, capturing the progress and growth of their economic systems. The models provide a quantified framework for the formulation of economic policy. They aid the introduction of targets and policy instruments taking account of constraints in the process of development. Also, an evaluation of external and internal shocks is taken using a comparative static type of analysis. The models take into account constraints which are in the nature of institutional as well as supply constraints. Problems of data exist in any quantitative analysis and account was taken of this factor in presenting the models and the results reached. Nonetheless, the models attempt to specify, estimate and simulate a given macroeconomic system. Models of this type are not freely available to the interested reader, but only in a fragmented way. This book puts the efforts of a group of economists worldwide under one cover. It is believed that the collection will be of interest both for courses in planning and for those adviSing these countries such as international organizations, research bodies, etc. Moreover, an overview of trade policy and income distributional factors is presented. It is hoped that this collection will prove interesting and useful to economists world wide. H. M. Scobie London September, 1993 1 The prototypical developing country model of the World Bank global economic model KARSTEN NIMB PEDERSEN 1.1 INTRODUCTION This chapter documents the developing country model currently used by the World Bank's global model, Bank-GEM. The country model, describing about 100 developing countries, is one bUilding block of a global system that includes an international linkage scheme, commodity price models, and models of the high-income countries. Briefly, the developing country model has a fully specified income-expenditure mechan ism. While public sector consumption and investment are policy levers, private consump tion and investment are empirically determined. The inclusion of net wealth in private consumption and the rate of long-term debt to output in private investment gives the model an empirical control of indebtedness and the impact of indebtedness on real demand. A domestic supply-side is modeled by a modified unit cost-function which determines the good market's equilibrating price level. One feature of the cost-function is the inclusion of the capital stock which produces a full capacity output and inflation trade-off. The inclusion of a foreign trade sector permits the joint determination of the real rate of exchange and the domestic GOP. In addition, a detailed set of balance of payments accounts and government accounts are included. By modelling components of the invisibles of the current account and the elements of the capital account at a detailed level, an accurate description of the requirements for financing can be read from the model results. Finally, the inclusion of the public sector accounts allows for the calculation of the deficit of the public sector and of the nominal and real savings/ dissavings of the public sector. The flows of the fiscal accounts, together with the balance of payments flows, determine the change in the private sector's net wealth position. The structure of the country model is presented in Section 1.2. The model's behavioral Economic Progress and Growth, Edited by H. M. Scobie. Published in 1994 by Chapman 8t Hall, London. ISBN 0412575108
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