Imports and Growth in Highly Indebted Countries: An Empirical Study

218 Pages·1992·7.064 MB·English

by  Jesko Hentschel (auth.)

Studies in International Economics and Institutions
Editor
Hans-Jiirgen Vosgerau
Advisory Board
John S. Chipman
Elhanan Helpman
Ronald W. Jones
Murray C. Kemp
Horst Siebert
Studies in International Economics and Institutions
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F. Gehrels, H. Herberg, H. Schneider, H.-J. Vosgerau (Eds.), Real Adjustment
Processes under Floating Exchange Rates
VI, 302 pages. 1990
T. Tivig, Flexible Wechselkurse aus der Sicht des Finanzmarktansatzes
IX, 226 Seiten. 1991
S. Berninghaus, H. G. Seifert-Vogt, International Migration Under Incomplete Information
VIII, 116 pages. 1991
H. Krager, K. F. Zimmermann (Eds.), Export Activity and Strategic Trade Policy
VI, 190 pages. 1992
Jeska Hentschel
Imports and Growth
in Highly Indebted
Countries
An Empirical Study
With 10 Figures and 44 Tables
Springer-Verlag
Berlin Heidelberg New York
London Paris Tokyo
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Budapest
JESKO HENTSCHEL
Zentrum flir Internationale Wirtschaft
Universitat Konstanz
Postfach 55 60
D-7750 Konstanz, FRG
Korrespondenzadresse:
Von-Anckeln-Str.4
D-2050 Hamburg 80, FRG
ISBN-13: 978-3-642-46772-1 e-ISBN-13: 978-3-642-46770-7
DOl: 10.1007/978-3-642-46770-7
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© Springer-Verlag Berlin· Heidelberg 1992
Softcover reprint of the hardcover 1st edition 1992
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fUr meine Eltem
Acknowledgements
This study could not have been completed without the generous help and advice of many
friends, colleagues, and mentors at the University of Konstanz, the United Nations Conference on
Trade and Development, and the Kiel Institute of World Economics. It is not possible to mention
all of them, but I would like to express special thanks to Prof. Dr. Horst Siebert and Prof. Dr.
Gerd Ronning for supervising the study. Further, I am indebted to Dr. Axel Behrens, Christoph
John, Georg Kell, Prof. Dr. Joachim Moller, Dr. Willi Nag!, and Dr. Michael Rauscher for their
ongoing support and constructive criticism. Nevertheless, I am solely responsible for all remaining
errors.
I would also like to thank Prof. Dr. Dr. Carsten Thomas Ebenroth for the freedom I
enjoyed and the resources made available to me at the Centre on International Economics in
Konstanz.
Contents
Acknowledgements vn
xm
List of tables
List of figures XV
1. Introduction 1
1.1. The debt crisis, imports, and growth 1
1.2. Structure of the study 5
2. The importance of imported factors of production in developing countries 7
2.1. Introductory remarks 7
2.2. The composition of imports 7
2.3. Factors impeding perfect import substitutability 12
2.3.1. Non-traded specific factors 12
2.3.2. Technology 13
2.3.3. Adjustment costs and time 14
2.4. Capital goods 15
2.4.1. Nature of capital goods production 15
2.4.1.1. Technological requirements 15
2.4.1.2. Market size 17
2.4.1.3. Economies of scale and specialization 17
2.4.2. Weight and structure of the capital goods sector 18
2.4.3. Imports and domestic production of capital goods 24
2.4.4. An assessment 28
2.5. Intermediate goods 29
2.5.1. Primary intermediate goods 29
2.5.2. Industrial intermediate goods 31
2.5.2.1. Nature of production 31
2.5.2.2. Imports and domestic production of industrial
intermediate goods 32
2.5.3. An assessment 35
2.6. Development strategies and the role of imports 35
2.6.1. Inward-versus outward-oriented policies 36
2.6.2. Effects of inward-oriented policies 40
2.6.3. Secondary import substitution 41
2.6.4. Independence or vulnerability? 43
2.7. Summary 44
x
3. Import models: issues and problems 45
3.1. Introduction 45
3.2. The theoretical background: imports and growth 45
3.2.1. Perfect substitutability for imports in open economy growth models 45
3.2.2. Perfect complementarity in production 46
3.2.3. Limited substitutability 48
3.3. The standard import function, foreign exchange availability, and
disaggregate import analyses 49
3.3.1. The standard import function 49
3.3.2. Foreign exchange and the external budget restriction 51
3.3.3. Disaggregate import analyses 55
3.4. Empirical studies of imports as factors of production in developing countries 57
3.4.1. Models positing a specific elasticity of substitution for imported inputs 58
3.4.1.1. Trade-gap models 58
3.4.1.2. Models positing a limited substitutability 59
3.4.2. Models that allow estimation of the elasticity of substitution 60
3.4.2.1. CES functions including imports 60
3.4.2.2. The translog approach 63
3.4.2.3. Derived import demands from CES and translog
functions: a comparison 65
3.5. Concluding remarks 66
4. Macroeconomic production functions and elasticities of substitution between
imported and domestic factors of production 69
4.1. Introduction 69
4.2. Aggregate production functions and the elasticity of substitution 69
4.2.1. The aggregation problem 69
4.2.2. The elasticity of substitution ex post and ex ante 71
4.2.3. Factors influencing the elasticity of substitution between imported
and domestic factors of production 73
4.3. The nested production function 75
4.3.1. Disaggregation of imports 75
4.3.2. A three-level nested CES function 76
4.3.3. The optimal composition of the efficiency capital stock 78
4.3.4. Optimal production of gross output 80
4.4. Summary 82
XI
5. Estimation of elasticities of substitution between domestic and imported
means of production 83
5.1. Introductory remarks 83
5.2. Measurement of the domestic price of imported goods 83
5.2.1. The domestic price of imported goods 83
5.2.2. Derivation of a protection proxy 84
5.2.3. Foreign exchange availability and the internal price of imported goods 90
5.3. Imported and domestically produced capital goods 91
5.3.1. The stochastic equation 91
5.3.2. Reference estimations 93
5.3.2.1. Data and parameter assumptions 93
5.3.2.2. Estimation of the regression parameters 95
5.3.2.3. Estimation of the structural parameters 98
5.3.3. Modification 1: the depreciation rate 100
5.3.4. Modification 2: an alternative formulation of the user cost of capital 101
5.3.5. Modification 3: using gross domestic investment data 105
5.3.5.1. Conceptual aspects of the data 105
5.3.5.2. Data generation 106
5.3.5.3. Regression results 108
5.3.6. Modification 4: modelling the foreign exchange impact 109
5.3.6.1. The estimating equation 109
5.3.6.2. Measuring foreign exchange availability 111
5.3.6.3. Regression results 113
5.3.7. Comparison of estimated elasticities 116
5.4. Imported intermediate goods 117
5.4.1. The stochastic equation 117
5.4.2. Estimation using the protection proxy 117
5.4.2.1. Data employed 117
5.4.2.2. Estimation of the regression parameters 118
5.4.2.3. Non-linear estimation of the structural parameters 120
5.4.3. Foreign exchange availability 122
5.4.3.1. The estimating equation 122
5.4.3.2. Regression results 123
5.5. Summary and interpretation of the empirical results 125
5.5.1. Summary of the empirical results 125
5.5.2. Interpretation of the empirical results 128
XII
6. Imports, growth, and the trade balance: two case studies 133
6.1. Basic remarks about the framework 133
6.2. The Columbian model 136
6.2.1. Econometric specification 136
6.2.1.1. Factor demands, price equations, and the demand
for other imports 136
6.2.1.2. Export demand and supply 145
6.2.2. Ex post simulation 150
6.2.3. Analyses of trade balance reactions 151
6.3. The Ecuadorian model 157
6.3.1. Econometric specification 157
6.3.1.1. Factor demands, price equations, and the demand
for other imports 157
6.3.1.2. Export supply and demand 164
6.3.2. Ex post simulation 167
6.3.3. Analyses of trade balance reactions 168
6.4. Concluding remarks about the simulations 172
7. Conclusion 175
7.1. Summary of findings 175
7.2. Import vulnerability reconsidered 178
Appendices 179
A. Statistical tables 179
B. The cost function and conditional factor demands for a CES production function 180
B.1. Derived factor demands 180
B.2. The cost function 181
C. Data sources and computational notes 183
C.1. Industrial production and price statistics 183
C.2. Trade data 184
C.3. National income accounting statistics 187
C.4. Specific variables used in Chapter 5 187
CA.l. Implicit average effective import taxes 187
C.4.2. Real import capacity 188
C.4.3. Interest rates 188
C.5. Variable definitions and sources, Chapter 6 188
C.6. Computational notes 191
References 193