Economic performance in small open economies : the Caribbean experience, 1980-1992

The authors study the economic performance of ten Caribbean islands in two groups: six small islands from the Organization of Eastern Caribbean States (OECS) and four larger islands: Barbados, Dominican Republic, Jamaica, and Trinidad and Tobago. They compute external shocks together with each island's performance response to them. Some islands resorted inordinately to external financing to cope with adverse shocks. Others tried to compensate by stimulating exports and tourism. The buildup of debt created problems for some of the governments later in the decade, resulting in the need for strong contractionary measures. But the difference in performance between islands cannot be explained by external shocks alone. The OECS group achieved superior performance even though they faced roughly the same shocks as the larger islands. It helped that they had a monetary board that encouraged high investment levels. But this was complemented by concessionary flows used productively and by foreign direct investment. Now the question is how well these economies will fare when they face the inevitable reduction in concessionary flows in coming years.Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,International Terrorism&Counterterrorism,Financial Intermediation,Economic Theory&Research,Environmental Economics&Policies,Achieving Shared Growth,Inequality,Financial Intermediation

External shocks and performance responses during systemic transition : the case of Ukraine

Ukraine encountered many economic problems in its first years of independence. Most serious among external shocks were the collapse of trade with the former Soviet Union and the sharp price increases for energy imports. External shocks resulted in an income loss in the current accounts equivalent to about 14 percent of the gross domestic product (GDP) a year in 1992 and 1993. Ukraine did not adopt an appropriate strategy for dealing with the impact of these shocks. Its main policy response has been to continue borrowing, increase arrears, postpone adjustment, and restore administrative interventions. Not only has this policy exacerbated the economic crisis, it has led to massive capital flight and rapid expansion of the underground economy. With the limited information available, the authors try to identify the major sources of external shocks and to estimate their impact on the current account. They also evaluate Ukraine's policy response. Based on examination of the experience of other countries in addressing adverse shocks, the authors recommend the following policies: (a) full commitment to systemic reform and macroeconomic stabilization; (b) privatization, price liberalization, development of competitive market system, and reform of the legal system. For the particular situation of the Ukraine, they emphasize the importance of: (a) growth-oriented structural adjustment that reflects Ukraine's comparative advantages, including the development of nontraditional industries with high valued-added and low energy intensity; (b) greater economic (especially energy) efficiency; (c) integration into world systems of trade and finance; (d) prudent borrowing and debt management strategies, as well as policies to encourage private foreign direct investment and to make more efficient use of foreign debt.Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Energy and Environment

Measuring the effect of external shocks and the policy response to them: empirical methodology applied to the Philippines.

Economies benefit from international trade, but joining the world market also exposes them to external shocks. How can the government in Eastern European and developing countries reduce their vulnerability to such shocks? What are appropriate policy responses? The authors examine how external shocks (such as commodity price changes, variations in global demand, and fluctuating interest) affect economic performance, and how those effects are mitigated by the right policy responses at the right time. They introduce a methodology for measuring the effect on current account of external shocks and apply it for the Philippines. They rationalize balance of payments responses to external shocks and domestic policies in a theoretical model of a small open economy. Did the Philippines choose the appropriate policies when faced with balance of payments disequilibrium? Among comparable Asian countries, the Philippines in 1970 enjoyed a relatively high per capita income that has since failed to keep pace. Why? Adverse shocks did not help, but other countries in the region experienced similar shocks and performed better. The Philippines relied heavily on external flow, which fueled an investment boom. Given low real interest rates at the time, this seemed a reasonable approach - but there were two flaws to it. First, the investments were poorly conceived, were mismanaged, failed to produce appropriate returns, and became a burden on the state. One large nuclear power plant has yet to yield a return. Second, with so many external resources available, the government ignored the need for meaningful structural reform, especially in trade and public resources and distortionary trade policies can absorb more than all the gains from favorable shocks. When external conditions improved in the mid-1980s, the Philippines could not take advantage of them because of its heavy external debt and its cumbersome trade regime. Had authorities introduced structural reform (liberalizing trade, strengthening public finance, and freezing up factor markets), the economy could have more easily absorbed the impact of unfavorable shocks. In 1991, the IMF gave the Philippines a stand-by credit. Authorities are now addressing some structural problems by liberalizing the exchange rate, removing import tariffs, and restructuring the public sector, including the Central Bank. Perhaps this will allow more sustainable growth and an economy that can more readily absorb external shocks

Growth and employment in developing countries: where do we stand?

An earlier draft of the paper was presented at the Luca d'Agliano Decennial Conference on "Labour Allocation in Development", Oxford, 16-17 December 1994Consiglio Nazionale delle Ricerche (CNR). Biblioteca Centrale / CNR - Consiglio Nazionale delle RichercheSIGLEITItal