“THE PAYMENTS IMPACT OF FOREIGN INVESTMENT CONTROLS: REPLY.”

Abstract

The author of any paper with policy implications welcomes discussion of his results, in the knowledge that what is not discussed is forgotten. In this spirit I welcome Dr. Stevens' paper calling for further examination of my framework for analysing the balance-of-payments effects of controls on foreign investment.' As he notes, it is puzzling that the earlier literature had devoted so much attention to the hard-to-interpret payback periods instead of looking at the kinds of present-value and rate-of-return calculations initiated by my December 1971 article. Stevens goes on to suggest two revisions in the 1971 article, one dealing with estimated trade effects and one extending my framework to cover the case of rapidly growing outflows checked by permanent controls. These points are worth discussing, since other readers of the 1971 article may also have wanted more treatment of them than space permitted in 1971. Yet it turns out that Stevens' comment fails to blunt my 1971 policy conclusions, and my 1971 article's framework appears to have covered all cases correctly.