Deficit In Balance Of Payments Research Articles

Investigating the Role of Energy Prices in Enhancing Inflation in Pakistan: Fresh Insight from Asymmetric ARDL Model

Inflation is a serious problem of poor countries in this modern world because the majority of people live below the poverty line. It becomes difficult for poor people to fulfill their basic needs with higher inflation rate. The main objective of this study to analyze the impact of energy prices on the inflation rate in Pakistan. For analysis purpose the study uses time series data for the period 1990-2020. Consumer Price Index (CPI) is used as the dependent variable while independent variables include pump diesel domestic prices, pump gasoline domestic prices, GDP per capita, real effective exchange rate, government expenditure and imports of goods and services. The study uses non-linear Autoregressive Distributed Lag model (NARDL) econometric technique for estimation purpose. The results show that pump diesel and gasoline prices have U-shaped Kuznets curve, while economic growth, real exchange rate and government expenditures have emerged as important contributors of inflation in Pakistan. This study suggests that government should take effective measures to decrease dependence on imported energy resources and should rely on renewable energy resources to tackle the rising deficit in balance of payments (BOP).

The impact of tourism on deficit in balance of payments of Pakistan: an application of bounds testing approach to cointegration

ABSTRACTThe current study is intended to analyze the long-run relationship between deficit in balance of payments (BOPs) and tourism for the period of 1976–2015 using the autoregressive distributed lag (ARDL) model. The findings of the paper exposed an indirect relationship between tourism and BOP deficit in the context of Pakistan economy, while deficit balance of trade, real effective exchange rate, and deficit in fiscal balance have a positive and significant association with the deficit in the BOPs in the long run. Based on the findings, it is recommended that policies should be devised that promote the tourism industry of Pakistan as it would be helpful in reducing the deficit in the BOPs.

Effects of revenue from tourism on Montenegro's balance of payments

Tourism is one of the most important industries in Montenegro, having several multiplier effects. Direct contribution of tourism to economic growth and development of Montenegro became even more important in the period after the outbreak of the global economic crisis. Due to low export competitiveness and high dependence of its economy on import, Montenegro has been facing high deficit in foreign trade and balance of payments for years. The article aims to analyze the trend of revenue from foreign tourists and to assess the effects of such revenue on overall changes to the current account of Montenegro's balance of payment. The results of the study show that in the period from 2008 onwards, growth of tourism revenue has lead to increased deficit in balance of payments. Since needs of tourists cannot be met from own sources, Montenegro has increased import of goods and services in the same period, which reduced total effects of tourism. In the years after the outbreak of the global economic crisis, the direct influence of tourism on increased surplus on the services subaccount within the current account of the balance of payments becomes even more important. Growth of tourism revenue leads to significantly higher surplus in the services subaccount, and therefore reduces the balance of payments deficit. Negative effects of tourism on goods import have been significantly reduced over the period, which allowed for a higher degree of coverage of trade deficit by tourism revenue. Increased revenue from foreign tourists at the same time causes higher growth of revenues from transport services, which has indirect positive effect on general changes in the current account of Montenegro's balance of payments.

The War in Vietnam and the United States Balance of Payments

IT is generally recognized that the international monetary crises of late 1967 and early 1968 were precipitated by large, continuing deficits in the United States balance of payments. Underlying these deficits was a steady erosion of the United States surplus on current account, which fell from 8.5 billion dollars in 1964 to 4.8 billion dollars in 1967. Despite government programs restricting foreign investment by United States residents,1 therefore, the overall deficit on a liquidity basis reached a level of 3.6 billion dollars in 1967. The resulting outflow of dollars and gold greatly reduced the confidence of speculators and central banks in the ability of the United States to maintain the international value of its currency. It is of course no coincidence that this deterioration in the current account position of the United States accompanied a rapid expansion of its military commitments in Southeast Asia. But the amount of the deterioration which may be attributed to the War in Vietnam is a point at issue. The Administration has estimated the direct foreign exchange cost of the War to be about 1.5 billion dollars.2 Many have argued, however, that if secondary and indirect effects are taken into account, the total impact on the balance of payments has been much greater. In this paper, we shall attempt to reach a more satisfactory estimate -or range of estimates -of the total effect of the War on the balance of payments. In so doing, we shall try to answer the question: What would the United States balance on current account have been in 1967 if real expenditures had been lower by the amount channeled into the military effort in Southeast Asia? The wording of this question perhaps requires further explanation. We shall assume that the multiplier effects of this hypothetical difference in expenditures could have been completely and precisely offset by monetary and fiscal policy. Thus we suggest that in the absence of the military build-up, expenditures for consumption, investment and government purposes other than the War would have been identical with those that actually occurred. In addition, it must be recognized that part of the increase in military expenditures would have been spent even without the Vietnam War build-up. The men now serving in the armed forces would have eaten, for example, regardless of whether they were in military or civilian roles. For this reason, we exclude domestic expenditures on military pay, provisions and accommodation from our calculations, and consider only those expenditures which may clearly be assigned to the expanded campaign in Vietnam.3 One may note several possible effects which this military spending may have had on the United States current account balance: 1) Increased direct foreign purchases of food, services and finished goods to supply the military effort. 2) Greater purchases of foreign goods to be used as inputs in United States defense production. 3) Deterioration in the United States net exports, due to both war-stimulated inflation and to supply bottlenecks in those sectors of production most affected by the increased spending. In the following sections, we shall examine each of these effects in turn. By summing the three components we hope to provide a relatively accurate and comprehensive picture of the balance of payments impact of the War. * The authors are grateful to Robert Triffin and Richard Cooper for their helpful comments and suggestions. 1 Note that this practice of restricting capital cannot be continued indefinitely without worsening the balance on current account, because it will of course reduce United States earning assets abroad. 2 U.S. Treasury Department, Maintaining the Strength of the U.S. Dollar in a Strong Free World Economy (Washington, 1968), p. 103. 'As noted below, foreign military purchases of food, etc., by the United States will be included in the direct current account impact of the War.

The Japanese Measures to Restore Economic Equilibrium

Since mid-1961, the Japanese monetary and fiscal authorities have undertaken various measures to restore equilibrium to the economy. The necessity to impose economic restraints was clearly signaled by the substantial deficits in the international balance of payments beginning in May 1961 and the very high rate of investment in plant and equipment during 1961. The major question at this time is-will these measures be as successful in halting the drain in international reserves and restoring general economic equilibrium as those of 1953 and 1957? In attempting to answer this question, it might be helpful to examine the causes of disequilibrium in the last three booms and the nature of the corrective measures taken.

A Hard Look at America's Unfavorable Balance of Payments

The theory, so widely held by economists in the postwar era, of the "dollar gap" or dollar shortage has been invalidated. The evidence is clear. The dollar is not always subject to scarcity but to excess supply as well. There is need for no better verification than the deficit in the United States balance of payments. The immediate reaction to this deficit was twofold: there were those fearful lest the deficit continue, and those afraid that the measures taken to counteract the deficit would be harmful to our international economic policy. The fury has abated. The deficit has declined, inflationary movements have been quelled, and the anti-deficit measures taken in the international economic sphere have not been wide spread. But it is too early to be complaisant. The deficit, though somewhat reduced, continues; moreover the problem of how to eliminate or reduce the deficit to a reasonable size re mains. What measures should be taken to ensure the least cost to our economic posture, both domestic and international? More aware of the close interrelationship between our economy and others, we must now seriously consider a balance of payments mechanism. We must be prepared with a flexible mechanism should the contingency of an imbalance in our bal ance of payments occur.—Ed.

New Trends in United States Economic Foreign Policy

United States economic foreign policy has two major functions: to protect and advance public and private economic interests and to promote American political interests abroad. A complex decision-making process is necessary to formulate economic foreign policy. To decide any specific issue, the government must consider the multitude of varied interests involved. The final policy decision will necessarily be a compromise, rarely satisfying all the interested parties. Recent developments in two areas of economic foreign policy— foreign trade and foreign aid programs—have required, in or der to continue the policy objectives in these fields, the formula tion and execution of new measures. One important change is the deficit in the United States balance of payments. Meas ures have been taken by the government to counteract this deficit. The rapid rate by which countries are becoming in dependent poses a new problem for foreign aid programs. The government will continue its share of technical and material as sistance to these countries and, in addition, will co-operatively seek to augment the assistance offered by the other industrial ized countries.—Ed.

Exchange Depreciation and Economic Readjustment

THE postwar international economic and monetary settlement, especially Bretton Woods Final Act and original draft of International Trade Charter,' were based on conviction that national economic policies (including a policy of full employment) could always be harmonized with full adherence to an international system of unplanned market economies by alteration of foreign exchange rates. This is most clearly brought out by Lord Keynes' famous defense of Bretton Woods Agreement in House of Lords: . . we intend to prevent inflation at home, we will not accept deflation from dictate of influences from outside. other words, we abjure instruments of bank rate and credit contraction operating through increase of unemployment as a means of forcing our domestic economy into line with external factors; 2 and that In fact, plan introduces in this respect an epochmaking innovation in an international instrument, object of which is to lay down sound and orthodox principles. For instead of maintaining principle that internal value of a national currency should conform to a prescribed de jure external value, it provides that its external value should be altered if necessary so as to conform to whatever de facto internal value results from domestic policies, which in themselves shall be immune from criticism by Fund. Indeed, it is made duty of Fund to approve changes that will have this effect. That is why I say that these proposals are exact opposite of gold standard. I He furthermore contended that additional liquid reserves provided by international action would be sufficient to act as a buffer until equilibrating influence of alteration in exchange rates made its effects felt: the wheels of trade are to be oiled by what is, in effect, a great addition to world's stock of monetary reserves, distributed, moreover, in a reasonable way. 4 U. S. orthodox school assumed elasticities of demand for exports and imports to be great. 5 Indeed they were afraid that depreciation would be abused in order to obtain full employment by stimulating exports; and, accordingly, insisted that Fund should not permit lowering of exchange value of a currency before a long and large deficit in balance of payments occurred so as to be sure that disequilibrium was sufficiently to justify a change in value of currency. 6 There was no suspicion even that depreciation might not work or that it might generalize disequilibrium in system. difference between fundamental and temporary disequilibria in balances of payments was never defined, nor was there an attempt made to inquire into nature and causes of such disequilibria so as to be able to adapt remedial measures to specific 'U. S. Department of State. This was presumably an American product but it is characteristic of British delusions about future of Western Europe as an industrial center in a non-planned world that draft followed almost verbally proposals put forward-in a personal capacity by Professor J. E. Meade in Economic Basis of a Durable Peace (London, I940). On implications of opportunity to compete with U.S. on equal terms of Western Europe under rule of so-called non-discrimination, compare my essays, The Charter of ITO, Bulletin of Oxford University Institute of Statistics, Vol. 9, No. 3, and 'Britain and Geneva Tariff Agreements, Ibid., Vol. 9, No. 12. 2 Seymour E. Harris, Editor, New Economics (New York, I947), p. 3743Ibid., p. 376. This judgment was clearly based on excessive optimism with regard to relations of U. S. and Western Hemisphere in general to rest of world, an optimism brought out clearly in his famous forecast that The chances of dollar becoming dangerously scarce in course of next five or ten years are not very high (The Balance of Payments of U. S., Economic Journal, June I946, p. i85). 'Ibid., p. 372. 'G. Haberler, this REVIEW, XXVI (November I944), P. I9I. 6Ibid., p. i8i.