External Sector Research Articles

THE RELATIONSHIP BETWEEN THE CURRENT ACCOUNT BALANCE AND ITS DETERMINANTS OF SELECTED MIDDLE-INCOME COUNTRIES

The IMF’s external sector report 2018 indicate that global current account balances are 40-50% are now excessive rather than appropriate. The fact that persistent excess imbalances are pose risk to global economy stability and putting a pressure on international trade relations. Therefore, individual economies around the globe are trying harder to fit into the global challenges which associated with risks and require policies adjustment to reduce the excess imbalances. The objective of this study is to analyse the role of debt management indicator towards the current account balance. Panel data of 13 countries is used from 1990 to 2015 for estimation which involved the Pooled Mean Group (PMG) estimator to estimate the long run relationships between debt management and current account balance. The study found evidence of long run relationships between GDP per capita growth, fiscal balance, net foreign asset, debt management, trade openness and current account balance. The variable of debt management indicator has a weak link to current account balance or debt sustainability. This study suggests several policies implications to policy makers. To strengthen the external sector position, the development of domestic debt market through fiscal and monetary policy is vital as a pragmatic step to reduce dependency on external borrowing. In addition, debt management strategies play a significant role even though relatively small in strengthening current account balance position.

Trade Complementarity and the Balance of Payments Constraint Hypothesis: A New Free Trade Agreement between Mexico and South Korea

Market diversification is one of the keys to success in the new era of world trade. Highly competitive countries have accomplished positive and sustained growth rates by not depending on a single market for their exports and imports. In Mexico, on the contrary, 80% of exports and 45% of imports concentrate in the United States. The South Korean market represents an opportunity for the Mexican economy, as the relationship between the two countries has strengthened in recent decades. This opportunity would promote greater economic growth for both countries if they reached a Free Trade Agreement, as we show in this work. The aim of this research is to assess the complementarity between these countries and estimate their external long-term equilibrium using the Thirlwall trade restriction model. Results confirm the existence of trade complementarity between the two economies and show that these are able to achieve long-term equilibrium in the external sector. Additionally, the Mexican economy would not face balance of payment constraints for growth when trading with South Korea, as it currently does with the United States.

External Dependence of the African Franc CFA zone. Empirical Investigations on Money Supply Process

The objective of this paper is to study the operating mechanisms of the issuing institutions in CFA area and the different sources of money creation. Our approach consists in studying, respectively the automatic or discretionary nature of monetary policies, through the establishment of non-neutralization/non-sterilization monetary indices (index); and in a second step we test, using co-integration models, the evolution of monetary base in relation of Net External Asset (NFA) and in relation to the evolution of Net Domestic Assets. Our results mainly indicate the existence of a preponderance of the external sector or NFA over the evolution of the monetary base or money supply, compared to the domestic sector. In addition, we observe an automatic adjustment in both WAEMU and CEMAC over the long term. But the return to equilibrium is slower in WAEMU due to a mix of automation and discretion. On the other hand, in CEMAC, the return to equilibrium is almost automatic with a strong dependence on the external sector.

Analysis of the Impact of COVID-19 on New Zealand’s External Sector

This paper analyses the COVID-19 impact on New Zealand’s exports and imports based on the latest available data. The analysis presents a commentary of the performance of exports and imports and found, to date, that New Zealand’s external sector showed resilience to the shock. However, the resilience and future performance of the external sector would largely depend on how New Zealand government devises future strategies and on economic condition of New Zealand’s major trading partners.

EARLY WARNING INDICATORS AND OPTIMAL POLICIES FOR MITIGATING ECONOMIC CRISES: EVIDENCE FROM META-ANALYSIS

This study examines the early warning indicators of crises and the optimal policies for mitigating economic crises. Based on meta-analysis of 72 studies, we find that the exchange rate is the most used indicator in detecting crises, and the optimal policies for mitigating crises are monetary and fiscal policies. We further find that besides the exchange rate, the interest rate is a dominant indicator of crises in developed countries.Moreover, the foreign exchange, international reserves and current account are the dominant indicators in developing countries. The evidence for developing countries aligns with the finding that policies addressing external sector performance are preferable to mitigate crises in these countries.

Factors influencing India's current account balance: Implication for achieving its external sector sustainability

Using annual data for the period 1980–1981 to 2014–2015, the study explores the impact of crude oil imports and real exchange rate on India's current account performance. Utilizing the recent co‐integration econometric tools on a current account balance model, the findings contrary to the theoretical prediction revealed that crude oil import significantly improves the current account balance in the long run. Furthermore, the fiscal balance and financial development significantly contribute to the current account performance, whereas real exchange rate, trade openness and age dependency cause deterioration in India's current account balance in the long run. These results have significant policy implications on the sustainability of the current account balance in India.

Trade and growth in developing countries: the role of export composition, import composition and export diversification

We investigate the trade-economic growth nexus in developing countries considering the structure of the external sector. The economic literature has examined the effects on growth of export composition, export diversification and import composition, individually. We add to this discussion by jointly evaluating the role of these three factors in the trade-economic growth nexus. The assessment of the structure of the external sector allows identifying the features that improve the trade-economic growth nexus with relevant economic policy implications for developing countries. Using a sample of 19 developing countries and dynamic panel data models, we found that export composition and export diversification are insignificant. By contrast, the domestic content of exports, the share of high-tech imports and capital goods imports are positively associated with economic growth. Consequently, developing countries growth benefits from high-tech and capital goods imports, and potentially, from the development of an industrial policy able to boost the domestic production of inputs for the exporting sector.

Is monetary policy safeguarding financial stability in India?

Over the years, there has been an increasing debate over the role of the Central Bank in targeting the policy objectives and the extent to which the targets can anchor the expectations. The present study seeks to identify the linkage between monetary policy and financial stability in India. The study, based on quarterly data from January 2001 to July 2018, finds that the financial sector allied variables (BSE SENSEX index, Exchange Rate and Index of Industrial Production) have shown significant response to shocks in the policy rate, that is, reverse repo rate, except for exchange rate variable that was taken as a proxy for external sector stability. Also in the short‐run, when a shock is imparted to the policy rate, the response of the exchange rate is insignificant. Other than that, the corporate sector along with real output growth and banking sector variables induces a significant change in policy rate when a shock is introduced. With variables responding in the ideal direction to shock in the policy rate, it is inferred that the movement is in line with what ideally should hold over time. This leads us to conclude that the monetary policy safeguards financial stability in India.

ESTADO, BANCA PÚBLICA Y FINANCIAMIENTO DE LAS EXPORTACIONES: EL GRAN PRÉSTAMO ARGENTINO A LOS ALIADOS DE 1918–19

ABSTRACTThe outbreak of the First World War had a strong impact on Latin American economies, due to the sharp interruption of the influx of capital and the deep disturbances that it caused in international trade. In the Argentine case, a notable aspect was, together with the increase in the fiscal deficit, the growing trade and payment balance surplus. Public indebtedness was reoriented towards the domestic market by the means of a state bank Banco de la Nación, and this institution also granted a large loan to the governments of England and France, to finance the export of cereals to those countries. This work seeks to contribute both to the debate on the financial impact of the war and postwar conflict in Argentina, as well as to the role of public banks to mitigate the ups and downs of the external sector and mitigate its effects on local actors.

Influencia del sector externo en la liquidez ecuatoriana, 2000-2016

The purpose of this paper is to study the influence of the representative variables of the external sector within the Ecuadorian liquidity, for the period dollarized between the years 2000 to 2016, specifically focusing on the variables European and American international interest rate, exchange rate, assets and exportations. In addition, this paper analyzed the impact of liquidity on the gross domestic product. As can be seen from the results obtained, the country is more vulnerable to different external shocks, mainly, it is more sensitive to the foreign interest rate. Keywords: External sector, liquidity, balance of payments, exchange rate, dollarization. URL: https://revistas.uta.edu.ec/erevista/index.php/bcoyu/article/view/919

ORGANIC GEOCHEMISTRY OF MIDDLE MIOCENE (BADENIAN – SARMATIAN) SOURCE ROCKS AND MATURATION MODELLING IN THE POLISH AND UKRAINIAN SECTORS OF THE EXTERNAL CARPATHIAN FOREDEEP

The Carpathian Foredeep to the north and NE of the Carpathian orogenic belt in SE Poland and NW Ukraine is divided into internal and external sectors. In the narrow internal foredeep, Lower and Middle Miocene shales, sandstones and interbedded evaporites are tightly folded. By contrast the external foredeep is characterized by the presence of a thick, unfolded Middle Miocene molasse succession. This ranges in thickness from a few hundred metres in the north of the external foredeep to >5000 m in the south, near the Carpathian thrust front. Middle Miocene sandstones in the external foredeep form a major reservoir for biogenic gas at fields in Poland and Ukraine.The Middle Miocene molasse succession in the external Carpathian Foredeep also contains organic‐rich intervals which have source rock potential. For this paper, core samples (n = 670) of Badenian and Sarmatian mudstones from 43 boreholes in the Polish sector of the external foredeep were analysed to investigate their organic geochemistry and hydrocarbon potential. Results show that the samples analysed in general have low to fair (but locally high) total organic carbon (TOC) contents which range up 4.6 wt.% although the average is only 0.7 wt.%. Rock‐Eval (S1+S2) values are poor to fair and the hydrogen index is also low with a mean value of less than 100 mg/g TOC. The samples analysed are dominated by gas‐prone Type III kerogen and this is consistent with previous studies of time‐equivalent samples from the Ukrainian part of the external foredeep. The organic matter is in general thermally immature and is interpreted to have been deposited in anoxic and/or sub‐oxic conditions. However in the Polish part of the external foredeep, thermal maturities may locally reach the initial phase of the oil window where the Middle Miocene source rocks have been buried deeply beneath the Carpathian thrust front.The burial history and thermal evolution of the Middle Miocene succession were reconstructed by means of 1‐D modelling at nine boreholes located in both the Polish and Ukrainian parts of the external Carpathian foredeep. The modelling indicated that Middle Miocene source rocks have only entered the initial phase of the oil window locally where they are buried beneath the flysch nappes of the Carpathian foldbelt. At these locations the generation of thermogenic gas may have begun at depths of more than 3 km. However, Middle Miocene source rocks are still immature at depths of >4000 m in some boreholes in the Ukrainian part of the study area. The absence of accumulations of thermogenic natural gas is consistent with the observed low levels of source rock maturity.

Republic of Uzbekistan

At the request of the Republic of Uzbekistan authorities for technical assistance (TA) on external sector statistics (ESS), and with the support of the Middle East and Central Asia Department (MCD) of the International Monetary Fund (IMF), a mission from the IMF Statistics Department (STA) visited Tashkent during October 15–26, 2018. This was the first TA mission under the auspices of the Data for Decision Fund and the second since the Republic of Uzbekistan Presidential Order of September 12, 2017, “On Measures to Ensure the Accessibility and Openness of Economic and Financial Data for the Republic of Uzbekistan” was issued.

Republic of Uzbekistan

At the request of the Republic of Uzbekistan authorities for technical assistance (TA) on external sector statistics (ESS), and with the support of the Middle East and Central Asia Department (MCD) of the International Monetary Fund (IMF), a mission from the IMF Statistics Department (STA) visited Tashkent from September 30 through October 11, 2019. This was the second TA mission under the auspices of the Data for Decisions Fund and the third since the Presidential Order of September 12, 2017, on Measures to Ensure the Accessibility and Openness of Economic and Financial Data for the Republic of Uzbekistan was issued.

The External Sector of the Russian Economy: Low Investment Yields and Capital Flight

ABSTRACT According to the Bank of Russia (BR), Russia has been a large net creditor to the rest of the world for the last two decades. In this period, however, the rest of the world’s net indebtedness to Russia has seen almost no increase. This article provides an explanation for this paradox: The net lending in Russia’s official balance of payments (BP) was to a large degree ephemeral, and several provisions in the methodology of these balances are debatable. The article also studies questions connected to the extremely low yields of Russia’s external investments, and it pays special attention to the divergence between the Bank of Russia’s and Eurostat’s statistics for direct investments between Russia and the European Union (EU). Based on the latest statistics constructed on the directional principle, it is shown that as compared to Eurostat, the Bank of Russia greatly inflates the volume of Russian direct investment into the EU and understates the scale of illegal capital flight from Russia. Finally, the article comes to the conclusion that some of the funds that the BR includes in Russia’s foreign direct investment (FDI) into the EU are considered by Eurostat to be capital irreversibly withdrawn from Russia. It also assesses the amount of Russian investment that makes round trips from “Russia EU special-purpose entities Russia.”

Beyond Goodwin: Financialization as a structural change to explain the new Argentinian crisis

This paper aims to explain the causes of the 2018/2019 Argentinian crisis by means of a growth cycle model a la Goodwin, where the aggregate demand is wage-led, the wage-share is predatory of the external sector, and the financial norm stands as an exogenous apex-predator of both real wages and the current account. Its main results allow us to understand the stylized facts of the Argentinian economy: a higher financial norm increases inequality and required current account surpluses, reduces stability, and increases volatility and recessions length.

Ecuador: Into the abyss thanks to the structural adjustment policies of the Extended Fund Agreement with the IMF

This paper analyses the scope, origins, justification, and commitments of the extended fund arrangement (EFA) signed by the Ecuadorian government and the IMF in March 2019. This agreement, which represents a little more than a third of Argentina’ Stand-By Agreement, promotes Central Bank independence, austerity, as well as structural adjustment policies, but its basic’ diagnosis omits external sector problems. This paper presents the implications and contradictions of the agreement to promote structural changes in the real sector and how these foster policies that protect the interests of bondholders and bankers.

Export Competitiveness Analysis of Creative Industries in the European Union

Abstract Research purpose. The research purpose is to assess and compare the competitiveness of the EU creative industries’ export. Design/Methodology/Approach. The article is organised as follows: Section 1 presents a short theoretical conception of creative industries; Section 2 presents the theoretical background of trade competitiveness indices; Section 3 introduces the research data set, method and variables; Section 4 discusses the results of the revealed comparative advantage index analysis; and the final section presents the conclusions of the research. It should be noted that the research does not cover all possible factors underlying the differences in the external sector performance and thus may need to be complemented with country-specific analysis as warranted. Methods of the research include theoretical review and analysis, evaluation of comparative advantage indices and clustering. Findings. The analysis revealed that the EU countries may gain competitiveness because of the globalisation effects and the development of creative industries. The increase in the revealed comparative advantage (RCA) index during the period 2004–2017 shows rising EU international trade specialisation in creative industries. According to dynamic RCA index results, France, Poland, Slovakia, Slovenia and Spain has competitive advantage in creative industries sectors and could be specified as ‘rising stars’ according to dynamic of their export. Originality/Value/Practical implications. A creative industries analysis is becoming increasingly relevant in scientific research. Fast globalisation growth affects the processes in which closed economies together with their specific sectors are no longer competitive in the market because productivity of countries as well as particular economic sectors depends on international trade liberalisation, technology and innovation. Scientific literature, nevertheless, contains a gap in the area of international trade competitiveness research in creative industries sector.

External Sector: Between Congestion and Sanctions—‘Syrian Economy Case, 1987–2018’

Since the outbreak of the Syrian crisis in March 2011, the USA, European Union, Arab League and several other regulatory entities imposed negative economic sanctions on Syria—some of the most comprehensive ever implemented. This article first provides an assessment of Syrian foreign trade sector during the reform period of the 2000s and its impact on economic growth. Second, it estimates the impact of sanctions and conflict on the trade sector of the Syrian economy. The analysis is conducted using a panel-gravity model between Syria and 78 trading partners (1987–2017). Multilateral sanctions and conflict-related disruptions demonstrate a large significant negative impact on Syria-bilateral trade flow by 65 per cent. We attempt to find out whether the Syrian economy was able to divert trade away from Europe and/or conduct de-Europeanisation. Findings confirm that the Syrian economy was unable to divert trade flow to Asian and other countries due to the conflict-related congestion and distance factor. JEL: C33, F10

Montenegro

The International Monetary Fund (IMF)’s Statistics Department (STA) conducted a technical assistance (TA) mission to support the Central Bank of Montenegro (CBM) for the compilation of external sector statistics (ESS) in Montenegro during January 20–31, 2020. The mission was funded by Eurostat to meet the European Union (EU)’s acquis1 from the ESS perspective. The CBM has already met most of the EU requirements in ESS. The main outstanding issue is a production of international investment position (IIP) quarterly.

Economic Impacts of COVID-19 Macro and Microeconomics Evidences from Sri Lanka

The World Health Organization declared a global emergency condition due to widespread of COVID-19 across the globe. The present study comprehensively examines the impacts of COVID-19 on GDP, employment, inflation, stock market, externa sector performance and poverty in the context of Sri Lanka. The analysis reveals COVID-19 creates adverse impacts on both GDP and employment in Sri Lanka, despite magnitude of the impacts is significantly lower than that of South Asian average. Apart from that, ‘panic buying’, interrupted domestic production and distribution and restriction on imports have created an inflationary pressure on the economy led by headline inflation. Moreover, COVID-19 drastically affected Colombo Stock Exchange in Sri Lanka, reporting a historical low in mid-March 2020. External sector performance of Sri Lanka has weakened due to reduced export earnings, tourism receipts and remittances and in turn Sri Lanka rupee has sharply depreciated against major currencies in the world. In addition to major macroeconomic impacts of COVID-19, the study also observed microeconomic impacts of COVID-19 through projecting poverty dynamics under four-way poverty classification. The predictions reveals that there is a greater potential of increasing poverty incidence related to all poverty types (Extreme Poor, Poor and Vulnerable Non-poor) under present pandemic situation. Ultimately, the welfare effect of COVID-19 which will be higher than expected will essentially hinder the long-term economic development process of the country. Therefore, appropriate measures should be taken to regain the economy while controlling the spread of the pandemic.