Individual Country Studies Research Articles

The demand for military spending in the peripheral economies of Europe

Research on the factors that determine the level of military expenditure or military burden in countries, suggest that the dynamics of the determinants of military spending will be best understood by case studies of individual countries and studies of groups of relatively homogeneous countries. This paper provides a comparative analysis of three of the EU's peripheral economies - Greece, Portugal and Spain. A simple model based on a general theory of the demand for military spending provides the basis for an investigation of the relative importance of strategic and other social and economic factors for the three countries.

Learning to Manage Global Environmental Risks

Review: Learning to Manage Global Environmental Risks By The Social Learning Group Reviewed by Umar Karim Mirza Pakistan Institute of Engineering and Applied Sciences, Pakistan The Social Learning Group. Learning to Manage Global Environmental Risks. Cambridge, MA: MIT Press, 2001. 2 vols. Vol. 1: A Comparative History of Social Responses to Climate Change, Ozone Depletion, and Acid Rain. 376 pp. ISBN 0-262-19444-9 (cloth); 0- 262-69238-4 (paperback). US$75.00 cloth; US$30.00 paperback. Recycled alkaline paper. Vol. 2: A Functional Analysis of Social Responses to Climate Change, Ozone Depletion, and Acid Rain. 226 pp. ISBN 0-262-19445-7 (cloth); 0- 262-69239-2 (paperback) US$60.00 cloth; US$24.00 paperback. Recycled alkaline paper. This two-volume book contains 22 chapters contributed by 37 scholars of the Social Learning Group. They include among others university teachers, scientists, researchers, doctoral students, and journalists. The scholars represent nine different nations from Europe and North America. Dr. Bert Bolin, former chairman of the Intergovernmental Panel on Climate Change (IPCC) has written the foreword to this book. Volume 1 comprises 14 chapters in all, divided into two parts. The first part provides an introduction to the volume and the historical overview of the problems of acid rain, ozone depletion, and climate change. The second part contains individual country studies and the role of coordinated regional or international efforts to combat these environmental problems. An appendix gives short an introduction for each contributing scholar while the volume ends with author and subject indices. The indices cover Volume 2 also. There are eight chapters in Volume 2, again divided into two parts. Part One, consisting of seven chapters, signifies the importance of risk assessment and monitoring, and discusses the option assessment goal and strategy formulation, implementation, evaluation, and knowledge and action in the management of global environmental risks. The last chapter forms the second part and describes the conclusions drawn and the implications for the future. The first of the two appendices explains the research protocol of the project while the second one is a repeat of the Volume 1 appendix about contributing scholars. Author and subject indices are there to mark the end

Obesity in Asia: prevalence and issues in assessment methodologies

The dramatic changes in the lifestyle of many Asian communities, and the resultant changes in the food and nutrition issues facing the communities in the region have been documented by various investigators. Health authorities and researchers have given greater attention to the problem of overweight and obesity. Available data are lacking, but various estimates have indicated that the emerging problem of overweight amongst children cannot be ignored. Estimates of overweight by the World Health Organization (WHO) amongst preschool children in Asia in 1995 was around 2.9%. Data extracted from selected studies in individual Asian countries show much higher prevalences, ranging from 5% to 9% amongst several urban cities in Asia. In several other developing countries in the region, the prevalence is probably very low, with prevalences of less than 1%. There is thus considerable variation in this prevalence amongst the various countries. The problem of increasing overweight and obesity amongst adults in Asia has been highlighted for more than a decade. The database on the extent of the problem is far from being comprehensive, but various studies have pointed out the severity of the problem. Various reports in the 1990s have pointed out prevalences of overweight of over 20% and obesity of over 5% amongst urban population groups of the more developed countries in the region. It is also to be noted that there are also reports indicating that the most affluent societies in the region, such as Seoul and Tokyo, did not have the highest prevalence of overweight. There are also data on increasing prevalence of overweight among rural areas in the last 10 years. The situation for children is similar: there is considerable variation in the severity of the problem. In the Philippines National Surveys, for example, slightly lower prevalences have been reported. Countries in the region will continue to progress, accompanied by continued changes in lifestyle of communities. It is therefore of utmost importance to continue to monitor the nutritional status of communities. The lack of nationally representative data which is regularly updated is a major concern. The lack of data for certain age groups such as the adolescents and the elderly need to be addressed. One of the main obstacles in the formulation and effective implementation of intervention programs in developing countries is the lack of comprehensive data on the extent of the problems in many cases and the causes of such problems specific to the communities concerned. In addition to the lack of good data, other concerns too need to be addressed. These include methodological issues such as the need for harmonization of methods in assessment of nutritional status for the various groups, the appropriateness of criteria for cut‐offs, growth reference to be used, and association of overweight and obesity with comorbidities.

Aid and Growth in India: Some Evidence from Disaggregated Aid Data

The article focuses on the impact of aid on growth by using a new approach in the aid-effectiveness literature related to the composition of foreign aid. We present a model of the impact of aid on growth in an aid-recipient economy to derive a reduced-form growth equation, which is subsequently estimated by using time- series data for India over the period 1970-92. The paper improves upon earlier work in the area of aid effectiveness by focusing on a neglected, though important issue, namely the aid-disaggregation and the way it affects the empirics of aid effec tiveness. Disaggregated aid data has been constructed by the OECD to test the rel evance of the aid-disaggregation hypothesis to aid effectiveness for India. Furthermore, the paper employs modern time-series econometric analysis based on general-to-specific modelling and co-integration to shed more light on a highly debatable topic. The empirical results obtained seem to suggest that the composi tion of aid matters for deriving robust conclusions on aid effectiveness in the case of India; at the same time, they seem to call for further work in this promising area within the context of more individual country studies.

Defence spending and economic growth: A causal analysis for Greece and Turkey*

There are a number of studies which consider the relation between military spending and economic growth using Granger causality techniques rather than a well‐defined economic model. Some have used samples of groups of countries, finding no consistent results. Others have focused on case studies of individual countries, which has the advantage of the researchers bringing to bear much more data than the cross country samples and a greater knowledge of the structure of the economy and the budget. This paper adds to the literature by providing an analysis of two countries, Greece and Turkey, which are particularly interesting case studies given their high military burdens, the poor relations between the two and the resulting arms race in the area. In addition to analysing the data using standard “pre‐cointegration” Granger causality techniques, this paper employs modern vector autoregressive (VAR) methodology that utilises cointegration via Granger's representation theorem. The standard Granger causality tests suggest a positive effect of changing military burden on growth for Greece, but this is not sustained when the cointegration between output and military burden is taken into account. The only evidence of significant Granger causality is a negative impact of military burden on growth in Turkey.

Big Business, Growth, and Decline

The downside of Chandler's success is that it has placed the large enterprise and the American economy on a pedestal, next to which eveiy other case appears a fumbling effort towards their apparent virtues. As some of the individual country studies inCAHshow, well before even Chandler set out on this mission, American management consultants such as McKinsey were “exporting” the M-form company structure as their nostrum for all the world's business ills. As is shown in Fear's chapter and in several others, this involved a very simplistic diagnosis ofwhat those ills consisted of. The M-form conferred substantial advantages at a certain time and place in the evolution of industry, but it was no panacea. Furthermore, as I have suggested previously, its aetiology for comprehending its own prognoses was too shallow.

Geopolitical and Economic Changes in the Balkan Countries (review)

Reviewed by: Geopolitical and Economic Changes in Balkan Countries Nikolaos Zahariadis Nicholas V. Gianaris, Geopolitical and Economic Changes in Balkan Countries. Westport, Connecticut and London: Praeger. 1996. Pp. xii + 227. $65.00. The purpose of the book is to introduce ten Balkan countries to the reader and to identify areas and trends of closer cooperation among them. The countries include Albania, Bulgaria, Greece, Turkey, Romania, and all the states that were once the constituent republics of Yugoslavia. However, the author fails to accomplish his goals despite the book’s wealth of detail. To be sure, writing a book on the Balkans is not an easy task. There is just too much diversity and too much history packed into this small area. So it is best to approach the subject from a regional perspective as opposed to a strictly national one. In this way, an author can gloss over some details but capture the more interesting commonalities that bind the countries together into a single region. Indeed, this is what Professor Gianaris suggests as the main impetus behind writing this monograph (10). Yet the bulk of the book—roughly 110 pages—is unfortunately devoted to studies of individual countries. If other books on individual countries cover this material well, as they do by the author’s admission, what is the point of reiterating the same details? A better alternative would have been to identify the main problems that currently divide the countries under scrutiny, to analyze the origin and implications of these problems in individual comparative chapters, and to conclude by constructing a framework designed to overcome the problems and to lead toward greater cooperation. Such approaches do appear in the book to some degree, but they are far too dispersed and hidden. The unfortunate result is that the book’s value is considerably diluted. The main problem is that the book lacks a unifying theme. Nor is there any theory to add substance to the empirical details. For example, a historical chapter is complemented by historical sections on individual countries. Other than offering interesting details (and considerable duplication), what is the point of telling us so much that has already been said elsewhere and in greater detail? How do the details, selective by necessity, inform the main argument? What is the point of beginning the analysis with the Dorian invasion if the book’s essence centers on the contemporary period? In addition, there is no continuity between chapters and no concluding section to give overall direction to the [End Page 166] study. So it is up to the reader to determine what the main argument is. I suspect that Professor Gianaris wished to write an introduction to the Balkan peninsula that would be more comprehensive and factually accurate than, say, Robert D. Kaplan’s widely but unjustifiably praised Balkan Ghosts (New York: St Martin’s Press, 1993). He succeeds in this, but the problem is that neither he nor Kaplan has a purpose. Comparisons without a purpose are irrelevant and ineffective. The author is at his best when discussing economic issues and policies. But he fails to mention the fundamental problem plaguing all Balkan countries: creating viable democratic institutions. There are interesting insights into the view that a possible Balkan customs union is problematic owing to economic rather than political reasons. With the partial exception of Greece and possibly Turkey, all Balkan countries compete in producing primary, price-competitive products. A customs union would intensify such competition with adverse social consequences. There are also good, pragmatic recommendations in the book, such as the need to exploit Thessaloniki’s potential further but not at the expense of the environment. This information, contained in the last two chapters, is substantial but incomplete. As the author mentions, institutions are essential for a free-market economy. But political institutions—and, more specifically, democratic ones—are vital ingredients of a country’s long-term viability, as the case of Albania has made abundantly clear. What is the Balkan experience in this area? How can current institutions be strengthened or refocused? Professor Gianaris is right in arguing that there is a lack of good regional analyses of the Balkans. Unfortunately, comprehensive surveys tend to be superficial...

Underpricing and Overexploitation of Tropical Forests

Abstract Forest pricing policies for tropical timber and forest concessions can play an important role in the management, conservation, and preservation of tropical forests. The paper draws on regional studies of forest revenue systems and forest concession arrangements, country case studies, and studies in individual countries of West and Central Africa and South East Asia (Grut, Gray, and Egli, 1991; Gray and Hadi, 1989; Gray and Hadi, 1990; and Gray, 1983). Forest pricing and concession management policies, problems, and experiences in individual countries are examined, common problems and experiences highlighted, and alternatives identified. From these, the elements of a forest pricing and concession management system which supports sustainable management, efficient utilization, and forest renewal are developed.

Paul W. Schroeder's International System: The View from Vienna

extended gestation of volumes in the Oxford History of Modem Europe has been exceeded only by the distinction of the finished products. Planning began as long ago as 1947. It was initially conceived as a series of eleven large-scale works covering the period from the French Revolution to the end of the Second World War. Three volumes would be devoted to diplomatic history, while the remainder were to be studies of individual countries. The first

Non‐nested hypothesis testing of theories of inflation in Latin America

AbstractThere is a lively debate among the monetarists and the structuralists in explaining the persistence of inflation in Latin American countries. The monetarists point out the role of excess demand in generating inflation. On the other hand, the structuralists point out the role of structural factors; agricultural bottleneck, foreign trade bottleneck, and public sector bottlenecks in causing inflation. In this paper we conduct non‐nested hypothesis testing of the structuralist and the monetarist theories of inflation using data for a set of Latin American countries. No general pattern emerges from the tests. In the case of individual country studies the results are mixed. For some countries the tests rank the monetarist model over the structuralist model, while for some others they either accept or reject both models. In the pooled sample there is even less variation in the results. In most of the cases the tests accept both models, suggesting that it is not possible to differentiate between the models. The results of the paper casts serious doubt on the applicability of monetarist and structuralist theories in explaining inflation in Latin America. The conclusion of the paper may be able to explain why in the past stabilization programmes based either on monetarist or structuralist ideas have failed miserably in controlling inflation in Latin America.

Oil windfalls: blessing or curse?

The oil booms of 1973 and 1979 brought unprecedented income to many, previously poor oil-producing countries. What became of their new-found wealth? In this comparative study, the author assesses for the first time, the effects of oil windfalls on six developing countries. He presents new information on how these petroleum exporters, used their oil revenue, and analyzes the consequences of government policies. He concludes that much of the potential benefit of the windfalls, has been dissipated, and, explains why some oil producers may have ended up actually worse off, despite the additional revenue. Although this issue has been previously discussed, especially anecdotally, it has not been systematically analyzed, and related to the economic policies of particular countries, and their macroeconomic characteristics. In this comparative analysis of six oil-exporting countries - the core of the book - the author blends institutional, and political aspects, with the quantitative results derived from a complex economic model, including individual country studies. The author suggests that natural resources alone will do little to promote economic development. Countries need sound economic management, and need to address the political factors that conflict with wise policy choices. Market processes are needed to help allocate public resources, and, governments and others responsible must take account of risk, and uncertainty when selecting projects, and formulating plans for development.

Politics: American and Non-American

Tocqueville, considering how Americans compare their nation with others, observed that general ideas about politics testify to the weakness of human intelligence. “The Deity does not regard the human race collectively.… Such is, however, not the case with man. … Having superficially considered a certain number of objects, and remarked their resemblance, he assigns to them a common name, sets them apart, and proceeds onwards.”As it is for human beings, so, too, for political scientists. And of the generalizations which have helped Americans and American political scientists organize the confusing mass of differences and similarities between this country and others, none has been more important and enduring than the notion of the uniqueness of the American political community. This conception is reflected in the split within the discipline between those who study the U.S. political system and those who study comparative politics, a field understood to encompass various foreign countries. The rubric that in theAmerican Political Science Reviewuntil the 1950s used to read “Foreign Governments and Politics” has been replaced by a subsection of the book reviews that is entitled “Comparative Politics.” But today as in the past, it is rare to find teaching or research in political science that truly integrates the analysis of American politics within a comparative framework.Why this should remain the case is difficult to understand, for over the past half-century there have been many shifts in the discipline and in the world that challenged the premises of research based on American exceptionalism. Already in the interwar period, significant work in political science was moving beyond configurative case studies of individual countries. C. J. Friedrich's importantConstitutional Government and Democracy(1937), indeed, included the United States in its examination of how well certain general political theories explained the experiences of major political systems. Whatever reservations one might have had about the methodologies of comparative research on which Friedrich relied, the broad influence of his work promised a new integration of American politics into an expanded field of comparative politics.

Politics: American and Non-American

Tocqueville, considering how Americans compare their nation with others, observed that general ideas about politics testify to the weakness of human intelligence. “The Deity does not regard the human race collectively.… Such is, however, not the case with man. … Having superficially considered a certain number of objects, and remarked their resemblance, he assigns to them a common name, sets them apart, and proceeds onwards.”As it is for human beings, so, too, for political scientists. And of the generalizations which have helped Americans and American political scientists organize the confusing mass of differences and similarities between this country and others, none has been more important and enduring than the notion of the uniqueness of the American political community. This conception is reflected in the split within the discipline between those who study the U.S. political system and those who study comparative politics, a field understood to encompass various foreign countries. The rubric that in the American Political Science Review until the 1950s used to read “Foreign Governments and Politics” has been replaced by a subsection of the book reviews that is entitled “Comparative Politics.” But today as in the past, it is rare to find teaching or research in political science that truly integrates the analysis of American politics within a comparative framework.Why this should remain the case is difficult to understand, for over the past half-century there have been many shifts in the discipline and in the world that challenged the premises of research based on American exceptionalism. Already in the interwar period, significant work in political science was moving beyond configurative case studies of individual countries. C. J. Friedrich's important Constitutional Government and Democracy (1937), indeed, included the United States in its examination of how well certain general political theories explained the experiences of major political systems. Whatever reservations one might have had about the methodologies of comparative research on which Friedrich relied, the broad influence of his work promised a new integration of American politics into an expanded field of comparative politics.

Politics: American and Non-American

Tocqueville, considering how Americans compare their nation with others, observed that general ideas about politics testify to the weakness of human intelligence. “The Deity does not regard the human race collectively.… Such is, however, not the case with man. … Having superficially considered a certain number of objects, and remarked their resemblance, he assigns to them a common name, sets them apart, and proceeds onwards.”As it is for human beings, so, too, for political scientists. And of the generalizations which have helped Americans and American political scientists organize the confusing mass of differences and similarities between this country and others, none has been more important and enduring than the notion of the uniqueness of the American political community. This conception is reflected in the split within the discipline between those who study the U.S. political system and those who study comparative politics, a field understood to encompass various foreign countries. The rubric that in the American Political Science Review until the 1950s used to read “Foreign Governments and Politics” has been replaced by a subsection of the book reviews that is entitled “Comparative Politics.” But today as in the past, it is rare to find teaching or research in political science that truly integrates the analysis of American politics within a comparative framework.Why this should remain the case is difficult to understand, for over the past half-century there have been many shifts in the discipline and in the world that challenged the premises of research based on American exceptionalism. Already in the interwar period, significant work in political science was moving beyond configurative case studies of individual countries. C. J. Friedrich's important Constitutional Government and Democracy (1937), indeed, included the United States in its examination of how well certain general political theories explained the experiences of major political systems. Whatever reservations one might have had about the methodologies of comparative research on which Friedrich relied, the broad influence of his work promised a new integration of American politics into an expanded field of comparative politics.

Foreign trade and development in Egypt

Interest in the Egyptian economy had peaked twice during the last three decades. In the mid-sixties, three major studies appeared: Issawi [1963], Hansen and Marzouk [1965] and Mead [1967]. Because little was known about the Egyptian economy prior to their publications, each attempted to investigate almost every facet of the economy. Some fundamental economic policy shifts, meanwhile, were introduced by the Nasser regime in the early sixties, which were obviously going to substantially influence the structure and the performance of the Egyptian economy. However, because the statistical evidence became available only in the early seventies, no study of major importance was published until the mid-seventies when another batch came out: Hansen and Nashashibi [1975]; Mabro and Radwan [1976] and Girgis [1977]. In contrast to the first, these studies, especially the latter two, were much narrower in their coverage in that their focal point was the allocative efficiency of the government's trade and industrialization policies. The study under review here is Hansen and Nashashibi's which was one of a series of ten individual country studies sponsored by the National Bureau of Economic Research as part of a project dealing with exchange controls, trade liberalization and economic development. The book consists of two parts. The first is devoted to the evolution of Egypt's foreign exchange policies since the end of World War II. The second measures the influence these policies have had on the level of effective protection and competitiveness in Egypt's major agricultural crops and a selected number of manufactured products. Though the first part purports to focus on trade regimes alone, it contains much more. The study starts with a brief but lucid review of Egypt's major economic events since 1840. Up till 1930, the authors state the economy had operated with minimal trade barriers. However, the introduction of the 1930

Demographic Responses and Demographic Transitions: A Case Study of Sweden

An important study by Friedlander investigated some of the effects of different demographic responses on national demographic transitions. England and Sweden were advanced as cases that approximated the suggested hypothetical models of transitions. His argument implied that the rural population of a country (in this case Sweden) experiencing mortality decline but little industrialization would reduce its fertility rates if our-migration from agricultural areas were not possible. This present study, using more complete data and better measures, concludes that this did not occur in Sweden--it did not conform to Friedlander's hypothesized model. Because the potential implications of these findings could be profound and wide-ranging, there is a need for more studies of individual countries using better data and giving more careful attention to Davis's theory on which the Friedlander hypothesis is based.

Foreign Trade Regimes and Economic Development: TURKEY. By Anne O. Kneger. New York : Columbia University Press 1975. (Published by the National Bureau of Economic Research, Inc., New York) xxiii + 339 pp. Price $ 17.50 for hard cover ; $ 5.00 for paperback.

The book is the first of a series of studies on Exchange Control, Liberalization and Economic Development sponsored by the National Bureau of Economic Research, New York. The ten-country study, of which the book under review is a part, provides an in-depth analysis of three major areas : The anatomy of exchange control along with its implications, the episode of the liberalization of the payments regime, and the relationship of growth with the exchange control regime. The findings of the individual country-studies have been consolidated in an overall synthesis. However, each study is complete in itself in accordance with the needs of scholars having an interest in only some of the studies. The book under review seeks to analyse Turkey's trade and payments regime and the effect that the latter has had on the country's economic growth. Whereas quite a few other factors are instrumental in development (e.g. agricultural productivity, levels of education, political and social stability, etc.), the focus on foreign trade alone is justified by the author on the grounds of the tremendous amount of government influence in foreign trade. Moreover, the author believes that an intensive study of the trade-growth relationship is more rewarding than: a general survey of all factors related to economic growth.

The Optimal Utilization of Capital Stock and the Level of Economic Development

Labour-surplus and capital-shortage have long been used to characterize underdeveloped economies. However, we are increasingly concerned that most (if not all) capital-poor, underdeveloped economies are afflicted with of scarce capital in their manufacturing sectors. Kim (1969) presented a statistical estimate of sectoral capital coefficients in a number of countries with results that support the hypothesis of under-utilization. Winston's (1971, 1974d) analysis of Pakistan found the level of industrial capital utilization in the order of 14 per cent. More recently, Kim and Kwon's (1973) study of the manufacturing sector in South Korea showed that the average aggregate utilization rate (exclusive of heavy electricity-using and continuous process industries) during 1962 through 1971 ranged between 13 to 17 per cent depending on the choice of alternative measures. These estimates from the two underdeveloped economies compare with 23 per cent utilization of US manufacturing capital in 1962. All these estimates are based on Foss' measure (1963), which gives the number of hours a given equipment is operated in a 8,760-hour year (365 days times 24 hours), expressed in percentages. Accepted theories cannot evaluate the economic significance of these findings. Two shortcomings are central: (1) under-utilization or excess capacity denotes a situation in which actual utilization of capital is below a level that is optimal in some clearly defined sense, yet that optimal level is rarely defined; and (2) that optimal level of utilization is neither a twenty-four-hour-a-day maximum nor an engineering constant. Instead it is part of an economic decision and responds to economic variables. It is the purpose of this paper to present a simple analytical framework that overcomes these deficiencies and then to evaluate, against clear standards, whether the extent of in fact is greater in less-developed economies than in advanced economies. The results of past statistical studies convey two related facts. First, on the basis of inter-country comparisons, a positive (or at least, nonnegative) relationship seems to prevail between the sectoral output/ capital-stock ratio and the level of economic development (Kim, 1969). Secondly, on the basis of individual country studies, albeit limited, there appears to be a positive relationship between the utilization of capital stock (hours of operation) of either manufacturing as a whole or individual manufacturing sectors and the level of economic development (Bureau of the Census, 1966-; Foss, 1963; Kim and Kwon, 1973; 377

Inflation and Monetary Velocity in Latin America

CONTROVERSIES involving inflation, particularly inflation in developing countries, have usually focused on Latin America.1 One major point which emerges from these controversies is the distinction between a fully anticipated, fully adjusted inflation and an inflation which proceeds with such irregularity that economic agents are able neither to anticipate nor to adjust completely. To the extent that individuals can anticipate and adjust to inflation, a higher rate of inflation will cause the income velocity of money to rise, as attempts are made to exchange money for hedges against inflation.' The influence of inflation on monetary velocity is less clear, however, under the conditions of imperfect anticipation and adjustment which prevail in Latin America. Not only are the rates of inflation in most Latin American countries high, but they also tend to be highly variable. In addition, most Latin American countries have less than perfect markets for hedging against inflation, and these are further restricted by the regulations often imposed on interest rates, prices and international trade in the wake of inflationary conditions.' The present paper examines the impact of inflation on the income velocity of money for sixteen Latin American countries over the period 1950-1969. Such an examination not only indicates the sensitivity of demand for real cash balances to changes in the price level, but also reflects the extent to which economic agents under conditions prevailing in Latin America can anticipate inflation and adjust by hedging. Aside from Cagan's well-known work on hyperinflation (Friedman, 1956, pp. 25117), most empirical studies of the demand for money in individual countries conclude that inflation does not have a significant impact on velocity.4 These studies generally argue that the small changes in the price level usually observed cannot be adequately anticipated or are not large enough to cover the costs of adjustment. A recent article by Melitz and Correa (1970) on international differences in income velocity, like most studies of individual countries (but contrary to theoretical expectations), also concludes that inflation does not influence velocity. This article, like the present study, uses international comparisons, but the findings differ substantially. Melitz and Correa find that the coefficient for the impact of inflation on velocity does not have the expected sign and therefore omit the inflation variable from further consideration. They argue that price changes are important only in cases of hyperinflation and that adjusting to mild inflation is too costly and difficult to be worthwhile. Having excluded inflation as an explanatory variable, Melitz and Received for publication May 24, 1972. Revision accepted for publication January 30, 1973. * The authors wish to thank Michael C. Lovell for many helpful comments and suggestions, Francisco Chaves for assistance with data collection and computational work, and the Wesleyan Computer Center for generous use of its facilities. ' Best known is the monetarist-structuralist controversy over the causes of inflation and the impact of inflation on economic development. See, for example, Baer and Kerstenetzky (1964), Johnson (1967, pp. 281-291) and Baer (1967). 2-Johnson (1967, pp. 104-142) identifies the tax on real cash balances as the essence of the quantity theory approach to inflation, and it is the efforts to escape this tax which cause monetary velocity to rise with inflation. 'In discussions of inflation and economic growth, more costs and benefits of inflation are attributed to structural imperfections rather than to the tax on real cash balances. Structuralists emphasize the benefits of inflation in circumventing market imperfections, while monetarists focus on the costs of inflation in conjunction with inappropriate government regulations. See Johnson (1967, pp. 281-291) and Baer (1967). 4 However, some studies in a collection edited by Meiselman (1970) provide limited support for a positive influence of inflation on velocity in several less-developed countries. Deaver (Meiselman, 1970, pp. 7-67), finds the rate of inflation to be a significant variable in explaining velocity changes in Chile during the period 1932-1955, while Campbell (Meiselman, 1970, pp. 339-386) finds a positive correlation between velocity and changes in the rate of inflation in a comparative study of South Korea and Brazil. In a cross-country study Perlman (Meiselman, 1970, pp. 297337) finds nominal interest rates or inflation rates (as proxies for the opportunity cost of holding money) to be significant in explaining international differences in liquid asset portfolios.

An Econometric Test of Alternative Constraints on the Growth of Underdeveloped Countries

T HE of the role of foreign assistance in economic development in terms of two gaps a savings gap and a trade gap has by now become quite commonplace among development economists.' The basic notion underlying analysis is that there are at least two independent resource constraints on the growth of an underdeveloped economy. The first of these is the savings constraint: the growth of the economy is limited by the availability of savings for investment. The second is the trade constraint: the growth of the economy is also limited by the availability of foreign exchange for importing specific commodities required for current production and investment. Since foreign assistance can add both to the availability of savings and to the availability of foreign exchange, and since in a two-gap disequilibrium situation only one of the two constraints is likely to be binding at any particular time, the productivity of foreign assistance depends critically on which constraint is in fact binding. The determination of the binding constraint is also essential for the empirical implementation of two-gap planning models. Such models involve among other things aggregative functions describing the savings behavior and the import requirements of an economy. In a twogap situation, observed savings may or may not equal desired savings, and observed imports may or may not equal required imports, depending on whether the savings or the trade constraint is binding. In order to estimate savings and/or import functions from historical time series data, one must make a judgment about which constraint was in fact binding during the period used for estimation.2 Accepting the general framework of two-gap analysis, this paper is addressed to the problem of determining statistically which of the two constraints was dominant in a given country during a given historical time period. The objective of the paper is to develop and apply an econometric method that can be used systematically to classify countries according to their dominant constraint over varying periods of time. Given the importance of the problem for twogap analysis, it is surprising that very few attempts have been made to test systematically for the dominant constraint. Case studies of individual countries have often led to conjectures about binding constraints, but this author is aware of only three attempts to classify a large number of countries by dominant constraint.1 The present paper attempts to develop a more satisfactory method of classification. In