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M.Comm. (Economic Development and Policy Issues) / The response of the trade balance to changes in currency movements has gained increasing interest among researchers, especially since the fall of the Bretton Woods system. Previous empirical studies that examined the response of the trade balance to exchange rate changes in South Africa employed aggregate trade data and provided mixed results. This dissertation uses disaggregated data with specific focus on the manufacturing sector. The purpose is to investigate the short and long run effects of the real exchange rate of the rand on the South African manufacturing trade balance by adopting the elasticity approach of balance of payments adjustment. Using quarterly data from 1995 to 2010, the study seeks to test the existence of the J-curve effect and to show whether the Marshal–Lerner condition holds in the manufacturing sector. Johansen cointegration and vector error correction modelling techniques are employed in attaining the objectives of this study. In addition, impulse response functions are used to determine how the manufacturing trade balance responds following shocks in its main determinants. The results show that real effective exchange rate (REER), real domestic and foreign income levels are important long run determinants of the manufacturing trade balance, and that a long run equilibrium relationship exists among these variables. A long run negative relationship was found between the trade balance and the REER and between the trade balance and real domestic income. In contrast, real foreign income was found to be positively related to the domestic manufacturing trade balance in the long run. The short run model reveals that a depreciation in the domestic currency results in a deterioration in the manufacturing trade balance. This, together with the long run findings, suggests evidence of the existence of the J-curve in the South African manufacturing trade balance. The long run dynamics suggest that the Marshal–Lerner condition holds. This dissertation found evidence that a depreciation of the rand is necessary to improve the manufacturing trade balance.

From the point of view of world, the positive results of the economic globalization are: more frequent scientific and technological exchange, more obvious international division, resource reach supreme utility. But, global economy integration, the abolition of the trade barrier, and improvement of capital mobility, have produced the serious economic problem in several areas. That is to say that this kind of laissez faire causes the international economic growth rate to be slow and large quantities of unemployment. Above-mentioned problems are very apt to happen in developing countries. A lot of economic construction of most developing countries has not been ripe yet .If they open trade and capital inflow rashly, in a situation that there is not any supplementary measure effectively, the economic development of this area is hindered because of being unable to bear the strong external pressure with assault probably .If more serious, it will also cause the terrible financial crisis. From 1964 to 1988, Brazil implemented 20 several years governance of military affairs. During 20 several years governance of military affairs, Brazil had gone through the high economic growth rate. However, since 1974, the inflation of Brazil began to be accumulating constantly, the finance and account deficit frequently were serious day by day. The Brazilian government, in order to solve the problem, since 1980, limited the capital inflow. This policy made the development in economy slower, and the inflation problem was more serious. During elected president Fernando Collor de Mello was in power, from 1990, Brazilian government determined to return to the international capital market, and then economic became better. The open policy let the exchange rate appreciate, trade that accumulate, and lasting in debt of external and account deficit frequently. Brazil faced external pressure and impact once again. From 1994, Brazil was in power by new president Fernando Henrique Cardoso. In 1999, Brazilian government canceled the fixed exchange rate system of staring at U.S. dollar, and changed to adopt the floating exchange rate system. The exchange rate of Brazil was decided by market from then on. Brazil faces the huge external pressure for a long time because of the impact of the economic globalization. A lot of countries have an optimistic view of the economic development in the future of Brazil very much. The reasons are: First, natural resources of Brazil are very abundant and enough to supply with the demand of the world; Second, Brazilian population reaches 180 millions, the huge market attracts various countries to be engaged in all kinds of trade and conduct of business. No matter from the past economic development or to the economic forecasting in the future, the economy of Brazil is closely linked with open economic policy. In other words, the imports, exports and capital mobility of Brazil have dominated the development in economy of Brazil. So, I use Balance-of-payments constrained growth rate model (BPCG model) of Thirlwall (1979) to analyze Brazilian economy. I set up adjusted BPCG model according to actual state of Brazil. I use cointegration test and estimate out the Brazilian imports and exports behavior equation, and then calculate primitive BPCG model and adjusted BPCG model. Pointed out finally, the economic growth rate estimated out from the adjusted BPCG model is closer to Brazil's actual economic growth rate than the economic growth rate estimated out from the primitive BPCG model. This shows that some assumptions of primitive BPCG model do not accord with the real state of Brazil. Such as on long terms, comparative purchasing power parity is not to be hold. Imports and exports will correspond to out different price elasticity or substitution elasticity, if face different products or the price from the different areas. Thus, in the case of Brazil, the assumption of single price and single elasticity is not to be hold. In general, the long-term economic growth rate estimated out in BPCG model roughly keeps the same with long-term real economic growth rate of Brazil. This result demonstrates that BPCG model is useful for analyzing export-led economic, and the result also supports Brazil to be an export-led economic growth country.

Thesis (Ph. D.)--Yale University, 1977. / Includes bibliographical references (p. 210-212).

published_or_final_version / Statistics / Master / Master of Social Sciences

This thesis analyzes the effects of external shocks and government policy responses on the current account in Kenya. We attempt to isolate two effects on the current account which arise from the impact of external shocks to the economy. The first one is attributed to a direct response by private agents to the shock. The second arises from the optimal response by the government to counteract the effects of the shock on the economy and depends on the government's objectives. It is hypothesized that these two effects can explain the behavior of the current account in many developing countries. / Much of the literature in developing countries ignores the indirect effect of government policy on private sector behavior and hence its effect on the current account. Moreover, the models emphasize empirical analysis with little or no theoretical foundation. / In this thesis, an intertemporal framework is postulated with rational optimizing agents. It is assumed that following an external shock, the rational behavior of economic agents is to adjust their production and spending behavior in an optimal manner. Depending on the degree of flexibility in the economy, the effect of this response is to reduce domestic absorption and thus improve the current account. At the same time, the government responds by undertaking policies which optimize its objectives given the shock. The overall effect may or may not improve the current account. / The reactions of both the government and the private sector are analyzed in the context of a game in which it is assumed that each agent takes the other's behavior into account when formulating economic decisions. Two types of equilibria are examined: a Nash non-cooperative concurrent game; and a non-cooperative Stackleberg structure. / The theoretical framework is along the lines of Conway who has undertaken a similar study for Turkey, a semi-industrialized economy. The model specification and the estimating equations are however modified to capture key features of the Kenyan economy. / The empirical results show that external shocks, particularly increases in the price of imported inputs and exchange rate devaluation have a contractionary effect on the Kenyan economy. Fox example, producers responded to an increase in the price of imported inputs by reducing the demand for the inputs as well as the demand for labor. As predicted by the theory, both the government and private agents responded to the shocks in an attempt to maximize their objectives. It is argued that the optimal responses of these agents are not necessarily in each other's interest implying that each agent will react to counteract the undesirable effects of the other's behavior. The interaction between the government and the private sector can be explained by a Stackleberg game structure where the government is the leader. Also, both the direct and indirect effects of the shocks are found to be important in explaining the behavior of the current account in Kenya.

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