Finance and Competitiveness in Developing Countries

By José María Fanelli; Rohinton Medhora | Go to book overview
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domestic markets as lacking in competitive strength and, consequently, investments by these firms are constrained by the availability of internal funds.


Notes
1
We gratefully acknowledge comments by Mustapha Nabli, José María Fanelli, Ari Kuncoro, Paolo Guerrieri and other participants in the Interim Workshop held at the Philippines Institute for Development Studies, Manila, during 21-23 April 1998, and in the Final Workshop held at the Trade and Industrial Policy Secretariat, Johannesburg, during 30 November-2 December 1998. Usual disclaimers apply.
2
As we shall see in Section 2, there was, in fact, an improvement in India's export performance since the mid-1980s, due in great part to the export-promotion policies followed during this period.
3
There was another mechanism by which the foreign exchange constraint would prove to be binding on domestic demand-driven growth in the Indian context. An increase in aggregate demand would lead to higher food prices and, hence, inflation. Given the aversion of Indian policy-makers to high inflation, this would invariably trigger off deflationary fiscal and monetary policies (as the lack of adequate foreign exchange reserves precluded the possibility of large-scale imports of food).
4
It should be noted that such a periodisation is widely accepted in the literature. For example, see Ahluwalia (1991) and Joshi and Little (1994).
5
Further details of these policies can be found in Ganesh-Kumar et al. (1998).
6
Openness as conventionally defined is the sum of exports and imports as a ratio of GDP.
7
A full discussion of the CMS methodology is available in Kumar, Sen and Vaidya (1999).
8
The definition of manufacturing used here is the SITC-based one and includes all commodities in the SITC categories 5 to 8 excluding 68. It should be pointed out that this definition differs from the definition of manufacturing exports used in Section 2 beginning with 'The real exchange rate and aggregate competitiveness'.
9
It should be noted that the CMS analysis ends in 1992 while the rest of the empirical results in this section are until 1996. The CMS analysis requires data on bilateral trade flows for all commodities and all countries. Such detailed data for the post-1992 period were not readily available at the time of the study.
10
The RCA measure expresses the share of country i's export of product j in total world exports of product j, as a ratio to the share of country i's total exports of manufactures in world total exports of manufactures. An RCA of unity would imply 'normal' export performance of product j relative to the size of country i, as an exporter, while a ratio of 2 would suggest that the product j's share in country i's exports is twice the corresponding world share, and so on. An RCA of more than unity is usually taken as an indicator of competitiveness, while an increase in the RCA supposedly suggests a strengthening of the competitiveness so revealed (see Balassa (1965) for further details).
11
Commodity-wise time series of RCAs are not presented here but will be made available upon request.
12
We use the Grubel and Lloyd (1975) measure of intra-industry trade (IIT), defined as

where Xit is India's exports of commodity i at time t, and Mit is India's imports of commodity i at time t. The variable IITit can be between 0 and 1, with higher values indicating greater intra-industry trade.

-118-

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