International Trade and Finance: A North American Perspective

By Khosrow Fatemi | Go to book overview

Belongia, and Chambers and Just. 10 However, the FREXR estimates for Egypt and the Dominican Republic are positive and statistically significant. A possible explanation could be that these countries prioritized agricultural imports, considering that their per capita agricultural production declined over the period studied.


CONCLUSION AND IMPLICATIONS

Based on selected Third World countries and the time period studied in this analysis, certain conclusions are evident. First, the foreign level of economic activity appears to have a greater significant impact on U.S. agricultural exports. About 70 percent of the countries studied indicate a positive association of U.S. export earnings and their respective GNP values. Although less than 50 percent of the countries indicate a significance of U.S. agricultural imports on exports to those countries, this finding is important in the sense that it suggests a role for increased bilateral trade with Third World countries. This should provide additional foreign ex- change earnings to most debt-ridden Third World countries to exercise increases in demand for U.S. agricultural exports. There is not sufficient evidence in this study to support unequivocally the impact of foreign agricultural production on U.S. agricultural exports. However, it appears that middle-income developing countries, including net exporters of oil, are more likely to increase agricultural imports as per capita agricultural production rises. Finally, the impact of changes in the foreign exchange rate on U.S. agricultural exports appears weak and significantly negative for only 25 percent of the countries studied.

While this study is far from exhaustive and conclusive, some general implications can be drawn for U.S. agricultural and Third World countries as we anticipate the 1990s. The Food Security Act of 1985 has set the stage for U.S. agricultural exports to be more competitive by providing for flexible loan rates tied to world market prices. This move recognizes the sole importance of export markets and the increased role they are expected to play in revamping the depressed agricultural sector in the immediate future. The premise is that future increases in demand for U.S. agricultural commodities will be due to increases in world population, and income growth rates and distribution. 11 On this score, Third World countries have been projected to average a 2 percent annual population growth rate until the end of the century compared with 0.75 percent for developed and centrally planned economies. Given an estimated relatively higher income elasticity for developing countries, it is expected that increases in the level of economic activity should increase per capita income and subsequently the demand for agricultural imports.

This crucial role for Third World imports, therefore, necessitates increased support for economic development through bilateral trade, possible solutions to the debt problem, and monetary and fiscal accountability. The opportunity

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