Growth, Debt, and Politics: Economic Adjustment and the Political Performance of Developing Countries

By Lewis W. Snider | Go to book overview

policy to one that is outward oriented and export based is an example of structural adjustment par excellence. The empirical evidence presented in this chapter suggests that this form of adjustment is usually accompanied by a drop in state-generated rents, a rise in real interest rates, an appreciation of the real exchange rate and an opening of the economy to trade. To the extent that these changes may be important keys to successful adjustment, the relationships among these variables and the politics attending them deserve much closer scrutiny. It is to that task that we now turn.


Appendix 5.1
Classifying Countries by Industrial Strategy
Using a Variant of the Parsimonious Model

An additional test of the reduced model was made by determining how well the causal variables correctly classified countries by industrialization strategy (as opposed to changes in strategy from an importsubstitution to an export-oriented industrialization orientation). The first dependent variable, EOISTRAT, is a dichotomous variable that is assigned a value of '1' for any year in which a country's dominant industrial strategy is classified as either export promotion or export substitution. Other years are coded '0.' The second dependent variable, ISISTRAT, is a dichotomous variable that is assigned a value of '1' for any year in which a country's dominant industrial strategy is classified as either primary or secondary import substitution. Other years are coded '0.' As in the previous logit analyses, the least developed countries were excluded.

The evaluation of the model's ability to correctly classify the exportoriented countries is shown in Table 5.6. Since state-generated rents proved to be a weak predictor, it was dropped from the equation. It was replaced by external shocks to determine if the impact of this sort of exogenous factor varied with industrialization strategy.

As expected the export-oriented countries are characterized by high levels of relative political extraction and high institutional credibility (70 percent of the export-oriented industrialization cases are classified correctly). The modalities of extraction (represented by the mobilization ratio variable) are explicit and direct. These countries are also characterized by low real exchange rates, indicating few distortions in relative prices between the tradable and nontradable goods sectors, and by high real interest rates, which is an indication that domestic lending rates approach the actual cost of capital. The export-oriented countries are "negatively" affected by external shocks. That is, an increase in external shocks decreases the odds that a country is pursuing an export-oriented industrialization strategy by 72 percent, assuming the values for the other causal variables do not change.

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