t~~~~~~~~~~~~~~~~~~~~~~~ -
World Bank Repriint Series: Number 355
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--- . -
I. -  Bela Balassa
Adjusting to Externtal Shocks:
r I The iNJewly-Industrializing
* Developing Economnies in
.1974-76 and 1979-81
. .f
. . 
I. 
.. I~~~~~~~~~~~~~~~~~I
. ReSprinted with permission from WiwiitJ.haftliches Archiv, vol. 121, no. 1 (1985). pp. 116-141.
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. e
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*               --
~~~~B E R I C H T E
-  \  .           Adjusting to External Shocks: The Newly-Industrializing
V -                    Developing Economies in 1974-1976 and 1979-1981
By
*                                          Bela Balassa
1. Analyzing External Shocks and Policy Responses to these Shocks
1. Introduction
Tr1'his paper follows earlier studies by the author !hat reviewed the
policy experience of newly-industrializing developing economies in
the 1970-1973 and the 1973-1978 periods [Balassa, 1978; 1981]. The
present paper cr mpares the experience of these economies in the three-year
periods following the quadrupling of oil prices in 1973/74 and the two-and-
e                 half foid increase of oil prices in 1979/80. The investigation covers Argentina,
Brazil, Chile, Colombia, Mexico and Uruguay in Latin America; Yugoslavia
and Israel in the Southern Europe-Middle East area; India in Su-ith Asia; and
Korea, Singapore and Taiwan in the Far East.
'  - -         The methodology applied is the same as that employed in the preceding
study. It involves estimating the balance-of-payments effects of external
shocks, resulting from changes in the terms of trade and the slowdown of            -
foreign demand for exports, as weil as the effects of policy responses to these
shocks in the form of reliance on additional net exterr.J financing, export
. *. _          promotion, import substitution, and macroeconomic policies.
rhe base year for the calculations pertaining to the 1974-1976 period
:   -.  ,<remains "1972" (the average for the years 1971-1973); it is "1977" (the
average for the %years 1976-1978) for the 1979-1981 per:od. For the latter
*           period, external shocks due to increases in interest rates in world financial
markets :iave also been estimated.
Remark: The author is indebted to Shigeru Akiyama, Eric Manes, and Nadeem Burney for
valuable research assisance and to Gholan Azarbayejani for preparation of the computer; rogram
used in the calculations. He alone is responsible, however, for the contents of the raper that should
not be assumed to refkwt the views of the Wurld Bank.



Bela Balassa                           117
Aciusting to External Shocks
. External Shocks
The balance-of-payments effects of external shocks have been derived by
pGstulating a situation that would have existed in the absence of these shocks.
Terms-of-trade effects have been estimated as the difference between the
current price values of exports and imports and their constant price values,
estimated in the prices of the relevant base period. They have further been
decomposed into a "pure terms-of-trade effect", calculated on the assumption
that the balance of tr3de expressed in base period prices was in equilibrium,
and an "unbalanced trade effect", indicating the impact of the rise of import
prices on the deficit (surplus) in the balance of trade, expressed in base period
prices.
The balance-of-payments effects of the slowdown of foreign demand on
the exports of the less developed countries, or export volume effects, have
been estimated as the difference between the trend value of exports and
hypothetical exports. The trend value of exports has been derived on the
assumption that the growth rate of foreign demand for the country's tradition-
al export commoditics. accounting for at least 1.5 percent of total exports in
the base period. for nontraditional primary exports, fuels, and manufactured
goods remained the same as in the 1953-1973 period and that the country
concerned maintained its base period share in these exports. In turn,
hypothetical exports have been calculated on the assumption that the country
maintained its base period share in the foreign imports of each product an6
product group during the period under consideration.
Finally, the balance-of-payments effects of increases in interest rates have
been estimated as the difference between actual net interest payments and the
payments that would have been made if interest rates remained at "1977"
levels. In the calculations London Eurodollar rates for one year deposits have
been utilized. These rates averaged 6.83 percent in "1977"; they were 11.71
percent in 1979, 13 44 percent in 1980, and 16.05 percent in 1981'.
3. The Policies Applied
The balance-of-payments effects of policy responses to external shocks
have also been estimated by 1-ypothesizing a situation that would have existed
in the absence of external shocks. Additional net external financing has bcen
derived as the difference between the actual merchandise trade balance and
the trade balance that would have been obtained if trends in imports and
exports observed in the 1963-1973 period continueci and the prizes of exports
'In .he calculation of interet rate effects, no adjustrr,-nt has te.en made for inflation. in part for
lack of a reliable pnce mdex ind in part because real interest rates depend on expected rather than on
actual inflation rates At any rite, average changes in export unit values of developed countnes in U S
dollars. that may be considered an appropriate deflator, differed little betm.een the 476- 1978 and
1979-1981 periods



118                          Berrh:-
and imports remained at their base period YIvel. Non-factor services and
private transfers do not enter into the calculations as they are assumed to be
unaffected by external shocks, except for the 1979-1981 period when the
financing of increases in int-rest payments has been separately estimr,ed.
The effects of export promotion have been calculated as changes in
exports resulting from changes in the country's base period export market
shares. In turn, import substitution has been defined as savino,s in imports
associated with a decrease in the income elasticity of import demand as
compared to the 1963-1973 period. Finally, the effects of macroeconomic
policies on imports have been estimated by taking the difference between
actual GNP growth rates and the growth rate of the 1963-1973 period and
assuming unchanged income elasticities of import demand.
The estirnation procedure reflects the assumption thiat the policies applied
by t',e country concerned represent respon,;es to external shocks. However,
domestic po!icy measures may also have been taken independently of external
shocks and may themselves constitute an internal shock '. The methodology
applied does not permit separating the balance-of-payments effects of autono-
mous policy changes from those of the measures taken in response to external
shocks, such distinctions become a matter of interpretation.
The classification scheme used in this paper differs in certain respects
from that utilized in the earlier studies. Newly-industrializing developing
economies are divided into four groups, parly on the basis of the policies
applied in the 1979-1981 period and partly oni the basis of geography.
The first group is ct.mposed of three Far "astern economies, Korea,
Singapore. and Taiwan, which adopted an outward-oriented development
strategy - providing similar incentives to sales in domestic and in foreign
markets - in the early 1960s, having completed the first stage of import
substitution which entailed replacing the imports of nondurable consumer
goods and their inputs by domestic production. These economies continued
with outward-orientation after the first oil price increase and. with the
temporary exception of Korea in 1978/79, after the sceond oil price increase,.
The three Latin American countries of the second group. Brazil. Colom-
bia. and Mexico. moved to the second stage of import substitution, involving
the replacement of the imports of internediate goods and producer and
consumer durables by domestic production, after the completion of the first
st4ge. These countries reformed their systen cf incentives, reducing - but not
eliminating - the bias against exports, in the second half of the 1960s. A
reversal occurred foiiowing the quadrupling of oil prices, although incentives
to exports increased again in Colombia after 1978.
The third group of countries. Argentina. Chile. and U ruguay, is located in
the Southern Cone of Latin America. Tney all embarked on the second stage
of import substitution. with Argentina subsequently undertaking sonme re-
forms in the second half of the 1 96Cs and Chile and Uruguay taking important



Becla f3alassa                       119
Adiusting to External Shocks                               -
steps towards outward orientation after 1973. However. it, 1979, the three
countries more or less simultaneously adopted an excnange rate puit,cy aimed
at reducing the rate of infation, which led to the substantial overvaluation of
their currencies.
Finally, among the countries of the fourth group, covering a large
geographical area from Southern Europe to South Asia. Yugoslavia and Israel
started export promotion at an early date, but their effoit slackened during
the 1960s and they moved increasingly towards import substitution after
1973 In turn. India continued with a policy of inward orie ntation, with some
attemp!s made at policy reform towards the end of the 1970s.
11, The Balance-of-Payments Effects of External Shocks
'Table I provides the summary results of the details contained in the
Tables 5a and 5b which, for convenience, appear in the Appendix. Table 5a
reports the estimated terms-of-trade. export volume and, for the second
period, interest rate effects for individual years as well as average results for
the 1974- 1976 and 1979- 19, I periods. Table 5b relates terms-of-trade effects
to the average of exports and imports (average trade) and to tt e GINP, export
volume effects to exports and to the GNRP and interest rate effects to the
GN)P all expressed in base period prices
I Terms-of-Trade Effects
The terms of trade of the three Far Fastern economies deteriorated greatly
during th, Iwo periods under consideration The resulting losses amounted to
II percent of GNPf in 1974-1976 and 8 percent in 1979-981 in Korea. 16
and 18 percent in Singapore. and 7 and 8 percent in Tai%van' In all three
cases, the high share of foreign trade in the GNP raised these ratios lo a
considerable extent
Expressed as a proportion of its foreign trade. Brazil suffered larger
terms-of-trade loss<s than the three Far Eastern economies. However, with
substanti3lly lower trade shares, these losses equalled only 4 percent of GNP
in 1974-1K76 and 2 percent in 1979-1981. when Brazil's balance-of-trade
surplus in terms of '1977" prices reduced the estimated total terms-of-trade
effects. In turn, while higher coffee prices prevented the deterioration of
Colombia's terrms of trade in 1974-1976. the d,cline in coffee prices occasio-
ned terms-of-trade losses averaging 4 percent of its GNP in 1979-i981
Finally. Mexico increasingly benefited from the increase in oil prices that were
offset by unfavorable unbalanced trade effects in the first but not in the
second period
In Singap˘orc s ca% howeser pure ierms ofl rade effects aere fa%orahle in hoth periods and
unfasr,rahle unbalanced tr,de effCLts gave se to the ,ohwrnd total terms of trade loss



Tlahl I - E.ternal Shocks and     .1oh, R             Swn    anr  Results
I ILrims o l lt It Iflcl                                     \d iIt it I                    ItkI
I .  I rt  1: Iu rual  Imucrtst          Nut     IEport    I m port  of Lav r
PNir 1Viihai  Ioi{X .  \ol1nict  Shot. ks  (l.lc  higtliter  IAtcLuernal I'rmtiittion Suhstitn  G NIl
.1llt iWi ceOc1:ts      I ' itai  Filect s           F malncin i           lioll     ro iwt h
As .a: tcri.cnag tit f GNI'   AN it 'Frccienage of Fxltrnil Shocks
Br.azid        1974 197th    I h   j 9   3 5      1 4       394                 31        82 h      1 24      !9 $    - 14 8
1979 1981    28    (ht    22       (03       24        17        42        335       384      4o 2     49()
(o1o1n1hia     I1q71 197ht  0(     () (2    2      ( 8       () oq                        142 9       21      40 h       42
1q79 1981    4 1   0 )    4 4                4(  5      5        5 ;      149 1      S3()    102 3      (2
\Ic\IuI         1974 197h    (1 8  2 1    1 3      ( 3       I h                 I t      177t h     59()    - 19.3      0 8
1979 1481    2 9    19    I 1)    () h       11        2 3       1A9      315 4    Sh2 4    -904 S     -7)3 3
1rgentima       1474 19,I7     _ 1  )09   ()8      ( I      09 4(9                       1548     -141 t      40(5     4h 2
1979- 1981    I 5  ( I    1 4      ( I       15        1 4       29       3 22(0   --h681        3      47 I
(hile           1974 1476    13 8  10 2   3 t      (1 4      40                  4 0      113 1     1003      2( 4      92 2
1979- 1981    1 4   2 h   3 (       II       41        3 2       7 3      237 8      h)I    - 128f (   -69 8
Urugu.i         1974- 19t'   8 1   - 27     7      ()9       l h                 h h       hI h      30.3     29 7     -21'
1I49- 1481    8 4   01    8 5      1(         9        (8       1( 3       98 9       4 3      71 4     7J
I      i u9l la  I 074 1976   29   95S    8 4      18       1( 2         -      !02        7 i 2     -41       35 (
197,9-1981    2 2   28    49       (,7       56        I I       h8        9()2      -59      24.2
lsratl          1474- 197t   2()   85    11)       12       1 1t' -h            11 h       759     -251        19()     308 
147- I981     7 4   33   107       3(       13 7       2 4      1 h        2 (2     -8 9       1 69     71 8
1il1iio         I 7-197 4197h  22  -()3   1        (1 3      21                  21       11 ( 8       h       -2 7      04
19791-481     2 (    I    3 1      ( 4      135       -(12       34       1 52 7    - 557       1 2      1 7
Korca           1L74 -19Th    8 8   2(1  1( 8      17       125         -       12 5      - 32 3     557      899   | - 13 3
1970-1I981    6 I  1I    79       37        12*       26       138       -159  |    -48       13 1    1076
Sinl!.aporv     1974--197h  -18S   349 1  6I4      37       2(12         -      202        87 1      -3.9|    -34(1     506 
19,9- 1981   - 1 4  193  1 9   |  14 4      323        21       34 .1      3h t6     87 5     -9533     29 3
Ialwall        I1974- I97c   88   -1 9    69 h     24   |    9;                 93        2 7/ 77   12(      I64      68(0
1479- 1981  I1 1   -79    8 3       5 2     139        (I       1 3 6)    -3h 8      26) 0     89 8     2 1 0
.Siortc Sei Ihles 5ix  and 96 iii the Appendix



1 .Ia H aiissa                     121
%diusing i t F.xtrrial Sht.cks
Argentina does rnot imilport petroleum and the decline of its terms of trade
averaged I percent of (NP in both periods. In 1974-1976, this decline was
due to unfa%orable changes in the prices of its major exports, in particular
beef Export prices rose after 1978 but increases were even larger in the prices
of manufactured goods Xrgentina imports
Chile and Uruguay import most of their energy requirements and suffered
the cousequences of higher oil prices in both periods. In 1974-1976. Chide
also expericnced a declinie in copper prices that was, however, offsei by
favorable unbalanced trade effects, in 1979-1981. copper prices improved
but unbalanced trade effects deteriorated In turn, losses in the terms of trade
increased over time in Lruguay as the favorable unbalanced trade effects of
1974- 197b ceased in I 979- 198I  As a result of these char. es, terms-of-trade
losses a.eraged 4 and 3 percent of GN'P in the two periods, respectively, in
Chile, and 6 and 9 percnt in Uruguay.
Israel and Yugoslavia experienced large unfavorable terms-of-trade ef-
fects averaging II and 12 percent of GNP1 in the first case. 8 and 5 percent in
the second, during tht 19-4-1976 and 1979-1981 periods. respectivel.
F;nally. the ratio of terms-of-trade losses to its average trade was relatively
high i In dia ht:t its loA trade share limited these losses to 2 percent of GNP
n I744- I 4-,6 and 3 pe rLnt in 1479- IL81
E Export \olurme Effects
\ll the newly indusirializing developing economies experienced ad%erse
export 'olume effects in 1974-1976 and. in most instances, the export
shortfall increased further in 1979-1981 At the same time, there were
Considerable dif'cren,es among theni in the extent of the export volume
etfects - A hether expressed as a proportion of export value or of GNP
The export shortfall did not exceed I percent of the value of exports in
e.,her period in -rgentina that benefited from favorable world market trends
in maize in 1974-197h and in beef in 1979-1981 In turn. thp ratio was  ,
highest i14 percen) inr 1974-1976 in Yugoslavia that experiernced ad.erse
changes in foreign  rnand for lumber products and for the exports of
nianufactured goods to socialist countries in the 1974-1976 period These
adverse changes continued, but the expori shortfall decr'eascd to 6 percent of
expo-t value in 1979-1981 :Export volume effects declined also in Colombia.
from 8 perct:nt of the .aluc of exports to practically ze-o. and in Brazil from 6
to 4 percent as both countrw s bcnefited from increases in world demand for
coffee
'rhe adverse export 'olume effects rose in all other newly-industrializing
developing economies hetween 1974-1976 and 1979--1981 The largest
increase occurred in Chile ifroin 2 to 6 percent of exp.ort value) that enjoyed
the fa'.orable trends in u'orld demand for copoer in the first period but not in



122                            Burith(ek
the second. and in the Far Easterni economies that suffered the effects of the
deceleration of the growth of world demand for manulfactured goods after
1978.
The differences were even greater in the ratio of export V'cluIUTe effects to
the GNP and increased further between 1974-1976 and 197q4-1981 This is
because the exoorters of manufactured goods. which experienced unfavorable
world market trends after 1978. also had relatively high e  ort shares. Thus.
the export shortfall averaged 4 percent of GNP in Singapore and 2 percent in
Taiwan and in Korea in 1974-1976 and the corresponding ratios were 14. 5.
and 4 percent in 1979-1981. In the latter period. the only other newly-
industrializing economy with an export shortfall in excess of I percent of
GNP was Israel,
3. lntercb,t Rate Effects
Interest rate effects varied among countries, dependling largely on the
ratio of their external debt to the GNP. These effects exceeded 3 percent of
Chile's GNP and were in the 2 to 3 percent range in Mexico. Israel. Korea.
and Singapore. In turn. India benefited from increased interest earnings on its
large foreign exchange reserves w-hile interest rates were not charged on its
concessional borrowing that accounied for much of its exterral debt.
4 External Shocks Conmbined
In 1974-19,6. external shocks Aere dominated by terms-of-trade effects in
newly-industrializing developing economies, the only exception being Colom-
bia Trhis was again the case in 1979- 1981. except for Mexico that experienced
corisiderable improvements in its terms of trade. Adverse interest rate effects.
however, outweighed these favorable changes in Mexico.
Excluding interest ratt effects. the ratio of the balance-of-payments effects
of external shocks to GNP increased between 1974-1976 and 1979-1981 in
Colombia. Argentina. Chile. Uruguay. Israel. India. Singapore. and Taiwan
while declining in Brazil. Yugoslavia. and Korea A deterioration is shown in
all countries other than Brazil if interest rate effects are included in the
calculations.
The adverse balance-of-payments effects of external shoIcks did not exceed
5 percent of GNP in either period in the countries of Latin America. which
have relatively low trade shares, the exception being Lruguav that has a high
trade share'. In turn, the ratio was 20 percen: of GNP in 1974- 1976 and 34
percent in 1979-1981 in Singapore. it was in the 9 to 16 percent range in the
other Far Eastern economies, in Israel. and in Yugoslavia. although declining
IrM IU%SI%t' (If In.irrI rdft tfft%tt   (Chile  1so hetio,ngs t  thih   La1tt,'g r% irn IQ-  IL



Beia Balassa                            123
Adjusting to External Shocks
to 7 prercent in 19714 -198 l in the latter case. Finally, the adverse balance-of-            '
paymTents effects of external shocks equalled 2 percent of GNP in the first. and          _
3 percent in the second. period in India.
111. The Policies Applied and their Balance-of-Payments Effects
Table 5a of the Appendix shows the balance-of-payments effects of the
policies appiied while rable 5b of the Appendix re!ates the results to the
volume of exports. irnports. average trade, and the GNP. as the case may be,
311 expressed in base period prices. A summary of the results is given in Table
1. In turn. TaHle 2 provides information on changes in real exchange rates,
Trahle 2 - Real Effective Exchange Rates,
197_ i 1974   1975   1976   1977  1976-  1979   1980   1981
Brazil      01 () | 1    6  1068  1037  103 2  100 0  1 14 2  123 1  101 9
C(olombia   100 0    7 I  100h    94 5  85 0   100 0  94 4   95 1   87.6
Mexico      !00(    48 0   96 7  101 4  112 5  100 0  95 4   87.5  79 9
-rgtntina   I00()   418   1398   920   117 7  1000    75 5   67 7   76.3
Chile       !00 0   i4     904     813   766   1000   989    838    770
Lrugua%     10(0    ION   10 1   1072   1048  1000    828    758    725
Yugiisla la  10(0 0  45    94 5   93 0   929   1000   ilO 4  1265  114 1
Israel      100 ()   5     96 i3  92 7  96 h  100    108 4  104 4   99 1
Indid       I) 0    4_2   10)418  1244  1220  1000   105 4   967    936
K, rea      100(    )5i    * S    900   902   1000    94 0   966    93.5
Singapore    M (1 00   9   833    926   97 9   100 0  98 1   91 4   878
Ta;%4an    100) (  8 2    92 in | 9441 | 99 2  100 0  100 4  94 1  93 4
Cjlcuatawn's hasc hltn madc b) %eighting with the coimnposition of expJrts and imports
r, het 'ears i'l-i 473 And 14-t- 19-8 resprctivels  - " Average
"o U,rld Ri.nk ,-'.11nomL and sucidl data hax                                      L 
weighted by hase period export and import shares: lable 3 snows changes in
debt service ratios Inet interest payments and amortization, expressed as a
percentage of merchandise exports) and external debt ratios !the net external
debt. expressed as a pecrentage of the GNP). and Table 4 contains data on
domestic and foreign incrementa' capital-output l3tios, and GNP growth
rates
I Korea Singapore. and Taiwan
The thretr Far fastern economies continued with a policy of outward
o ienta!Ion fo!iowing the quiadrupling of oil prices of 1973/74 and the world



|:       ~~-                                                                                                        ; E|
124                               Berichie                                                  '
recession of 1974/75. After initial hesitation as to the desirability of ,na:ntain-      r
*   . '  .- '         ing an outward-oriented development strategy in thie unfavorable world
envirunment of '074i75. K'orea liberalized import restrictions and lowcrod
.'              tariffs. In turn, a far-reaching liberalization of imports was uindertaken in
*;.,wan, where import tariffs were also lowered. Finall], navinp cdrlier                 _-
eliniinated import restrictions, Singapore further reduceci iLS al.-eady low
tariffs.
The Far Eastern economies under study placed little reliance on foreign
-   -               borrowing. In fact. witil foreign exchange reserves exceeding the amount of
borrowed funds, the net external debt remained negative in Singapore and it
turned negative towards the end of' the period in Taiwan. And although
external debt and debt service ratios increased in thle late 1970s in Korea,
these ratios rem-iined substantially lower than in countries pursuing an
inward-orier -d development strategy.
. .                            Table 3 - Debt Service Ratios and Ex.-rnral Debt Ratios
1973  1974  1975  1976  1077  1978  1979  1980  1981
,   ebt Sernice Ratio
1. ,  .                  Brazil              2. -  25  3  3h 5 42 0  44 0  53 7  59 1  46 6  56 7
Colombia            26 5  2 8   28 6  23 9  1 71  16 2  20 4  12 0  28 4
..  uio             303  '21 9  345   650   67 8  74 1  90    42e   44.9
Argentnia           2 0   22 1  34 9  30 0  20 5  45 6  17 8  27 6  51 7
Chile               40 $  34 5  17, 4  44 5  55 0  58 4  5i 1 3  44 4  74 0
Lrugua!             31;3  14    .4 1  248   229   279   120   172    94
Yu-oslaw Ia         27 te  29,  3t 4  24 1  27 1  318   34 '  34 4  32.5
lsrael              245   24 2  27 1  334   24 9  240. 14 9   22 9  15 0
ind'                24$    7 3  15 1  10 8  11 5   9.3   59    4 1   6.6
-'.,rta             13 6  12 4  136   11 I  12 0  14 0  16 I  19 4  21 1
.             4 .  .  ,        S!ngapore              3   3 0  - 0 2  10     14   28     1 1  3 1   2 7
Z  ralwan           3 4    1 8   4 4   40    io    35    25    24    1 3
f.xterral Pebt Ratio
f  Brazil          ,0 1    3 r  133   125   141   164   182   208   20 3
+     .   .                    C'olorribra         136   128  1455    92    50    23   -40   -4.5   03
..L .  N1,.x1. u    h t    86   16 3  234   30 1  30 4  26 4  21 7  20 9
Argentira            39    28    88    7,    53    44    10    44   155
Chile               25 h  332   54 3  37 5  2#8   310   225   184   254
L rugua%           - 3 1  -4 1   63    49   - 1 2  - 64 -133 - li 4  - 1 8
*Yugosla% ia         2 4   7 3  15 1  14 2  14 3  156   17 6  19 6  20 7
Israei              272   329   236   282   260   226   1 87  192   216
India               114   109   124   11 5   $6    63    3t    40    6.9
Korea               1- 1  21 1  26h0  19h   19 1  214   208   269   297
Singapore           4tr2 -487   3;58  412 - :28 -503 -438     449 -442
I 6  1                 Tai ian            -S3     34   ti6    5 1   57    59    36    22   -67
', Irce I M F Ralartl e ,I PaF IJI rnts s\atisti( s ind InivrntiofnalI finarrcial Statistics and OECD
sper la . ,rnmuniLatjonr
.,



I



T'fahle 4   Expendil~tuIre S'hores, litcremeintal C apital-Ot. aut Ratios (l(OR.), atnd G;roul4t/    R~itcs
lVkl        1 j 17  44o    '73I ~  '   4*     47I    473   147,  4 1473  414741  (4031  I 170  ('213  1 147,  14731  4 -47'
47 3  1443   14'4'0  i'7'  4474  44    Q473'I      A 40   447   14474  4482  14471  t4,'13  1 Y7t  147-)  114741  144?2
l),mcs4i~~~~~~2Q '4   .3     7 3  4'J 'i  2   ,4 4)  I4' 4iI88   2412  257    '95   2 34   200   1 447  2 214  2 Io  223 I 2'I
hirvigi      44~~~~       ~   ~~ 14  3'  II  2to  I2  II   II    (8     28  1 I8     2t    4I     I1)221      0t      4J     2
I(44(4              IS      '    It     Ito   41    241  ~4       31    -o    '1     41    MO     24           4t,   72     i
(    a4iOi,
GN 1,          ~~~~O I4t    4           t0  I  II    37    74     4~    to t   '3    22     74    nX    94     (7    33     4
I\I)~~~4lI.ltIlI  2o ~~~24  22  48    20I          24     24    44     4'4   44    21     32     "2    3I    .'4    1
(k'e C:411pita G N'  9 4  '4     2    32    -3      4            4    28     4 7   I      442   4 2    30    I 'i   3-4   2s 9
Sa 44 , Ran"                   4 e4( 44(hla4rg~
I)oivli     f,   .1 t  .1     2N     It j     ,   4      q4    07    14( 4  9 4   4414  I34    424   40     424   4414  41 C
hegI4        4 4   44~~~~~~~~(8  17  24  221  21I274444                                                                   4
thnw~~~t,,  244o  .44'~~~~1  14oi 27 I 24'')  22A  14    21      10   27013               17`1)       2      3     2      143
(Uk5  42   744 I 1444   0'J   '444   03     79~~~~~     ~~~   ~~~~~~~~~~ 974  94 1  7 3444  I  -278  22  34  2      9   -
Gr,1wt4 4(ile'
GNP1               4t    34     43    24     17    44     37    (il   94 5   84    24     2(4   22     44    41     49    44     22
Il'ouIaio4n       44    40     t,'    I'I'        H      4      7           17     47    47    (47    42    44    44    (04     C)7 
,r Capita4GNP    32     44    44     4     42    0       7    444   04     07     (17   30,    49     4     38    444    30    2-4 
S.tvinlgs Hati'o41' 11go,ar-id                                          jSraI                                  Iridta
Doumestic         274   29or   2 S2  243   272    3 24   III   H 4 I 9,      84    04     t2   17 4,11 178  14)7   I40   240    24)1(8  -
irteigni           2t'   41     0,7   00    04     48    1954  4 7(4  223   4044  4IL)2  4 47   iI     442   (40    44    44     3t ,
lcmh8                97    0,2   4t0    49    4t0   240t   39     0,    8I    I114   48    290t   90,  4440     3      I4   t4    40,   V
GINP               9t0   44     94    0,8    03      '   82     84)   39     23    2o    -3     34     191   44     31    43     47~
l'opuai111l      44     44    44     44    44    '8     34    (2    29     23    24     47    23     21    24     24    21     22
4'ertCapia taNI'   47    4(4   44   4 5      93    (4(4   9     97    444   4(     (2     3(     1  -47j     23     43    23     29
Savmng' Hla4io'                   hu'rea                               Sngapo4re                                 ra
D)nmestik        I4I4   489    21o t 2-I9   2444  212    1 73  242   2142   327    3(414  389  294    344   30 7   344   320    3471
h)reign            84 0)t2      7I    34 I   92    444   127   40    44I I 7  44)  (3     0, 4  - 05  -47    30    - 42  -40 t  -22
lC( Rt               23    29    28     39    3 2    I'    29     3(    04     381   44-   4 2    24    24     444   24     .39   o2
GNI'               42    44     43    42    48     24    4(el40 404    9     89    73     7 8   40.2  1123   5 8   403    8 7    ¶J
[i'pulatioti       2 3   444 J   7   10      40 ,147      1 44   49   I9     I9    49)    43    2 8    24    4      14    44      8
Pecr Calia GNI'   711    73     70, 170     81j(04       87     4i3   94     70    98     0.9   7 4   402    34    84     0 8    33j
a 1,cIades data for the first year of edch per4iod - 4' Iticretnietital capital outptit ratio4s JCO4 )Ks lave becti calculated aissuniltig a (inc-year lag between 4fnvestine!It
anid oiutput H4r esatinple, the 1447(0 4473 ratioi has betcit de-rived hy dividinlg the su2414 of gross doninestic itlvest4tlC4i4li 41 470. 4474. and 41472 hy the Itlcreineiet
In GDP) heltween 4470 and 1473. b4ith In constant prices  Conistant prices
Sou1rir WorlId laill econtotittl at4d mocial data base
1~~*              -    ~    ~   ~        &                    9                    .      .          ,         -~~~~4
Af~~~~~~~~~~~~~~
a                    a~~~~~



.-               126                           Berichte
At the same time, there were differences among the three economies in
regard to the excharnge rate policies applied. In 1974 and 1975, the real
exchange rate changed little in Korea while it appreciated to a considerable
;  ,-         extent in Singapore and Taiwan. Subsequently. however, Singapore and
Taiwan established realistic exchange rates whereas Korea's currency appre-
,   a         ciated in real terms.
The maintenance of a realistic exchange rate in the early part of the period,
together with increased investment activity, permitted Korea to adjust to the
external shocks of the 1974-1976 period by raising output, involving
*  '            considerable increases in export market shares as well as import substitutior.
Owing to the subsequent appreciation of its real exchange rate, however,     r
'*               Korea lost export market shares in the 1979-1981 period while measures
t-              aimed at establishirg highly capital-intensive industries did not succeeu in
promoting import substitution.
In Singapore and Taiwan, initial losses in export market shares due to the  .
appreciation of the exchange rate in real terms were followed by substantial
gains after 1976. when realistic exchange rates were adopted. With outpu!-
increasing policies assuming importance. deflationary policies played a much
' .lesser role in these economies in the 1979-1981 than ni the 1974-1976
period.
-. x  A                 After the quadrupling of oil prices and the ensuing world recession,
suggestions were made in Korea to abandon the policy of outw.a.rd-orientation
- ? f              .,nd to turn towards import substitution [Balassa, !G78j. But these sugges-
tions were resisted and the earlier policy orientation was not only continued
-       ~     but reinforced. Thus. import restrictions were liberalized and tariffs lowered,
with the resulting decline in import protection being only partially offset
* .                 through reductions in export subsidies. These measures were complemented
by the maintenance of realistic exchaige rates as well as by actions aimed at
increasing domestic savings and investnment. Increased incentives were provid-
ed to business investment; positive interest rates to savers were re-established.
and the government budget deficit was reduced.
After 1975. however. the Korean won became increasingly overvalued as
President Park decided to maintain the exchange rate unchanged in the face
of rapid inflation that was itself the consequenc- of exparisionasy macro-   r 
economic policies Furthermore, in subsequent years, credit and tax incen-
tives were increasingly provided to capital-intensive import-substituwing in-
dustries at the expense of labor-intensive export activities.
These measures, representing a partial reversal of earlier policies, were not
*-            successful in promoting import substitution while they discouraged exports.
After rapid increases during the preceding one-and a-ha ' decades, exports
declined in real terms in 1979 and Korea's balance of payments deteriorated
to a considerable extent. necessitating the applicatior o; d+flationary mea-



Beia FIalassa                       127
Adjusting to External Sh&J:s
sures. The policies applied, together with a disastrous harvest, led to e
6 percent decline in Korea's GNP in 1980.
Following the death of President Park, Korea's earlier outward-oriented
development strateg we.. again reaffirmed. The devaluation of the currency
led to new gains in export market shares but rapid economic growth was
resumed only in 1982, when the effects of the deflationary policies wore off.
Correspondingly, in the 1979-1981 period, the adverse balance-of-payments
effects of external shocks were fully offset by import savings associated with
lower GNP growth rates in Korea.
In Singapore, the appreciation of the real exchange rate in 1974 and '1975
gave rise to losses in export market shares and to nega 'e import substitution,
which was further enhanced through reductions in tariffs. Political stability,
the extension of the tax-exempt status of pioneer industries from five to ten
years, and the creation of the Capital Assistance Scheme to promote invest-
ment in skill-intensive industries, however, induced considerable increases in
foreign direct investnment. Apart from offsetting much of the adverse balance-
of-payments effects of extr.rnal shocks, this inflow permitted raising the rate
of investment, thereby limiting the extent of the deceleration of economic
growth.
The Singapore dollar depreciated in real terms after 1975, leading to gains
in export market shares. These gains continued in subsecluent years as the
appreciation of the currency in 1980 did not have adverse effects on exports
du-ing the period under consideration. The reported gains in exports o-r-
state the actual gains, however, as entrepot trade increased in irrportanc(,
giving rise to higher export market shares and negative import substitution
it the same time, from the point of view of economic growth, the nfc
effects of output-increasing policies of export promotion and import substitu-
tion are relevant. These effects were positive in the 1979-1981 period,
permitting the maintenance of rapid rates of economic growth. The continua-
tion of policies aimred at encouraging domestic investment and savings further
contributed to this resu!t
In 1974, the real exchange rate a, preciated to a considerable extent in
Taiwan, leading to losses in export market shares. The situation improved in
the following two years as the decline of domestic prices strengthened the
competitiveness of lraiwanese indust.y. However, substantial gains in export
market shares were expericnced only after 1976, when the real exchangL rd..
returned to its "1972" ievel.
The appreciation of the real exchange rate also gave rise to negative
import substitution in 1974 and limited the extent of ;mport substitution in
the entire 1974-1976 period. Taken to-ether, the net effects of export
piomotion and import substitution were small and th, import savings
associated with the deceleration of economic growth provided the principal
offset for the adverse balance-of-payments effects Cf external shocks. Corre-



.;j~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'
-~~~~~~~~~~~~~~~~~~~~~~
128                           Berichte
spondingly, a decline in GNP growth rates occurred, even though positive real
: '           ~~~~interest rates and a surrp'us in the government budget contributed to increases
,in domesti savings and investment.
The rate of economic growth accelerated in the 1976-1979 period. For one
thing, the adoption of realistic exchange rates led to higher export market
shares and import substitution. For another thing, investments increased in
t  .           ~~~~response to the greater incentives provided in the framework of the Statute
for the Encouragement of Investment. After 1978, export market shares
increased furthe- and, in the absence of additional rneasures of import
liberalizatinii, import substitution continued. With output-increasing policies,
deflationary measures played a lesser role than in the 1974-1976 period, and
growth accelerated again in 1983.
2. Brazil, Colombia, and Mexico
In the years following the quadrupling of oil prices, the three Latin
American countries partially reversed the reforms carried out i' the late
* . -                 1960s, which had aimed at reducing the bias of the system of incentives
against exports. Brazil and Mexico raised the level of import protection while
Colombia eliminated export subsidies. At the same time, all three countries
relied extensively on external financing, with a view to avoid declines in GNP
growth rates.
After 1978, economic growth accelerated in Mexico that adopted ex-
pansionary policies following the discovery of large oil reserves. The policies
-   '            applied involved increases in foreign borrowing as the exchange rate was
maintained practically unchar ,ed vis-a-vis the U.S. dollar in the face of rapid
*  .      .             domestic infiation. The increasing overvaluatiorn of the real exchange rate, in
turn, adversely affected non-oil exports and engendered negative import
*  .              sn;^~~~~0titution.
Colombia also let its exchange rate appreciate in real terms after 1978,
giving rise to Pegative import substitution and to further losses in manufac-
tured exports, notwithstanding the reinstatement of export subsidies. These
*osses uere, however, compensated by gains in the exports of coffee, sugar,
and cut flowers. Also, foreign exchange revenue derived from smuggling,
shown among service items, contributed to improvements in the balance of
7                          payments.
,.  .                     By contrast, Brazil devalued its exchange rate in real terms, leading to
import substitution and to increases in export market shares. In an attempt to
. -  -           maintain rapid rates of economic growth, the government a!so pursued
--  ^-                     expansionary policies. As high interest charges on its large externial debt
.- -  '               aggravated the adverse effects of increases in oil prices, however, Brazil had
to take deflationary measures in 1981.
The large external debt of Brazil was largely the result of extensive



J~~~~~-.                                                  -                  t
-   e   4~ ~ ~ ~ ~ ~~~~~4
-  1-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
a.-
Bela Balassa                      129
Adjusting to External Shocks
:  '          borrowing in the five-year period following the quadrupling of oil prices. As a
. -, .  *  ~    result, its externa! debt r:atio rose from nil in 1973 to 16 percent in 1978 while
its debt service ratio doubled from 27 to 54 percent. Apart from maintaining
-             rapid rates of consumption growth, the borrowed funds were used to finance
'-  -l:     ~      large investments in capital-intensive industries producing for the domestic
. s ;.,  i  w   market.
The ensuing import substitution improved Brazil's balance of payments
but it also entailed a deterioration in the efficiency of investment, leading to
lower rates of economic growth despite the expansionary policies followed. In
early 1979, the then Minister of Planning, Mario Simonsen, attempted to
i ' - 1  .  ................r.moder .te the pace of expansion but he was replaced by Delfim Neto who
- 'U'   '     1 @ resuiwcd the pursuit of expansionary policies. Deflationary measures were
*  '-.  -..      ~     applied only in 1981, by which time Brazil's external debt came to equal 21
X   l              percent of its GNP and 57 percent of its merchandise exports were devoted to
paying debt service charges.
.  ,  T            Under the expansionary policies followed by the Echeverrfa Administra-
- F .' *,,tion between 1973 and 1976, foreign borrowing was urdertaken to maintain
the exchange rate at 17.50 pesos to the U.S. dollar in Mexico. The increasing
overvaluation of the peso led to the application of protectionist measures, but
these did not suffice to safeguard the equilibrium of the balance of pay-
ments. A devaluation became inevitable and in September 1976 the exchange
rate was set at 20 pesos to the dollar, followed by a further devaluation a few
* . ;        ~     months afterwards.
The devaluations were accompanied by deflationary policies in 1977, the
first year of the Lopez Portillo Administration. The respite proved temporary,
...  -              however, as the large oil discoveries were followed by the application of
expansionary measures. At the same time, the rise in oil exports did not suffice
. , .--       to finance the deficit of the public sector that grew from 7 percent of GNP in
1977 to 13 percent in 1981. After a pause in 1979/80 when foreign exchange
receipts were plentiful, then, Mexico again increased its foreign borrowing.
Correspondingly, although external debt and debt service ratios in 1981 (21
.                 percent and 45 percent, respectively) were lower than in earlier years, they
-    J       -               exceeded the ratios observed in the majority of the newly-industrializing
developing economies.
.Nexico liberalized imports following the devaluation of 1976/77 but
reimposed restrictions in 1981, when the peso became increasingly overval..
U.        - j, '             ued as the Mexican authorities maintained the exchange rate at 22-23 pesos
to the dollar in the face of accelerating inflation. The appreciation of the real
i t      . . -           exchange rate, in tum, lId to considerah  ' --es in export market shares in
products other than oil and its derivatives aaiwJ zo negative import substitution.
After 1973. the adverse effects of the appreciation of the exchange rate on
.Y '      -             exports were aggravated by the removal of export subsidies in Colombia,
r-     I  , ,  s           leadir } to losses in export market shares in manufacturece goods. These losses
'J S   f                  1t,lW irt,chdt;i,(rls A-F.-. Bd  (YXI



*  *0, ~   ~      0
0.1:
130                          Brct
B-2
were offset. h wever. b- increases in traditional exports, in particular coffee, 
-                      ~~~~~~~~The appreciation of the real exchange rate in 1974-!076 also led 'to
negative import substitution in Colombia. *fhe same result cur   i
1979-1981. when the real exchange rate appreciated further. At the same
-        ~~~time. notwithstanding the reinstatement of export subsidies. Colombia contin-
*    .               ~~~~~~~ued to lose export market shares in manufactured goods while it made e!ains
in the exportation of sugar (exports to the United States under the sugar
V     .              ~~~~~~~quota), coffee (replacing some of the lost exports of Brazil due to bad weather) 
0  -            and cut flowers (shown under nontraditional primary cxports). Finally, its
external debt ratio declined and its debt service ratio did not exceed levels
improvements in the balance of payments.
,    .      ;~-          exeraivenced tsbs,uto in toobi.'he ealsamsa  eene eied fromsmuglin luredi to  3
3. Argentina. Chile. arid Uruguay
-                  A . : * ~.  time.Anong the three countraes of the Southern Cone of latin America. 
-1  . -. .;  uArgentina applied expansionary policies in the mid-1970s, engendering a
- .  ,           inthwage-price spiral that created disruptions in its ecotomy and was only
temporarily offset by devaluations. Correspondinglv. Argentina suffered consid-
erable losses in export market shares during the 1974-1976 period. The
losses were especially large in beef and cereals, on which export taxes were
imposed. Inbturn. Chio e aind Uruguay reformied their system of incentives in
''   . .  -           the mid-1970s. involving a considerable devaluation, lowering of import
lishment ( i positi%e real interest rates. These changes led to substantial     .
- .*  .   -                 increases in export markh t shares in the two countries. There were dif-s
ferences. however, in the macrocconomic policies followed. Ch.il applied
deflationary measures to cope with the large external shocks it suffered and
to reduce high rates of inflation while limniting foreign borrowing. In turn,
economic growth accelerated in Uruguay that placed considerable reliance
on foreign bor-rowing.
-                The policies applied by the countries of the Southern Cone converged a'tmer
1978 when theyall attempted to lower the rate of inflation through exchange
ratempolicies. Afsthe three countries failed to devalue to compensate for
-            *rahldomestic inflation, the competitive position of their industries producing
*                  increaswed.epcal ag     nhefadcras        nwic    xottxswr
. 'traded goods deteriorated to a considerable extent and vxternal borrowing
- -rgeptiitna adopted expansionary fiscal policies after 1d973. with the budget
.' .  _          l~~deishmet doulin frosiiv ran interagest rae. Therento N ch nge  191ed 7 to susata  -,.
percent in 1974-1976. As the labor unions attempted to irncrease real wages, a
- .       - -            dfirecit doublng rom an avermagre ofo5.8 per icnt ofolwd Chi inpie 19117o1.
wage-price spiral ensued, leading to the acceleration of inflation. Prices rose
,~ . _                The policiesat average annual rates of 182 percent in 1975 and 443 percent it 1976.



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I                                       - I
1itla BdIassa                      131
Ajiuting to External ShockF
compared to 2- percenit in 1974
The econoimiic disruptions caused Ly rapid inflatiorn were aggravated by
fluctuations in the real exch3nge rate. Correspondingly. Argentina expe-i-
b      ff                   encea a dtecline in the rate of economic growth and lost export market shares.
Losses w-re eEpecially pronounced in beet and maize that were subjected to
., ,.,   .                export taxes, and in manufactured goods where the 3ubsidies provided failed
to e liminate the bias of the incentive system again1st exports. Import substitu-
tion did nrt compensate for losses in export marke. shares and Argentina
of external shocks. As a result. its debt service ratio  -reased by one-half
r--             '; betw,een 1973 and 1975 while its external debt ratio more than doubled. To
'U         ,       qremedy the situation. the new government that :-me to power in March 1976
, X S' -:          adopted a polcy package, involving a large devaluation, the application of
wd`                    deflationary n,onetary measures, reductions in the budget deficit, and wage
- .  P  _.    control. W'ith the lifting of controls on wages, the wage-price spiral resumed
again. however. and inflation rates reached 150 percent in 1978.
A new reform package was adopted in December 1978, with the budget
deficit reduced to 4 percent of GNP. But the principal policy measure used to
lower inflation rates was a substantial slowing-down in the rate of devalua-
tion. As a result. the peso appreciated by 27 percent in real terms between
12~'         ..._=  -1976-1978 and 1979-1981. T'he appreciatien of the real exchange rate led to
i  . -           further losses in export market shares and to negative import substitution.
¶ '   ˘  '            .Argentina's balance of payments deteriorated to a substantial extent, and
foreign borrouing increased greatl%. By 1981. the external debt reached 15
'  .   .  -  percent of GNP while debt service payments surpassed one-half of the value
.'  >   * , .  ,   of me rchandise exports. In turn. incomes stagnated in 1980 and fell in
absolute terms in 1981.
Chile experienced considerable economic dislocations under the Allende
- '- .  ,  ..   government, with inilation rates exceeding 400 percent a year, and suffered
large external shocks. Upon assuming power in September 1973, the new
government simultaneous!Ny adopted a policy of stabilization and of economic
_ '  '  ' ' . Tr   reforms. involving a turn towards outward orientation. The reform measures
included a large devaluation'. the elimination ef quantitative import restric-
tions. reductions in tariffs. the abolition of price control, and the establishment
*  tt  *  _,      of positive real interest rates. The measures adopted led to a one-third rise in
--      r        _export market shares in 1974-1976. with larger than average increases
observed in the case of nontraditionial primary products and manufactured
r o'  ' .:  . ;-   voodC Notwithstanding the liberalization of trade. Chile also experienced
H  --  . --  __5some imp(rt substitution And while deflationary monetary and fiscal policies
..-_         led to a decline in GNP between 19,73 and 197f. growth rates averaged 8.4
rhc du. ,1 Thje 5 w A,c,  . pprt,pr,.,ratt   ;ndicatt -hdrilts in real exhangt rates  bhcause
I               -+  !  ;  ,      tijepradz rr.-c, rrt.  ji,torted th  r.suit in the i4-  !4";t 5 rvpd
- .~-ii



6   . .  .                                                                               p    p ,
5   :' ;     -S  -- --                                                                                    ;
1I~~~~~~I
..,_. -
132                          Berichte
- ^   - _            perc-nt between 19-6 and 1979.
A.:   .  ;              The situation deteri.iated following the adoptiun of fixed exchange -ites
in June 1979. The exchange rate was maintained at 39 pesos to t:ie dollar until
'   .e ;9;early 1982, albeit average wages and salaries mere thaii doubled during t:ie
period, involving a considerable appreciation of the currency rate in real
terms [Balassa. 19841. The appreciation of the exchange rate, together with
reductio-ls in tarifts to 10 percent on all goods other than au,omobiles, gave
rise to nega ve import substitution. And while the policies followed i-i earlier
years cout .ued to ha,-e favorable effects on nontraditional primary exports,
Chile lost export market shares in manufactured goods. As a result, the rates
- <   _        of economnic growth declined in 19V0 and 1981, and GNF' fell by 8.5 percent in
- .         - .              1982. Growth rates in the 1979-1981 period were nevertheless higher than in
-  -, i   t.3        the base period, th-is reinforcing the adverse effects of external shocks and
: ;s-          n-gative import substitution on the balance of payments through increased
imports. Ihe deterioration of the balance of payments was financed by foreign
borrowing and Chile's traditionally high debt service ratio increased further to
* r  |         74 percent in 1981 whereas the ratio of its external debt to GNP reached 25
_t   *~ _         percent.
Uruguay also introduced economic reforms in 1974, involving increased
..a    .    _.            outward orientatien and the liberalLation of long-standing price controls. The
_  .              devaluation of the currency was reinforced by subsidies to nontraditional
-  . _,. -exports while import protection was reduced only gradually. As a result,
Uruguay gained export market shares and experienced some irmport substitu-
It.-  -       tijJi. With stabilization measures being of much lesser irnportance than in
Chil!e. the output-increasing policies applied contributed to the acceleration
of economic growth in Uruguay. The rapid growth of exports and GNP, in
turn. led to declines in debt service and external debt ratios, even though
Uruguay relied in part on foreign borrowing to offset the unfavorable
_-. . .       .            ba.ance-of-payments effects of external shocks. As in Argentina and Chile.
the exchange rate was used as the principal anti-inflationary device after
1978. By 1981, the currency appreciated by 27 percent in real terms,
- ,.    N~,,               compared to its 1976-1978 average value. As a result, Uruguay lost export
market shares in manufactured goods and the losses were barely offset by
increases in primary exports. Nevertheless, import substitution continued
and, despite reliance on external financing, deot service and external debt
ratios declined further.
4. Yugoslavia, Israel, and India
Efforts at export promotion in the mid-1960s .lackened in subsequent
e     -             yea, s in Yugoslavia and in Israel. Also, these countries employed protectionist
*;              measures after 1973 as they failed to devalue the exchange rate pari passu
with domestic infiation In turn, India continued with inward-oriented



,~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ _                                                  . 
Bela Balassa                      133
Adsusttng to External Shocks
_            policies, but let the rupee depreciate in real terms following an appreciation in
1974.
Israel and India more-or-less consistently applied deflationary policies
c'uzii,g the period under consideration. By contrast, the deflationary measures
taken in 1974 were followed by expansionary actions in Yugoslavia, necessi-
tating external borrowing on a large scale. These policies continued through-
out the 1970s, but Yugoslavia had to adopt deflationary measures in 1980 as
-           its creditworthiness deteriorated. Yugoslavia also devalued its exchange rate
.  - -           in real terms in 1980. This did not suffice, however, to avoid losses in export
market shares as investment policies and foreign exchange allocation favored
-            import substitution. Continued protection gave rise to import substitution at
the expense of exports in Israel as well whereas the adverse effects of the bias
of th? incentive system against exports were aggravated by the worst
monsoon of the century in 1979/80 in India.
The policy changes under'.aken in 1980 occasioned import savings in
Yugoslavia and reliance on external borrowing was reduced. But, external
debt and debt service ratios reached high levels by that time: 21 percent and
33 percent, respectively, in 1981. Correspondingly, Yugoslavia had to con-
tinue with deilationary policies and reschedule its debt after 1981. The
=            application of deflationary measures was not accompanied by policy reform,
and import substitution remained to be fa-ored in Yugoslavia. Although
savings in foreign exchange were attair td as a result, the efficiency of
investment declined. This decline was aggravated by the increased regionaliza-
4           tion of r!ccision making on investment in Yugoslavia.
Israel traditionally relied on external borrowing for much of its investment
neei. Reliance on foreign borrowing decreased during the period under
consideration as - apart from the 1977/78 interlude - Israel applied deflation-
ary policies. Thus, with some fluctuations, the external debt ratio fell from 27
percent in 1973 to 22 percent in 1981 whereas the debt service ratio declined
from 25 to 15 percent. At the same time, there were limited possibilities for
import substitution in Israel's small domestic market, and losses in export
market shares were experienced as the bias of the incentive system against ex-
ports increased. Losses in export market shares were particularly pronounced
in man'ufactured goods and the overall result in 1979-1981 was improvc-d only
owing Io oil exports originating from the occupied territories.
Thc. deflationary measures applied, and the lack of output-increasing
polic.es, led to the deceleration of economic growth in the 1973-1979 period.
i<-                Tne situation was aggravated after 1979 when inflation rates in excess of 100
.                   percent caused considerable dislocation and contributed to a fall in domestic
savings. As a result, the GNP declined in absolute terms.
,                 India had long Dursued an inward-oriented development strategy that led
to the practical ex.. ustion of import substitution possibilities. At the same
time, the continuation of these olicies gave rise to losses in export raarket
-~~~~~~~~~~~~~~~



-    . .,     ;i       -,           .     .       ,       I,.   ;,*.
_ -      ~*  '   -  '        -    *     ,      _  * _       _                  .
.- 0
1 34                          fri cittr
shares. In the 1979-1981 period, the disastrous monsoon of 1979/80 also
contributed to adverse export trends. India applied deflationary measures in
response to external shocks, entailing a deceleration of the growth of the
money supply and an increasing budget surplus. But. the budget surplus.
together with the adoption of positive real interest raltes, contributed to
increases in domestic savings. Furthermore. india benefited from the spread
of :he Green Revolution and. towards the end of the period. from efforts at
policy liberalization C(crrespondingly. its growth performance improved.
India further benefited from the rise of workers' rernittances from the
.Middle East and from increased tourist receipts. These service items permit-
ted reducing external debt and debt service ratios, notwithst.nding additional
financing needs on the trade account. However, foreign borrowing increased
again after 1979 as the rate of gro%%h of earnings from services declined
IX. Conclusions
The experience of the twelve newly-industrializing developing economies
provides evidence of the differential effects of alterna:ive policy responses to
external shocks. The continued application of outwarcl-oriented policies
permitted maintaining relatively high rates of economic growth w4hile limiting
external indebtedness. In turn, inward orientation was often accompanied by
extensive foreign borrowing and, in the absence of the efficient use of the
borrowed funds, external debt and deLb service ratios increased. eventually
necessitating the rescheduling of the debt and the application of deflationary
policies. Similar results occurred in cases when exchange rate policy aimed at
- -                        reducing inflation rates gave rise to greatly overvalued exchange rates.
2         -                 The advantages of outward orientation are apparent f'rom the observed
positive correlation between the extent of export promotion, defined as the
ratio of the increment in exports associated with increased export market
shares to the balance-of-payments effects of external shocks, and the rate of
economic growth. The rank correlation between thcsL variables %.as 0.48 and
0.42 in the 1973-1979 and in the 1979-1982 periods, respectively. At the
same time, the correlation is reduced by reason of lags in the adjustment
process in Chile and Uruguay. whichr turned towards outward orientation in
the mid-1970s but let their exchange rate appreciate to a considerable extent
in real terms aftcr 1979 Excluding the two countries, the rank correlation
,   .               coefficients are 0 76 in 1973-1979 and 0.58 in 1979-1982.
These results may be contrasted with the lack of a correlation between
additional net external financing and GNP growth rates as well as between
import substitution and GNP growth rates in the two periodr. The first of
these results reflects the fact that the economic effects of f'oreign borrowing
depend on the uses to which the borrowed funds are put. In turn, the
relationship between import substitution and economic growth ij ambiguous:



_  tij diJSd                          135
.  -  iuttig  i(  - \xtvrilzI Sn,ic k-
*              u hilt irimport substitution in higih cost capital-intensive inclustries will tend to
depress econ.mic growth. the opposite will occur if import substitution takes
place in efficient industries prodlucinig for exports as wcll as for domcstic
markets
The differential effCeLs of alternative policies are particularly apparent in
the vcar 1983 The outward-oricinted Far Eastern economics. which accepted
a temporary decelerationl Jf economic growth after 1978 in order to avoid
excessive indebtedness. returnted to their earlier growth path in 1983. with
GNP growth rates of 7 to q percent. By contrast. Brazil. Mexico. and
Yugoslavia failed to make good USe of borrowed funds and had to adopt
strong deflationarv measures, with GNP declining in absolute terrms in 1983.
The GNPfell also in thecountrics of the Southern Coneof Latin America that
greatly overvalued their exchange rate in the pursuit of price stability. In turn.
the GNP stagnated in Colornbia that let its exchange rate appreciate, albeit to
a lesser c ent than the countrits of the Southern Cone Finally, Israel s poor
economic performance continued while India showed improvements as its
economic reform efforts strengthenied
TFhe results indicate the cumulative effects of the policies applied. Inward-
oriented economies that borrowed extensively during the first period of
external shocks were not able to generate the foreign -xchange necessary to
serviLe their debts dS the second set of sho':ks occur:ed. It is further apparent
that exchange cate policy plaved an importart role in the process of
adjustment to external shocks,  ith overvalued rates having adverse effects
on exports and import substitution and, ultimately, on economic growth.
In turn, following a temporarv slowdown, outward-oriented economies,
which did not introduce distortions in product. factor, and foreign exchange
markets. regained hi,gh growth rates of exports and econornic groth. This is
the more noteworth% sine. given the higher sharc of foreign trade in their
G NP these economies experienced much largerexternal shocks than inward-
oriented countries The losses suffered thereby were, however, offset several
times through superior growth performance.
References
Balassa, Bela. KorDas t-selopmenit Strategy for the Fourth Fis Y'ear Plan Periodd In Bela
fialassa. Polo' Reform iaz D)eveloping C(ountrites Oxford 1977. Dp 119-138
- Export InLentises and Export Performance in Developing Counties A Comparatve Anal
.sis tieltzcirtschaft!hches 4rchiv. Vol. 114. 1978. pp 24-61
. - ,                - Thc Ne%ly-lndustrnalzing Developing Countries after the Oil Crisis  tiehtzirtschiaft-
-  --               lwlwhs .-trchi. *ol I c!,481. pp 142-194
,;    _              -. -rrade Policy in Mexico. isorld !t7elopmrnt Vol II. 1983 pp 795-812
-. Poihcv Experimrents in Chikl. 1978-IL83  In Gars N1 Walton IEd. 71.e Noat nal Eco-
nomic Pohcies of Chile Greenwich. Conn . 1985. forthcoming
di
i -
..,-U



Appendix
Table 5a - Balance-of-P-ayments Effects of Externial Shiocks anid of Plolicy, Responise to thiese Shocks (Mill. US.$)
1Q474-1                     ,,  1474                           1424-                  l~l    1474
lArw,,~~~~~al 2-hoc1k741s7        11476           1 3474  14ti4)          MIA1  Q7     375    117t   3Q76'-  1474   144(   IA'
Ilwira                                                   Co lombia
T'erm-s of Trade Effects             1~41   30ob   2t61 2  3020   1834   4451   4,43 7  4407    34     3954  -134)     37    707    1,75   It4l35   444N
hIure                              7 37   18457  3556)  13143   11 37  5034  10450    5707     12    230    20%       2    1444   662   i13h2    44A
tlribala'wtd                      2404    1444   1056   1637     ts41    813  4514    130 6()   2     7 1    4,9     I 4   I 61     1 4   254      It,
Export Volume IF-ffects              :t.I    924    III     134     71    5412  1025     _.1h   60      IN      4)     74      ,4     I 5    '4       S
rogtethett4                          .30o2  11410  2441   33514   1405   55-43  74h2   4-470    4 1    2514    6)     *      h,     64%    17811   1604
Inter(st Hatr 1-flects                 II      0      4       0   1780)  3 337  54 35   35317     0      0      I)      0     40     hi I3 114       37
Total                                34302  3830   2441   33918   3t.45  M8)74  1 2847  144?7   Qi     25)8   -1.4)   *k     n44    7 72 1144 I     l2 1
Polic-Y Respi.nses
Additioinal Net External     rigncn  4635   280)5   44)   2774    2285   3170)    4     31454  212     107     43     117    4 37  4324    3074    44,45
Additional Net External FinanLing8  4t61    21405   400   2774     94)9  -3I66r  53 34  -316h7  23I2   10)7    4)     337    34 7  3 246   2844    1447
Inicrease in Export Market Shiares    112    8406   324    4360    371   31.4.  44 33   344)1    22    II))  -12t6      2    4,46,  4,4     210     532
irnpo't Substitution                 -832    955   2275    t.4t6   648   2623   31.I7   2246   - 13     44    - 2t     34    424   1244    14)15   10)27     T7
Effects (if Lower G.NIP Growth Rate  543    -336)  -5h1    - 447  11 24  1425   4 754   2433     -4      3       4     -4     I(I      3     !4       2
rlogetherb                          13042   3834)  2443   3358    3415M  5543  7462    4470    43     2514    4,)    I4,   4,44    44)    37)13   1 (XA
Merxic-o                                                 4 rgentina
External Shocks
l'erms-of Trade Effects               594   10-48   4 72    706   t623  -32414  2724.  - 3)534  -342   657    2t67    263    24)7   1454)   784    ri14
Plure                             <,181   -263   -6*4   -447    -244  -3804  -57314  -3257   -94)    428   32148    559    4,44)  7 30   3324    14414
Ulnbalanced                        414(18  1333  II1.1  13 53    1466  2511   2444    21 24   -43    229   34)23  -244    - 484   720    - 344)   -35
Expsort Volume- Effects                74    24 1   1144    I61    1140   639    1043    621     3 3   107    -6(6    I18     4 7    144     53      43
Togethert8                           674    32148   4,56   874     803   -4,59  -63     -5313  -1214   764    202     274    294   35314    837     1477
ntelresl Rate Effects                  41      0      0       0   1321   2355   4074    25145     )      0      ()I4         214    51)42  3762    1426
rotal                                4,71  12104    654'   8474  2324    36b9h  2 346 ,2072   -314 2   7 h4   20)2 t2.-.     4614  2)44)360 2   I 1703
Policy Respomnses
Additional Net ExtIcrtal Finiancing,  h471  21)44   439   1552    277 3  41333  5703    420)3  133))  1478   -311    4 32   1335 I5264    145t,4   3654)
Additional Net Externa  F-iIanicing1  1671  2(4)4   435    1552   1452   1778    16h25  1618    130l  14714  -331    4 32    903  j4767   12802    21424
lincrease in Export Market Shares   - 34 5  -4 5   - 757  - 516   1445   2,1564  4 542  28845  -172   -704   -314   -345     207   1173'4  -1420   547
-.noonr Substitution                -5146  -2144    370   -169  - !847  -4700  -7374  -4640    -8-4   -137    560    11     -467 12345   [1IQ82  -I 7t)5
!-ffects oif Lower GNP Growth Rate   -hi3    -26    108      7    -24 7  -405   -476    - 376   -3     127    263     124    112    2495    43     4
Together8s                           678t   321214   56    1474    803   --4.59  - 1"43  - 533  -128   764    202     27Y    254    1 5314   371   1477
O ontlinued)



l:47t,      80148                 7    17      97            94     9081     1    991  14t"8!I,
Uncurga
t vIernal Shmi'i~
Ierim, of I radc Ifkects             31    525    440,   339   -324    317   14 3 I  475    lOS    174    203    it)1   1 73   51it   546    412
Plure                             $81   1221i  1829)  1299   -486.   - 86   7t.2    6)3   1 32   211    3t6t   23ti    8 1   435    701    40t6
LI IhaId ic ed                  788    7 04  1 189  -96     162 I  404    670    412    -27    - 37  -163    - 75    Y2     81   - 155     6,
I -Won t %oumc trt!C%;%              Si     87     ti9    34    1 14   1 33   262     171    26i    32     1 3    24     21     54     75     so
loirtehcri,                           4    c.12   %N     V7A   - 205   4%0   16943   646,   131    206,   2117   185    193    57     62! z  461 
Intertxs KAle I tlectx                U             0      II    -(6   A44    71     49$         0   a      1  0         25     %I    .44     4 1
Total                                 4    t'L I  509    373     70O   8499  24t)4  1144    131    206    217    18h5  I218    62 3   665    502
Pof:ci Response3%C-
Additionial Ne! External Financing  -570   -2j-575      -422    962   16b84  3456   2034     99    157     88  ~14      38!    635    475    49 
Additio,nal Net Ex:ecrnai Financingh  570  -120 j 575   -422    686   1236   2685    1536    99    157     88    114    35o    582 I43!      45t6     :
Increase in Export Market Shares    292    289    539    374    339    492    335    388      0     46    121     56    -78     22    117     20     "
Import Substitution                 II I    16 I102       76   -915   -793   - 7/5  -827     30     45     9 1    55    179    413    397    329        W
Effects o, oe   N     rwhHl         1n     427 I443      344   -3 15  -485   -552   -451      3    -41    -84    -40   -263   -447   -324   -345     tr '
Togeiherb                            -4    a12 j51)9     373   -205    450   1693   -646    131    206    217    185    193    570   -621    461
-' a
-                ~~~~~~~~~~~Yugoslaviua                                    Israel                              E 
f.zternal Shocks                                                                                                                             C
Iernms iof-Trade Eflects           I t62 I2008   1482   17 17  1538   2567   3602'  2569   1056   1080    745    960   1168   1843   1610   1540     a
Pure                              !4.    787    684    590    -36    694   2725   1128    195    269     94    186    480   1378   1326   1061
Unbalanced                       L,h3   1221    799   1128    1573  1873    878    1441   861    811    651    774    689    465    284    479
E.%xprt Volume Effects              121    426    588    378    557    114    453    375      3    207    108    106    283    370    650    434
lthgelherh                         1783   2434   2070   2096   2094   26580  4056   2943   1059   1287    853   1066   1451   2213   22t60   1975
Interest Hale Effects                 0      0      0      0    275    573    953    60!      0      0      0      0    220    412    383    338
Tkital                             1783   2434   2070   2096   2369   3253   5012   3545   1059   1287    853   1066   1671   2b25   2643   2313
Policv Responses
Additional Net External Financing  20t64  1848    564   1492   3286   2089    858   2078   1187    914    307    803   1117    819    275    737
Additional Net Ext'ernal Finantc;ngb'  2064  1848  564  1492   3011   1516    -98   1476   1187    914    307    803    897    4C7   -108    399
Inciease in Export Market Shares   -309    -26     8!    -85   -446   -605    552   -166   -277   -205   -321   -268   - 102  1-132  -290   -175
Imixort Substitution                371    555   1276    734   -535    94    1725    7 11    36    250    322    203    -61  I593     467    333
EffeCtS OflI,wer GNPl3rowth Hale   -343     57    149    -46     64    826   1877    922    114    327    544    328    717   1346   2191   1418
Togetherb                          1783   2434   2070   2096   2094   2680   4055   2943   1059   1287    853   1066   145! 12213    2260   197 5
~cont inued I



A
1474  147 5  196    1974-                      1979 -                     1974-                        79
1q76'-1 1479  148(3  1981  1       1974  1975   1970  1197tl~ 194794  190   9
)"dia                                                  o,e
:xtermal .\hi ks
ierius of l'rade HlIe,ts          1120   1919i  8 58  I111)6  lImI  444 1  49(11 I 3901  1706  1804   120)1  1570  .082   16t149  4 796  31176
Plure                            994   194'i  1 nc)3  1544  821   2472   3576   22940  1105  14 35  1 1 )  1285    -MA   2959   4 774  2 556
UohiaIanced                      125     -5   -835   -238   143   1968   1327   1213   602    170   - I I   285   1147    t,90    22 I620
[spoxrt Viilu'ie [ffects             8    305    269    194   281    408    725    471    29)   475    232    245   69 1   1441   2499   1544
r'ogethert6                         .d   2244   1127  1 500  1446   484"   5628   3974  1>1 5  22794  14 32  1815  1774   50942   7295  4720
Interest Ratc Fffsds                 0      0      0     0   -118S   297   - 125  - 110    0      0      0     1    499    10947  1709   1102
Total                             1128   2244   1127   1 500  1328  4552   5502   3794  1735 I2279    14 32  18 15  2272   6189   90(3   5822-
INolicyv Re~nonses
Addi!ional Net External Fitiancing  1559  2488   919   1662  '170   7412   788o   5889   523   -228 ~-2055   - 586)  2084   119 I   30    351-
Additional Net Extermal Fin;.scingt'  1559  2488  939  16t62  248J  7709   8011   6070   523   -228 [20!)5   - 586  1586    778  -~359   - 75 1
Increase in Expor' Ma.ket Shares  - 322   -54    - 12  - 129  - 1034  -2945  -2659 -2212  445   932   1657   1011  -648    -811    781   -22t6
Im,xort Substitution              - 172  - 155   207    -40  - 182    31    296     48   900   1520   2~ 77  1632   607     352    888    616)
Effects of Lower GNIP Growth Rate   62    -35     -8     6    1 73    54    -20     69  - 133    55 I-647    -242   228   6329    8684   5081-                                 -
Together'                         1128   2244   1127   1500   1446  4849   5628   3974  1735   2279   1432   1815   1774   5092   7295   4720 
Singapore                                              Taiwan
External Shocks
Term3, of Tradc Effects            529    886    484   6%33   735   1388   2473   1532  1081    845    189    705   801    2b28   3566   2332
Pure                            -778   -415   -940   -711   -61   -361     56   - 122  1006   967    724    849   1519  4510    7614   4548
Unbalanced                      1307   1301   1424   1344   796 I1749    241'   1654    76   -123   -536   -194   -718  -1883  -404S -2216
Export Volume Effects              -bl    286    ISO    143   496   1246   1962   1235   -34    558    211   245    6595   1374   2342   1470
ToRether"                          523   1172    634    777   1231  2634   4434   2767  10-47  1403    400    950   1496   4002   59091  3802
Interest Rate Effects               1)I     0      0     0     19    244    283    182     0      0      0      0   -46     -42    172     28
T'ota!                             523   !1721   634    777   12"   2878   47U1   2945  1047   1403    400    950   1450   3960   6080 I3830
Policy Responses
Additional Net External1 Fin:ncinp  894   844    293   677     53   1020   2511   1195  1262    529 ~- 003   263   -963    -638  -2514 1-11372
Additional N~et Extemnt Financing6  6(4   844    293   677     34    776   2227   1012  1262   5,29 [1003     263  -917    -597  - 2686 1-1400
Increase in Export Market Shares    62    -39  -114    -30   1451   2642   3167   2420  -330   -288    276  -114    286    897    1787    9910 
Import Substitution               -641     22   -171  -264   -620 -1764   -2045 -1476   -255    320 j401      156  2356    3144   47;42  3414
Effects oif Lower G NP Growth Kate  207   346   627    393    366    981   1085    811   370    841    726   646   -229     558   2066    798
Togclherb                          523   1172    634    777   1231  2634   4434   2767  1047   1403 j400      950   1496   4002   59094  3802                                  -
a Av,rage - Exclusive Interest Rate Effects



-;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4
Table 5b - Balance-of-Payrnentz Effects of External Shocks atid of Policy Response to these Shocks (Percent)
IW41 4 5  197t194 -        1     81979-                           197974-     14  1 974-
11741 1975  197t 197h | 1979| 1980  1981 1'981,  1974  1975  1976 1976  1   1980  19hl |981
.razil                                       C olombia
Extemal Shocks
Terms of Trade EffectssAveragc Trade     c) 52 2   1?   * 48;   12 8  *2 0  39 7  2i 8  2 9  15 5 -14 0   1 6  23 1  19 3  47 7  30 1
1erms of Dade Effects/GNP                3 9  3 9   2.8    3 i  0 9   2 3   3 2   2 2   0 3   1 5  - 1 3  0 2   3 3   30   0    4 4
Export \blume Eflects/Exports            33   9 5   5   I t. 3  0 5   ' 8   5 4   3 6   b     9 1   8 4   7 9  -2 8  0 4   3 2   0 1
Export Volume Elects/GNP                 02   0     0 4   0 4   0 0   0 3   0 5   C;    0 6   I 0   0 7  0 8   0-5 0S  1   3 4   00
External Shocks/GNP                        1I 4 5  1 3    3 9   I 0   2     37    2 4   0 9   2 5  -06    09   2 8   30    7 4   4 5
Interest Rute Effects/GNP                0 0  0 0   0 0100      09    16i   2 7    1 7  0 0   0 0   00    0 0  0 4   0 4   08    0 5    >
Policy Responses
Additional Net Extemal F-nancing
/AverageTr.de                         720  443 1148     442   35   -11 -329    -109  20 1  104    92   1331 1131 356    855  4`1        n
Adjitional Net External Financing/GNP    57   33    10    32    03   -01   -2t    -OF   22     10   09    1 3   l     ss 55  12.6  67   S 
Increase in Export Market Shares/Exports  23  146   5.9   78   -29   10 7  23 3   120   23   101  -134    02  202    198   68   159 59
Import Substitution/imports            -iO5   78   ;46    9.2   4 1  170   270    155 -120    46   -25   -3.7 -158  -353 -38.2 -31 1    n
Effects of Lower GNP Growth Rate/imports  -7 5 -4 7  -8 5  .t 9  7 2  93   35 5   Ib.4  -0.8  -0 3  0 1  -0 31 -041 -01    0 5   01 
Afexico                                      Argentina
Externa Shocks                                                                                                              o
Terms of Trade Effects/Average Trade    193 1342   167    236   7b   12.2 -204   -106  -60   305  1 3   117    37   252   134   142
Terms of Trade Effects/GNP               I I   19   08     13  0   | -12  -23    -10  -04    20    08    08    03   24     14    14
Export Volume Effects/Exports            4 5  t34  104    9 3   2 7   81   10 6   7 6   0 5   s4   -24    081  08    1 7   0 9   II 
Export VolumeEffects/GNP              j 021 04      03    03    02    06    0 9   06   0o0    03   -02   0o1    01   01    01    01
External Shocks/GNP                   I 131 23       I I   16   08 |-06    -14   -05   -04    24    06    0.9  04    26    1 5   Is 1
Interest Rate Etfects/GNP             I 001   on    00 I    Ol  13   2. 1  34    23    00o.  00    00   0o0   0.4   08    32    14
Policy Responses
Additional Net External Financing
/AverageTrade                       i5391669 133i       518   17  1i7 0 1221    i5i   5.5  685i-i43i 193      62   827  479   493
Additional Net External Financing/GNP    32   3.7 | 16    28    1.4                s16  14 j I1  04  4.5  -1f0  1.3  I5t  79  5 1  48
Increase in Export Market Shares/Exports  -187 p247 F425 1-285  216 1338   460   354   -70 -353 -11    -165   33|-226 -134 -102
Import Sibstitu:tion/lmports           -135 -67 | 96     -40 -189 p351    -4381 -348   -37   -sQ9  349    5.5 -197  -372 -354 -315
Effects of Lower GNP Growtl, Rate/Imports  -14 |-6  28    02   -25 |-30          -28   -0. 1  5s5  164   62    231   47   149    74
(continued)
I''~~~~~~~~~~~~~~~~~ 



\,* ,                                                          ,,.- ;- J!! Wat * * b re~~~~~                  4    '
1     1
(c iiniruedi
1974  1q7   197  1         791 974      19      194 -75     1976    4-    791979-ym
1976h    |9 191        981     1974  1975  1976        1979     198   1981
Chile                                          U 'ruguoa
- .                                     Extemal Shocks
Terms of Tradc Effefts/Average I'rade     4 4  50 0  30 9  299 -10 4    9 6  42 9   14 h  415    l bt  ' 585  55 5  243  h 69  S75  53 '
TermsofTradeEffects/GNP                   05    60    48    3h    -2 P  2t)   87     3)    39    62    el9   57    37   10(4  112    85
Export Vlumc Effects/Expons              -3 7   6 4   4 1   2 2   4 4   4 5   9 2    t1)  10 h  1t) 3  3 2   7 3   3 4   7 4   8 r   ,8
Export Volume Effects/GNP                -0 5   I 0  0 8    0 4   0 8   ()8   I h    I I   I ()        0 o 5  0 8  0 4   II    I S   1 O
External Shocks/GNP                      -0 0   7 0   5 h   4 0  -1 4   29   10 3    4 1   4 9   7 3   7 4   t h   4 1  I IS  127 '     45
r__                            Interest Rate Effects/GNI'                0 u  0     0 0    010   19 '2       4 '    3 2  1O0   0 O   00   0 0    0 5   1 1   0 9   ( 8
Policy Responses
.. -Additional Net External Finaticirig
/Average Trade                         -49 4  I 4 -482  -37 2  22 1  37 2  80 5   47 2  41 8  54 8  25 2  39 5  49 9  75    5 33  59 7
L.  -                            Additiodal Net External Financing/GNI'   -5 S  -1.4  -6 3   4 5   4 7   7 9  It63    9 8   3 7   5 6   3 0   4 1   7 5  117    88    9 4
Increasc in Export Market Shares/Exports  20.0 21 1318    247   125   165   118    13.7  -01   149   291   172 -12.9    30   134    28;
Import Substitution/lmports              13 2   2.2  14 7  10.1 -20.2 -21 h -20 1 -22 h   13.2  16 7  32 9  21 5  21 8  510   S33   41 7
- _,__                       Elfects of lower GNP Growth Rate/imports  19.3  584  642   456   -90  -132  -14.4  -123    1.5 -152 -30.2 -158 -32 1 -55.3 _435 -43'
Yugoslavia                                        Lraea
External Shocrs
Tcrms of TrAde Elfu:s/Aver3geTrade       47   1 56 1  414  484   189   318   420    31 1  552   57 6  37 5  490.  262   42 6  36 7  35 1
Terms of lrade Effects/GNP                8 3  100    7 (   84    30    49 | h8      49   11 8  118    7.91 lOS    80   1',   114    0
Export Volumc Effects/Exports             49   154   190   13h | 105| 1 8     57     57    (    16     72    7.9   79    4 2  156   11I
Export Volum, Ffft:ets/GNP                06 O  21    28    1 8   1 1   02    09     07    00    23    1 1  12    19    260   4t    3()
Exlerr,al Shocks/GNP                      89 12.   | 98    102    4   | 5   | 77     56S  11 8  14 1   91| 11)    100   15.3  It, 0  137
Interest Rate Elfects/GNI| 0 0                 00     0 (   0 0   0 5   I I    1$    1 2   0(    0     0     00    1 5   2 8   2 7   2 4
Policy Responses
Additional Net External Firiancing
*:1                          /Average Trade .                        591  516   1 5 8  420   369   188   -I 1   179  620   43 8   154  417    2010   94I   -25   91
Additional Net Extcrnal Financing/GNP    103    92    27    73    58    29   -02     28   133   100    3 3   SX8   62    2 8  -08    2 8
Increase in Export Ma,ket Shares'Export  -125  -09   26t   -311  -84 | -96 t h9| -2h -224 -158 -21 3 -199         -28   -333  -69   -45
*   .                           ImportSubstitution/Imports             |      2  12  |3!3  .70   -49    96    18$8   71    1 4  1021  130|   $1   -1 1  128   102    69
Effects of Lower GNP Growth Ratet/mportO  -7 h  1 3   3 7  -1 I   0 6 O    4  20 4   9 2   34   13 4  22 0  131   13 5  29 0  47 7  2 292
(cont:nued)
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~~~~~.  *0~~~~~~~~~~~~~~~~. ~ ~ ~
-  .      --              .                                                                    *~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
974  79                 1974 -                       1979-~~~~~~~~~~~~~~~~~~1w 
I976      ~                 9197-                      197o4-                1   9   9
1974  1975  1976 1976   199    18      91           17      75   1976 19'      1979   1980    98J8I-
India                         IKorea
External ShocksI
Terms of Trade Effccts/Averagc TDade ....      41.0   66.0   28.7   45.2   187    79.3   82.0   59.0   51.7   50.6   25.6   40.7    7.8   27.5   31.2  22.4
Terms of Rade Effects/GNP                        L.7   2.6    1.2     1.8   LI1    3.9    4 1     3.1  12,9   12.8    7.4   10.8    2.5    9.0   11.1    7.5-
Export V'h*jme Effects/Exports                  0.3   10.4   8.0     6.5    4.9    9.1  1337     9.1    3.0   14.1    4.9    6.6    5.9   11.4   16.3   11.6                                                       U
Export Valurnt Fffeets/GNP     . .....          0.0    0.4   0.4     0.3    0.3    0.4     e If  0.4    0.2    3.4    1.A    3.7    3.6    3.6    5.8   3.7                                                         -
Exterral Sho0it/GNP                     . .       7    3.(1   3.5    2.31   1.4    4.3    4 C    3.5   13.2   16.1    881   32.5    4'    12.6   16.9   13.2
Intetrest Rate Mfects/GNP~ ...                   0.0 I 00     0.     0, _0 -. 1   _0.3   _0 1i  -0.2     0.01  0.0    0.0    0.0    1.2    2.7    4.0   2.6  ,r
Policy .(esponses
Additional Net Extc'r sal Financinig>
/Average Trade            17~~,l 14.6  3 1  1127          1137.7  134.0   1052.3  35.8   -6.46 -43.8  -35 4 .21 11.4  -5.  -19.9  -5.3     '
Additional Net External Financing/GN1P           2.    3.4    13     23     2      6.8    6.     54     40    -1.   -16     -40     37    19     -7.1   -1.8     7.
Increase in Expor Market Shares/Exports       -12.1  -1.8   -0.3    -4., -1.     6.     5.      42.8    50    2.     34.    27.41 -5.5    -6.4    .1     1.7        ,
Import Subst:tution/Imports   .   ...          -6.1  -5.3     8.0   -1.4   -27     0.5    4.4    0. 7  247    40.4   53.5   40.71   3.8    2.5    5.8    4J;     a   ;
Effects of Lower GNP Growth Rate/Imports        2.2   -1.2  -0.      0.2    26     0.8   -0.3    1. 0  -3.7    1.5 -14.0   -60      1.4 I 45.8  56.4   33.7     -ui                             A ~.-
External Shocks                         ~~~~~~~~~~~Sina. .pore                                   Taiwan4
Extemal Shocks~~~~~~~~~~~~~~~~~~~~~~~a 
Terms of Trade Effects/Average Trade ....       13.0  22.9   11.3   13.5    6.0    9.9   16.1    11.1  29).1  23.6    3.9   17.4    6.9   203    25.7   18.2    rA
Terms of Trade Effccts/GNP ......       i.4.8         22 9   11.8   16.5    9.3   16.4   26.5    17.9   11.4   8.5    1.7    6.9    3.0    9.3   12.0    8.3                                  .   .
Export Volume Effects/Exports .   ....         -0.2    0.8   4.6     4.6    4,5   10.3   14.8   10.1   -0.9   15.2    4.1    5.9    5.5    9.6   14.4   10.2                                      ..
Export Volume Effccts/GNP .......              -0.2    7.4    3.7    3.7    6.2   14.8   21.0   14.4   -0.4    5.6    1.9    2.4    2.6    4.9    7.9    5.2
External Shocks/GNP    3.........               4.6  30.3    15.5   20.2   15.55  31.2  47.5    32.3   31.0   34.2    3.6    9.3    5.6   14.1   19.9   13.5
Interest Rate Effects/GNP ....0.0                      0.0    0.0    0.0    0.2    2.9    3.0    2.1    0.0    0.0    0.0    0.0   -0.2   -0. 1   0.6   0.1
Policy Responses
Additional Net External Financing
/Average Trade ............                  22.0  23.8~   6.8    36.6    03     S   I14.5     7.3   33.    14.8  -20.     6.5   4.,9  -4.6  -19.   40._-
Additio,nal Net External Financing/GNP         25.     18     7.2   17.6    0.34   9.7.  23.~   31.8   13.     5.3   -8.     2.    -35    21    -90     50
Increase in Export Macket Shares/Exports        2.1  -1.3   -3.5    -1.0   133    21.   23.9    19.9   -9.0   -7.8    5.3   -2.7    2.3    6.3   131.0  6.9
Impont Substitution/imports....-12.6                  01.4  -3.2    -5.2   -4.   _I.~  1-1.8    -9.5   -6.8    9.2    9.0    4.0   22.0  27.1   43.3   30.3
Effects of Lower GNP Growth Rate/imports        4.1   7.2   11.8     7.8    2.7    6.3 I62       5.2    9.8   24.1   16.3   16.5   -2.1   4.8   1S80    7.1
'Average.                                       ____                                                                  ___
Source: NVorld Bank economic and social data base.
'.~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~