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Manufactured exports of developing countries and their terms of trade since 1965: A comment
World Development, Vol. 21, No.10, pp. 1615-1616, Printed in Great Britain.
1993.
0305-750x/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
Manufactured Exports of Developing Countries and Their Terms of Trade Since 1965: A Comment MICHAEL
F. BLEANEY
University of Nottingham Summary. - The results of Sarkar and Singer (1991) on the trends in the relative unit values of the manufactured exports of developing countries are sensitive to the choice of end-year and to fluctuations in the unit values of US exports relative to those of the rest of the world. The relative unit values of US exports are highly correlated with movements in the US real exchange rate, and there is some evidence to suggest that Sarkar and Singer’s findings primarily reflect changes in the real exchange rates of developing countries.
exchange rate. Over 1976-90 the correlation coefficient between changes in the logarithm of these two series was as high as 0.94.’ Presumably this correlation reflects the prevalence of cost-based pricing in the manufacturing sector (Geroski, 1992). If the same is true of developing countries, then the S-S results should perhaps be interpreted as an expression of real exchange rate behavior. Table 1 shows the (unweighted) average real effective exchange rate for 10 developing countries from the S-S sample and compares it
Sarkar and Singer (1991) (hereafter termed S-S) report three results on the trend in the relative unit values of manufactured exports from developing countries since 1965. (a) A unit value index of manufactured exports (MXUV) of all developing countries indicates a trend decline of 1.00% p.a. over 1970-87 relative to a similar index for advanced countries. (b) In a sample of 29 developing countries over 1965-85, the median country showed no trend decline in the ratio of unit values of manufactured exports to manufactured imports.
Table 1. Ratio of developing country to developed country MXUVs and developing country real effective rates 1978-90 (1980 = 100)
(c) Relative to the MXUV of the United States, the MXUVs of individual developing countries tended to show a decline over 1965-85, with a median rate of decrease of about 2% p.a.
Year
These results are somewhat ambiguous. The discrepancy between (b) and (c) may well be a reflection of the different behavior of the United States and world MXUV series. The ratio of the United States to the world MXUV series shows a marked cyclical pattern, rising from 114 (1980 = 100) in 1965 to 124 in 1969, falling to 100 in 1973 and remaining about this level until 1980, before rising to 146 in 1985 (and falling to 112 in 1987 but this is outside the S-S sample period). The particularly high level of this ratio at the end of the SS sample period means that result (c), which uses the US index as denominator, may be subject to a downward bias and should be treated with caution. It is also worth noting however that the US MXUV series is highly correlated with the US real effective
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
Real effective exchange rate* 87 92 100 111 110 98 95 89 77 67 65 62 59
MXUV 105 104 100 109 103 100 108 107 88 87 89 91 84
Sources: IMF, International Financial Statistics, Annual Supplement (1992). line ret; United Nations, Monthly Bulletin ofStatistics (various issues). *Unweighted average of the following 10 countries: Chile, Colombia, C&e d’Ivoire, Ecuador, Malaysia, Nigeria, Paraguay, Philippines, Uruguay, Venezuela.
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with the ratio of the developing country/developed country MXUVs over 1978-90.2 Despite the differences in country weightings between the two series, there is a strong correlation (in logarithms) between the levels of the real exchange rate and MXUV (r = 0.87), although for first differences the correlation is lower (r = 0.51). In particular, both series are much lower from 1986 onward. This suggests that simple regression on a time-trend is likely to reveal a much slower rate of decline if the sample ends in 1985 - as in (b) and (c), than if it includes data after 1985, as in (a). A further point is that, in S-S’s Table 4, which presents result (b), the relative MXUVs of countries classed by the International Monetary Fund (IMF) as
highly indebted have a mean trend of - 1.5% p.a., compared with +O.Z% for the remainder. The marginal significance level of this difference in means is 0.066. If there is a genuine difference in the trends in MXUVs between the two groups, it may reflect differences in real exchange rate behavior.’ The apparent correlation between real exchange rates and relative MXUVs makes a difference to the interpretation of the S-S results. For example, one might construct an argument such as the following: the S-S results reflect the exceptionally low level of primary commodity prices relative to MXUVs after 1980 (Bleaney and Greenaway, 1993), to which developing countries tended to respond by real devaluations.
NOTES I. The real exchange rate series used in this calculation was the consumer price-based measure as published in IMF, International Financial Sfatisfics. This series only exists from 1976 onward. 2. Real effective exchange rate data were available for 12 out of the 29 countries only. Morocco was excluded because the series began only in 1980, and Bolivia because of the
very large spike in the real exchange hyperinflation in 1984-85.
rate at the time of the
3. A feature of Table 1 is that the drop in MXUV over the period is much smaller than the fall in the real exchange rate index. This is perhaps related to the bias in the real exchange rate index toward highly indebted countries (eight out of 10 compared with 13 out of 29 in the S-S sample).
REFERENCES Bleaney, M. F. and Greenaway, D., “Long-run trends in the relative price of primary commodities and in the terms of trade of developing countries,” Oxford Economic Papers Vol. 45 (1993). Geroski, P. A., “Price dynamics in UK manufacturing: a microeconomic view,” Economica, Vol. 59, No. 236 (November 1992), pp. 403420.
International Monetary Fund, International Financial Statistics (Washington, DC: IMF, various issues). Sarkar, P., and Singer, H. W., “Manufactured exports of developing countries and their terms of trade since 1965,” World Development, Vol. 19, No. 4 (April 1991) pp. 3333340. United Nations, Monthly Bulletin of Statistics (New York: UN, various issues).
1993.
0305-750x/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
Manufactured Exports of Developing Countries and Their Terms of Trade Since 1965: A Comment MICHAEL
F. BLEANEY
University of Nottingham Summary. - The results of Sarkar and Singer (1991) on the trends in the relative unit values of the manufactured exports of developing countries are sensitive to the choice of end-year and to fluctuations in the unit values of US exports relative to those of the rest of the world. The relative unit values of US exports are highly correlated with movements in the US real exchange rate, and there is some evidence to suggest that Sarkar and Singer’s findings primarily reflect changes in the real exchange rates of developing countries.
exchange rate. Over 1976-90 the correlation coefficient between changes in the logarithm of these two series was as high as 0.94.’ Presumably this correlation reflects the prevalence of cost-based pricing in the manufacturing sector (Geroski, 1992). If the same is true of developing countries, then the S-S results should perhaps be interpreted as an expression of real exchange rate behavior. Table 1 shows the (unweighted) average real effective exchange rate for 10 developing countries from the S-S sample and compares it
Sarkar and Singer (1991) (hereafter termed S-S) report three results on the trend in the relative unit values of manufactured exports from developing countries since 1965. (a) A unit value index of manufactured exports (MXUV) of all developing countries indicates a trend decline of 1.00% p.a. over 1970-87 relative to a similar index for advanced countries. (b) In a sample of 29 developing countries over 1965-85, the median country showed no trend decline in the ratio of unit values of manufactured exports to manufactured imports.
Table 1. Ratio of developing country to developed country MXUVs and developing country real effective rates 1978-90 (1980 = 100)
(c) Relative to the MXUV of the United States, the MXUVs of individual developing countries tended to show a decline over 1965-85, with a median rate of decrease of about 2% p.a.
Year
These results are somewhat ambiguous. The discrepancy between (b) and (c) may well be a reflection of the different behavior of the United States and world MXUV series. The ratio of the United States to the world MXUV series shows a marked cyclical pattern, rising from 114 (1980 = 100) in 1965 to 124 in 1969, falling to 100 in 1973 and remaining about this level until 1980, before rising to 146 in 1985 (and falling to 112 in 1987 but this is outside the S-S sample period). The particularly high level of this ratio at the end of the SS sample period means that result (c), which uses the US index as denominator, may be subject to a downward bias and should be treated with caution. It is also worth noting however that the US MXUV series is highly correlated with the US real effective
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
Real effective exchange rate* 87 92 100 111 110 98 95 89 77 67 65 62 59
MXUV 105 104 100 109 103 100 108 107 88 87 89 91 84
Sources: IMF, International Financial Statistics, Annual Supplement (1992). line ret; United Nations, Monthly Bulletin ofStatistics (various issues). *Unweighted average of the following 10 countries: Chile, Colombia, C&e d’Ivoire, Ecuador, Malaysia, Nigeria, Paraguay, Philippines, Uruguay, Venezuela.
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with the ratio of the developing country/developed country MXUVs over 1978-90.2 Despite the differences in country weightings between the two series, there is a strong correlation (in logarithms) between the levels of the real exchange rate and MXUV (r = 0.87), although for first differences the correlation is lower (r = 0.51). In particular, both series are much lower from 1986 onward. This suggests that simple regression on a time-trend is likely to reveal a much slower rate of decline if the sample ends in 1985 - as in (b) and (c), than if it includes data after 1985, as in (a). A further point is that, in S-S’s Table 4, which presents result (b), the relative MXUVs of countries classed by the International Monetary Fund (IMF) as
highly indebted have a mean trend of - 1.5% p.a., compared with +O.Z% for the remainder. The marginal significance level of this difference in means is 0.066. If there is a genuine difference in the trends in MXUVs between the two groups, it may reflect differences in real exchange rate behavior.’ The apparent correlation between real exchange rates and relative MXUVs makes a difference to the interpretation of the S-S results. For example, one might construct an argument such as the following: the S-S results reflect the exceptionally low level of primary commodity prices relative to MXUVs after 1980 (Bleaney and Greenaway, 1993), to which developing countries tended to respond by real devaluations.
NOTES I. The real exchange rate series used in this calculation was the consumer price-based measure as published in IMF, International Financial Sfatisfics. This series only exists from 1976 onward. 2. Real effective exchange rate data were available for 12 out of the 29 countries only. Morocco was excluded because the series began only in 1980, and Bolivia because of the
very large spike in the real exchange hyperinflation in 1984-85.
rate at the time of the
3. A feature of Table 1 is that the drop in MXUV over the period is much smaller than the fall in the real exchange rate index. This is perhaps related to the bias in the real exchange rate index toward highly indebted countries (eight out of 10 compared with 13 out of 29 in the S-S sample).
REFERENCES Bleaney, M. F. and Greenaway, D., “Long-run trends in the relative price of primary commodities and in the terms of trade of developing countries,” Oxford Economic Papers Vol. 45 (1993). Geroski, P. A., “Price dynamics in UK manufacturing: a microeconomic view,” Economica, Vol. 59, No. 236 (November 1992), pp. 403420.
International Monetary Fund, International Financial Statistics (Washington, DC: IMF, various issues). Sarkar, P., and Singer, H. W., “Manufactured exports of developing countries and their terms of trade since 1965,” World Development, Vol. 19, No. 4 (April 1991) pp. 3333340. United Nations, Monthly Bulletin of Statistics (New York: UN, various issues).