Pakistan’s Balance-of-Payments Crisis and Some Policy Options

Neoclassical price theory, and its extension to IMF country advice, argues that balance-of-payments crises such as Pakistan’s are better resolved by depreciating the exchange rate, making exports cheaper and imports dearer. We argue that a partial equilibrium analysis of just the tradeable goods market on the current account side ignores the capital market on the capital account side, where an increase in outflows allows no equilibrium value for the exchange rate, through a phenomenon dubbed ‘depreciationary expectations’, akin to inflationary expectations. Thisphenomenon will not allow the exchange rate to settle at an equilibrium level, leading to a vicious downward cycle. In such a case,capital controls may well be needed to counter the downward cycle, allowing a return to growth.

The competitive firm and perfect competition

This chapter addresses market equilibria for competitive firms, firms that act as price takers. It develops a theory which is based on the hypothesis that firms and consumers act as if they have no effect on prices; consumers choose what to consume and firms choose their production plans in the belief that the prices they see are unaffected by their decisions. There are two ways to proceed in the theory. One could continue analysis of general equilibrium in the style of Chapter 6, but with firms added to the story. Or one can undertake partial equilibrium analysis. The chapter begins with the classic partial equilibrium analysis of perfect competition. It then develops an example that shows how a partial equilibrium perspective can be misleading, before discussing general equilibrium with firms.

AN ECONOMIC ANALYSIS OF GOVERNMENT INTERVENTION MEASURES IN THE COCONUT INDUSTRY OF SRI LANKA

The apparent objectives of the govemment intervention measures in the coconut industry are identified and ranked. The inadequacy of data prevents estimation of basic coefficients re­quired for the analysis. The partial equilibrium‑analysis based on “a prior' expectations shows that the opportunities available to im­prove the tenns of trade in desiccated coconut and edible copra exports justify government intervention in these two products in the foriu of export duties. There may also be some justification for expanding extension services and public investment on coco­nut researeh, which enables to realise the production objective of government. The implications of the study crucially depend on the assumptions and the partial equilibrium technique used.

Estimation of the commercial effect of a Colombia-Israel FTA: Trade overview and partial equilibrium analysis, 2004-2014

The study presents the quantitative effects of a total tariff tax exemption between Colombia and Israel. Tariff reduction simulations are carried out using a partial equilibrium model based on the SMART methodology. Before the model, some indicators are presented to show an overview of the degree of complementarity, similarity and comparative advantages revealed. The results show that the commercial effect is very low for both countries and that there are minimum potential risks. However, several opportunities of new exports for specific sectors are identified.