Work detail

Analysis of Adjustment Processes of the Balance of Payments and Development of Import and Export in the Czech Republic

Author: PhDr. Ing. Vladimír Tomšík, PhD
Year: 2001 - winter
Leaders: doc. Ing. Tomáš Cahlík CSc.
Consultants:
Work type: Dissertations
Language: Czech
Pages: 0
Awards and prizes:
Link:
Abstract: This Ph.D. dissertation work presents an analysis of the adjustment processes of external economic imbalance and development of foreign trade in the Czech Republic between 1993-1998. The first part of this Ph.D. work is devoted to the theoretical models of the adjustment processes of the balance of payments. The objective of the second part was an empirical verification of the theoretical models of foreign trade in the Czech Republic between 1993-1998.
The first part of this Ph.D. work is devoted to a theoretical analysis of the automatic adjustment processes of the balance of payments under fixed exchange rate regime (Chapter 2) and under floating exchange rate regime (Chapter 3). In Chapter 4, the author compared the presumptions and incidences of two of the most different adjustment processes (Keynesian and monetary approaches to the balance of payments) on internal and external economic balance. A traditional Keynesian (income) adjustment process is based on the assumption of a relationship between gross domestic product (income) and net export (especially development of import). The monetary adjustment process is based on the monetarist assumption that money market imbalances affect the real economy.
In Chapter 5 is described a theoretic Keynesian-Monetary model (K-M model) which is able to illustrate the incidences of the changes of various economic exogenous variables to the development of income and the foreign exchange reserves. Author concentrates a discussion on the changes of the balance of payments and the foreign exchange reserves that are raised by the changes of government expenditures, domestic credits and exchange rate. The main goal of Chapter 5 can be considered in an interpretation of the real economic development in the Czech Republic between 1993-1999 by the theoretic K-M and IS-LM-BP models.
The objective of the empirical part (Chapters 6, 7, 8 and 9) was to make a regression and cointegration analysis of the import and export functions in the Czech Republic in 1993-1998 by identifying the main variable factors and estimating elasticity of the functions of foreign trade. The author made regression models of the import and export functions in which he used besides the traditional variables (GDP, exchange rate, domestic and foreign inflation, import and export prices), the variables as real money supply, foreign direct investment, rate of unemployment, retail turnover, and number of working days in a month. The elasticities of imports and exports were estimated by the ordinary least squares regression analysis.
The main contribution of the author's regression analysis can be considered in including new variable factors, their lags, and making the estimates for longer periods (1993-1998) than in any similar Czech research conducted in the past.
The price elasticity of imports was 0.58-2.18, the income elasticity of imports was 0.92-1.44 and the elasticity of imports regard to the real money supply was 1.50-3.37. The price elasticity of exports was 2.51-4.05, the income elasticity of exports was 2.41-3.74, the exchange rate elasticity of exports was 1.12-1.81, and the elasticity of exports regard to the real money supply was --0.06 do --0.01. These results imply that the growth of domestic demand, represented by the combined effects of GDP and money supply growth, is the most important factor explaining import dynamics. Based on this model, the potential impacts of monetary policy on imports are evaluated, but not on exports.
The regression analysis (Chapter 7) has two appendices. In the first appendix, the author estimates a relationship between Czech export and import. These estimates are made by the ordinary least squares regression analysis to calculate the Czech import dependence on the Czech export. In the second appendix, the author discusses a problem of the lead and lag variables in a regression analysis (in a relationship of two time series -- import and GDP).
In this Ph.D. work, there is also presented a cointegration analysis of the import and export functions in the Czech Republic in 1993-1998 by identifying the main variable factors and estimating long-run equilibrium relationship of the foreign trade functions (Chapters 8 and 9). Econometric cointegration analysis started by augmented Dickey-Fuller (ADF) unit root test. The results of ADF tests indicated that all time series were integrated in their first differences (except time series rate of unemployment, which were integrated in the second differences). Two time series -- industry output in Germany and number of working days -- were integrated even in their levels.
Econometric analysis continues by finding a cointegration equation of the export and import functions. The cointegration equation (long-run equilibrium relationship) is a linear combination of non-stationary time series (the combination does not have a stochastic trend). The Johansen test is used to determine the number of cointegrating equations. Finally, the cointegration analysis is completed by the Error Correction Models. This cointegration analysis found a long-run equilibrium relationship in the Czech import function, but the cointegration analysis of the Czech export function is weak (coefficient of determination was only about 60%). This research gave evidence of the long run impact of the money market imbalances to the real economy. Therefore, in the long run the monetary approach should complete the Keynesian adjustment process to the current account of the balance of payments.
The appendix of this Ph.D. dissertation work includes a mix of the economic policy of switching and changing expenditures that could be used to solve the still existing problem of external economic imbalance in the Czech Republic.

Partners

ČSOB
Deloitte
McKinsey & Company

Sponsors

CRIF
EY