Dutch Disease SE Asia.pdf

The real exchange rate changed over time depending on

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The real exchange rate changed over time depending on whether inflation was more or less rapid in South-East Asian countries than in the economies of selected countries major trading partners. Keeping the base year value (2000=100), on average real exchange rate indexes declined from 1981 to 2007 (i.e., appreciated), and generally followed a downward trend. It is worth noting to say that Pakistan, India Indonesia and Philippine showed continuous appreciation in the real exchange rate during the period of analysis. C) Historical Output-Employment Trend of Tradable and Non- tradable Sectors The Industrial output and Services sector of the countries expressed as a percent share of GDP to capture the resource movement effects. This sectoral share changed over time in South-East Asian countries; share of Industrial sector declined from 1981 to 2007, and share of service sector followed an upward trend. Actually, there was an expansion in the services sector and a decline in the production of industrial goods as a share of GDP among the countries of analysis during the peak inflow period after 2001. Figure 3 clearly show contraction in the tradable sector. The sectoral share of employment also changed over time in the countries of analysis. The employment share in the non-tradable sector increased significantly whereas the employment in the tradable sector decreased during the period of analysis. Figure 4 identifies the trend of increase in the employment in the non-tradable sector. Data & Methodology 1) Data Sources Panel data set comprising six countries is applied for the period 1981- 2007. The data come from various sources; International Financial Statistics (IFS) 2007, the World Development Indicators (WDI) 2007. 7 See Maxwell Opoku-Afari (2004)
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Journal of Economic Cooperation and Development 57 The real exchange rate (RER) is the price of traded goods relative to the price of non-traded goods. Due to non-existence of indices of tradable and non-tradable prices, the real exchange rate has been proxied by available domestic and world price indices and nominal exchange rates. RER is defined as the measure of nominal exchange rates adjusted for price differentials between the home country and its trading partners. This is also referred to, in the literature, as the multilateral real exchange rate. This is different from the bilateral real exchange rate between a home country and a specific trading partner. The RER index has been calculated using geometric mean and total trade share of trading partners as weights. It is important to note that Nominal exchange rate index is defined as the index of nominal exchange rate (period average rates) in units of domestic currency per unit of foreign currency (US$) for home country. An increase (decrease) in the value of RER represents depreciation (appreciation). Remittances (REM), foreign direct investment (net inflows) and official development assistance & grants (ODA) obtained from the World Development Indicators, trade openness (TROP) of the economy, calculated as 100*(imports plus exports)/GDP. Imports and exports data come from the IFS 2008.
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