Important Compression and Export Performance in Developing Countries

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Abstract
In recent years many developing countries have had to compress imports to generate trade surpluses to service foreign debt. However, since imports of intermediate and capital goods are critical inputs in export production, import compression can adversely affect export performance. In turn, slower export growth limits foreign exchange availability, inducing further important compression. This paper develops a model that incorporates feedbacks between imports and exports arising from the effects of import compression on exports, and of the availability of foreign exchange on imports. Estimates of the model for a sample of 34 developing countries confirm both these hypotheses.

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