March 24, 2010 — drsubrotoroy
From Facebook discussions:
March 2010: …My view on Greece appears different. In my view, a transition to a new Drachma will be drastic but will not be any more catastrophic than the present trap Greece has put itself in.
The current path makes a fetish of the fiscal side when the problem at root has been monetary, arising from a purported monetary union, a *superficial* monetary union being created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences.
Money has two main functions, being a medium of exchange and a store of value; the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default makes the Euro a risky store of value for Germans, Dutch et al. Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, others would have been wondering about a flight to safety outside the Euro. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may worsen the situation without any new equilibrium path being anywhere near to be found.
The aim is to have a soft flexible inconvertible domestic currency *which facilitates, indeed stimulates, the turnover of domestic trade*, and allows equilibrium domestic relative prices to be found and adjusted towards. There would have to be a
(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls (smuggling is inevitable);
(c) deciding a new price for the Drachma, say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.
(f) Exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions.
Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.
I have spent decades arguing *against* all this in the Indian case but have to say it is what Greece may need now, for a period of adjustment of half a dozen or so years.
Is the Greek/German Eurozone problem the mathematical dual of Gresham’s Law?
17 October 2011
Money according to economic theory has two main functions, namely, being a medium of exchange and a store of value; I have been saying that I think the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default would make the Euro a risky store of value for Germans, Danes et al. If I am right, Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, the Germans, Danes et al would have been wondering about a flight to safety outside the Euro. Some young mathematical economist may take my idea and develop it it intelligently as the *dual* problem to Gresham’s law http://en.wikipedia.org/wiki/Gresham%27s_law inasmuch as weak fiscal positions are causing, through a common money, stronger fiscal positions to weaken…
Addendum Oct 25 2011
My guess has been the Euro has become a de facto hard currency for Greeks, who will then hoard it and slow the velocity of circulation, damaging the turnover of normal domestic trade and hence damaging national income; i.e. it has become too expensive as a currency to properly fulfill the medium of exchange function of money in Greece; at the same time, Germans, Dutch and others in fiscally strong economies relatively have to account for the added risk of Greek infirmity and hence find the Euro less of a store of value than otherwise, causing incentives to flee to other denominations. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may well worsen the situation without any new equilibrium path being anywhere near to be found.
Thinking further on the need for a new Greek domestic currency to revive trade
16 September 2011
Subroto Roy: Re “it is still not clear what will actually happen”, what will happen is there will be an inevitable recognition that the introduction of the Euro was premature, probably irreversible, and likely to be catastrophic as it unwinds.
Edward Hugh Yes, well…. and apart from that little detail Suby, what else do you forsee. I absolutely agree, by the way, that these madmen (and women) have taken the global economy to the brink of disaster through their inability to listen.
Maria Tadd When words like catastrophic are used, they obviously send fear into the hearts of many. Suby and Ed, how do you envision the fall out to look like?
Subroto Roy There has to be a clear way out for a currency to exit; that has never been thought out beforehand; creating a monetary union is the *final* step from a free trade area to a customs union to an economic union to a monetary union. A purported monetary union, or rather a *superficial* monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. Now Greece needs, as I have said over two years, an inexpensive inconvertible domestic money which allows domestic trade and savings to take place normally; the Euro would have to become a hard currency for external use.
Edward Hugh Do you mean like what has been happening in Croatia Suby?
Subroto Roy I am afraid I have to admit ignorance of Europe’s facts, what I am working on is my (quite sound) knowledge of monetary economics acquired from Hahn, Friedman, Walters, ACL Day, Griffths, Hicks via Miller, etc. Thinking about Greece overnight: if the Euro has become a de facto hard currency there, its velocity of circulation will fall as people tend to hoard it, causing domestic transactions & trade and hence national income to fall too; hence further the need for an inexpensive domestic currency (under capital controls) for domestic trade and transactions to be revived.
(Capital controls imply import restrictions and the rationing of foreign exchange so Greeks will not be big tourists in the rest of the world for a while but what the heck they have so much to see in their own country.)
Oct 3 2011:
“What I have said for two years now is that Greece needs to introduce a soft inconvertible domestic money to facilitate domestic trade and revive growth; it would have to be accompanied by import controls and forex rationing with the Euro becoming a hard currency in Greece for external transactions. Why? Because the Euro has probably become a de facto hard currency for Greeks who would then tend to hoard it, slowing velocity of circulation and causing domestic transactions to be reduced. (At the same time, Germans, Danes and others have an incentive to leave the Euro for the safety of some other hard currency in view of a possible Greek default.) Money has two main functions, being a store of value and a medium of exchange. In present circumstances, the Euro is becoming a dubious store of value for the Germans et al while becoming too scarce to be a proper medium of exchange for the Greeks. All this is good standard monetary economics, which no one in the ECB, IMF, financial journalism etc somehow seems to be able to recall. Instead they have made a fetish of the fiscal side, and that is destined to neither address the root problem nor to bring civil peace….”
My “Reverse Euro” Model of June 1998, and my writings on a new money for Greece: letter to the Wolfson Economics Prize donors by Subroto Roy on Thursday, 20 October 2011 at 18:51 ·
In June 1998, I gave an invited lecture at the Institute of Economic Affairs on a “Reverse Euro” model for India, i.e., on how India could and should consider creating (under certain conditions) more than a dozen state-monies to coexist with a national currency too in the interests of a better fisc and some slight pretence to monetary integrity. In doing so, I also expressed my very grave foreboding about what the Euro was intended to be doing the following year in actual practice in Europe; I remember visiting a prominent British Euro-optimist too and making my argument in contrast about the Euro’s arrival.
Subsequently, Milton Friedman and I corresponded too about my idea, and he found merit in it in describing an exit route for, he said, Italy for example, if that country needed such an exit route given its fiscal condition to depart from the Euro in due course. I also talked briefly about the subject at an invited lecture at the Reserve Bank of India in April 2000, as well as elsewhere.
Over the last two years, I have (and I think was the first to do so) suggested Greece needs a New Drachma, and how this should be gone about. This has been outlined by me with many economists informally by email, as well as discussed at Facebook at some length.
I have little doubt what I am saying is broadly right — in the sense that it is the most consistent with the formal body of economic theory known as monetary economics. I was taught monetary economics very well in the mid 1970s at the LSE by, for example, ACL Day, Alan Walters, Brian Griffiths, Marcus Miller (a student of JR Hicks) and others which came to be followed by my doctoral dissertation at Cambridge under Frank Hahn, and postdoctoral work in America with Jim Buchanan. Plus Milton Friedman became a friend and stood for me as an expert witness in a US federal court (the only time he ever did that)! My most recent work is a book edited with John Clark titled Margaret Thatcher’s Revolution: How it Happened and What it Meant published by Continuum in 2005 — that has an essay relevant to this subject commissioned by us and done by Patrick Minford of Cardiff.
So I do plan to write something for your prize but whatever I do write will not be worth the vast sum of money you are offering — in fact, I would say you need to break it up into little bits in due course and parcel it out to the most fruitful ideas. The fox knows many things but the hedgehog knows one big thing… This is a fox problem, not a hedgehog one. Perhaps you should commission a journal or a multi-essay volume or a set of volumes or monographs rather than hand out one big cheque to someone who will not deserve it. (And please say no more about the moneys the Bank of Sweden gives away every year in the name of the advancement of knowledge in economics…)
The problem you have raised is a fundamental one and should have been raised decades ago, not merely by Eurosceptics in the occasional lecture or newspaper article but in many formal academic doctoral theses and journals all over Europe, long before the Euro came to be introduced — and note that the jump from the unification of Germany (with the 1:1 DM:Ostmark problem) was less than a decade before that. That did not happen. So now your belated initiative is most welcome, better late than never, better something than nothing.
Do let me know please what else I need to know to send in my theoretical thoughts on this.
February 21 2012:
My idea has been far better (because it is based on standard monetary economics which the ECB, IMF etc bureaucrats appear to have all forgotten or never learnt) …
[Devaluation refers to exchange-rates. There are no exchange-rates, that is precisely the problem; exchange-rates are prices, and as such market signals. By getting rid of them, market signals were lost. The point I am making in my notes is that there is still an *implicit* shadow exchange-rate if you like, so the Euro being used in Greece actually has a different local price in terms of real goods and services than the same Euro being used in Germany!]
Hans Suter: A Drachma at a discount of 40% would certainly push tourism by a 20% ? That would be a 3 to 4% jump of GDP.)
Subroto Roy: A New Drachma can be at 0.1 of a Euro, or less. But at least *local* trade and business will be revived and slowly national income will grow. The Greeks will feel free and self-confident and sovereign. Yes they cannot buy any more BMWs or tour Paris or Italy any more. But they can go and visit the Taj Mahal and the Pyramids perhaps. [And they can take 100 years to repay their Euro debts instead of 50 years…]
Subroto Roy hears “If the Baltics can, then why not Greece?”, and says the Baltics are the Baltics, God Bless them, Greece is Greece… I have no idea about the Baltics. The closest I got to them was an Estonian friend in Helsinki many years ago. In Greece what I am saying is that the money that is being used, the Euro, is no longer a natural money, and for that matter, it never was a natural money — money and banking evolve naturally out of trade and commerce, and to truck, barter and exchange are natural human propensities. Creating a monetary union is the *final* step from a free trade area to a customs union to an economic union to a monetary union. A purported monetary union, or rather a *superficial* monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. The Euro has been an artificial money that eradicated the vital market signalling function that exchange-rates played (since exchange-rates are prices). A new inconvertible soft domestic money for Greece would allow domestic transactions to turnover properly once more and hence revive trade and national income. Greece could still be “in” the Eurozone nominally in the sense of having a fixed exchange-rate with the Euro which would be used for external trade. But there would have to be capital controls and import controls and foreign exchange rationing. At least for a while, probably a long while. Greece’s Euro debt would take 100 years instead of 50 years to repay. But at least the Greeks would feel free and sovereign and self-confident again, and adjust to their domestic economic realities in peace.
From Facebook May 14 2012
“The big issue here is how to deal with the debt overhang after the drachma transition since this must apply to both assets and liabilities.”
Subroto Roy The New Drachma has to be an inconvertible soft currency and Greece has to have import controls and capital export controls. Euro denominated assets held by domestic residents become Drachma-denominated (at a fixed, not a market-determined rate, e.g. 1:500 or 1:1000); Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.
May 14 2012
The famous Professor Wilhelm Buiter (Cambridge BA 1971, Yale PhD 1975) has said this? “The instant before Greece exits it (somehow) introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the moment of its introduction the exchange rate between the ND and the euro is 1 for 1. This currency then immediately depreciates sharply vis-à-vis the euro (by 40 percent seems a reasonable point estimate). All pre-existing financial instruments and contracts under Greek law are redenominated into ND at the 1 for 1 exchange rate. What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area”…
Excuse me? This from the Chief Economist at Citi bank and “Professor of European Political Economy” at my alma mater, the London School of Economics and Political Science? What a load of rubbish Professor Buiter! Whom did you learn your monetary economics from? OK, ok, I should be polite: what makes you think a 1:1 exchange-rate should be fixed? Why not 1:500? Or 1:1000? The aim is to have a soft flexible inconvertible domestic currency *which facilitates, indeed stimulates, the turnover of domestic trade*, and allows equilibrium domestic relative prices to be found and adjusted towards. And why should Greece default on its Euro debt?! It might merely take a little longer to repay it. The change in currency is a conceptually distinct problem from that of credit-worthiness. Here is what I have said instead over two years, and for free:
Reintroducing the New Drachma would require
(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls;
(c) deciding a new price for the Drachma, I would say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions. Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.
A New Drachma?
Facebook April 29 2010:
Subroto Roy thinks a New Drachma is inevitable sooner or later but remains deeply puzzled at the possible ways it may get reintroduced. The examples of such monetary reforms are all long gone from memory, in the immediate aftermath of WWII. It seems clear the Euro will become an increasingly scarce currency not suitable for fulfilling the normal medium of exchange function in domestic Greek transactions and will become a rationed hard currency under capital controls for external transactions only. It may already be hard or impossible to restrain a capital flight, perhaps underway. How will the actual transition be made? Perhaps by allowing Greek government debt denominated in a new local money, call it the New Drachma, to become tradeable? I said in my *Reverse Euro* model for India lecture in June 1998 at London’s IEA that the Eurozone could end up looking less like America’s monetary union than India’s.
April 8 2010:
Subroto Roy, reading “It is hard to know how to interpret this large decline in deposits”, says “Not really. The Euro is becoming a *scarce hard currency* in Greece, i.e., it is becoming too expensive to use Euros to satisfy Greece’s transactions demand for money, the medium of exchange function, hence Greece has an increasing need for a new local currency which will satisfy that function while the Euro is retained for use in Greece’s international transactions”.
Subroto Roy thinks the only sustainable long-term solution may be the reintroduction of a New Drachma, which will need time to stabilize behind a period of foreign exchange controls and rationing. The DM/FFr-based Euro would become a hard currency relative to a New Drachma.
March 24 2010:
Subroto Roy expects the US, Britain, ANZ and everyone else in the IMF who is not in the Eurozone may legitimately ask why the effective subsidy of Greece by its Eurozone partners should be transferred to the rest of the world.
Subroto Roy thinks the Europeans have enough clout in the IMF to, say, insist some of their own IMF-directed resources be directed towards Greece specifically, which would spell the unravelling of the IMF if it became a general habit.
Subroto Roy says “I had a very productive few months in 1993 as a high-level consultant working for Hubert Neiss at the IMF (consultants are, or at least were, very rare at the IMF unlike at the World Bank etc) when I came to understand a little of how the place works (leaving aside all the theory). The French Managing Director is a politician and not an economist or even a central banker, and I am sure France and Germany can swing some IMF money towards Greece. But of course, the IMF can by definition give no *monetary* or exchange-rate advice to Greece because there is no sovereign monetary authority in Greece any more. Hence all it can do is add the same fiscal (and political) advice and conditions as the rest of the Eurozone countries have done plus make the piggy bank larger with some IMF money. It may work once, but if France and Germany then say, right, Portugal, Spain, Italy are next in line, that is the end of the IMF, because its European members may as well be asked to pull out altogether. On the other hand, my radical advice to the IMF might have been to propose to help Greece to reintroduce the drachma and re-establish a sovereign monetary authority of its own, which would take IMF advice and expertise as a New Drachma would take time to stabilize and there would be a period of capital controls on foreign exchange transactions.”
Subroto Roy gave a Jun ’98 lecture at London’s IEA on why India should have a *Reverse-Euro* model: eg 16 major states have their own (domestic) monies with a national rupee coexisting too & free currency markets everywhere. I said I feared a Eurozone may end up *looking like India* rather than the US in this. India has papered over wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!
Subroto Roy says Europe could have been a confederation & an economic union for practical purposes without individual monetary sovereignties being lost. E.g., the drachma or peso or escudo or punt or lira could each have chosen to appropriately link to some combination of the DM, FFR, sterling etc. And a Europe-wide Euro from an ECB could have coexisted as well.
Subroto Roy finds Mr Constanzo mention Gresham’s Law, and says, “Certainly there might have been currency competition in Europe, and some of the smaller currencies may have chosen to go to *that* Euro — but DM would not have done, and would have been an alternative to it.”
Subroto Roy thought imposing a single newly invented money on different economies a bit like imposing a single newly invented language (like Esperanto) on different peoples.
Subroto Roy says India has papered over the wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!
Subroto Roy thinks the effective subsidy French farmers et al were getting from Germany in pre-Euro days all came to be subsumed within Euro-economics; an alternative would have been to *leave* DM as it was, & perhaps FFR too, & to have introduced a Euro for smaller economies to use (presumably to save transactions costs);*that* Euro could have been linked to the DM etc. The Germans would have been happy & the problems avoided.
Subroto Roy says German unification hit the Germans badly enough and they seem hardly in any mood to keep on playing Sugar-Daddy to everyone else while still having to defer to the putative victors of WWII (France and Britain) for political leadership.
May 18, 1993 — drsubrotoroy
Author’s Note May 2007: Between January 1993 and about May 1993 I was a Consultant to the International Monetary Fund, Washington, DC. The IMF does not usually hire consultants, and I was hired thanks to a recommendation by Gopi Arora to Hubert Neiss. At the request of Saudi IMF Executive Director Mohammad Al-Jasser, I did an interdepartmental comparative study — the only one until that time and perhaps since — of exchange-rates and exports of India, Pakistan, Sri Lanka and Bangladesh. What follows is a part of that relating to exports. A little of it was published in an ICRIER study in New Delhi the following year, on India-United States trade.
EXPORTS FROM THE SUBCONTINENT
This study reports the main results of a study of exports from India, Pakistan, Sri Lanka and Bangladesh to their largest world markets in the period 1962-1991.
Panels of two-level Standard International Trade Classification (SITC) data were gathered as reported to the United Nations Statistical Office, Geneva in its Trade Analysis and Reporting System. These gave original data of all imports from India, Pakistan, Sri Lanka and Bangladesh as reported by each of the United States, Britain, Japan, Germany and France (G-5 countries) over the 30-year period 1962-1991 in c.i.f. terms. These countries constitute almost 75 percent of the subcontinent’s total export market, and possibly more if indirect exports via third countries like Hong Kong and Singapore are accounted for.
The import-demand data reported by each of these countries provide the most reliable and uniform data source available.
To detect any possible trends in real growth or decline, the nominal data reported over this 30 year period were deflated to constant 1990 prices, using price-series obtained from the World Bank’s Quarterly Review of Commodity Markets December 1992. This source provides a manufactured goods unit value index for the G-5 countries, as well as individual price series for petroleum and commodities excluding energy. The latter is divided into foods (divided into beverages, cereals, fats & oils, and other), non-food agricultural, timber, and metals & minerals. It is considered the most reliable price-series data of its kind available. All figures given below are in constant 1990 U. S. dollars.
Overall, one firm regionwide fact to emerge about the subcontinent’s exports to the major industrial countries has to do with the enormous real growth of clothing, especially in the decade 1982-1991. Not only has there been remarkable growth in real terms of clothing exports from the entire region, but there has been relatively higher growth in Pakistan compared to India, and higher growth in Sri Lanka and Bangladesh compared to Pakistan.
India to the United States
India’s main exports to the United States have changed in product composition over the period 1962-1991, though not in ways predicted or hoped for by national economic plans. Between 1962-1971, the main exports other than textile manufactures (SITC 65) were agricultural: tea, coffee & spices (SITC 07), fruit and vegetables (SITC 05), sugars (SITC 06), fish and preparations (SITC 03), and crude matter(SITC 29). Between 1972-1981, the mix was transformed by growth of exports of polished diamonds (SITC 66) and clothing (SITC 84), which together with textile manufactures have dominated Indian exports to the United States since.
Between 1982-1991, the same mix continued to dominate with the significant addition of petroleum and products (SITC 33) which was the single largest export from India to the United States in each year between 1982 and 1985. Textile manufactures were the dominant export until 1978 and have been in the top four throughout the period. But there has been steady decline in real terms. The decline has been from annual averages of $740 million (c.i.f.) in 1962-71, to $406 million in 1972-1981, to $285 million in 1982-1991. India has also steadily lost market-share in total textile imports into the United States, dominating the market with an average annual market-share of 19.5 percent in 1962-1971, reduced to 10.1 percent in 1972-1981, reduced further to 4.84 percent in 1982-1991.
Clothing during the same period has shown high real growth, going from an annual average of $7 million in 1962-1971 to $178 million in 1972-1981, to $538 million in 1982-1991. Average annual market-share of total U.S. imports has gone from 0.10 percent in 1962-1971, to 2.11 percent in 1972-1981, to 2.34 percent in 1982-1991. While this has been small growth from the point of view of the United States market, the movement has been large relative to initial conditions from the point of view of Indian exporters. It is not apparent whether the decline in textile manufactures has been independent of the growth of clothing or whether there has been value-increasing substitution from textile manufactures into clothing. Comparative experience with Germany suggests there has not been such substitution.
India to Britain
India’s exports to Britain are marked by textile manufactures (SITC 65) and tea, coffee & spices (SITC 07), being among the top five exports throughout the entire period 1962-1991.
However, both of these traditional exports have declined in real terms. Annual average imports into Britain of textile manufactures from India were $253 million (c.i.f.) in 1962-1971 down to $179 million in 1972-1981 and $161 million in 1982-1991. India’s share of Britain’s imports of textile manufactures fell from 15.5 percent and 16.0 percent in 1962 and 1963 to 3.4 percent and 4.0 percent in 1990 and 1991.
Annual average imports into Britain of tea, coffee & spices from India were $269 million in 1962-1971 down to $87 million in 1972-1981 and $66 million in 1982-1991. Clothing (SITC 84) exports to Britain have shown high real growth, from annual averages of $4 million in 1962-1971 to $86 million in 1972-1981 to $200 million in 1982-1991. Of remaining exports to Britain, in the period 1962-1971 agricultural outputs like animal feed (SITC 08), tobacco (SITC 12) and crude matter (SITC 29) as well as leather goods (SITC 61) were the main product groups.
The next period 1972-1981 saw the growth of clothing (SITC 84) to a position of dominance among all Indian exports to Britain, and some growth in non-ferrous metals (SITC 68) mainly copper and aluminium alloys. The latest period 1982-1991 has seen some growth of non-traditional engineering exports to the top ranks, mainly transport equipment (SITC 73), metal manufactures (SITC 69) and non-electrical machinery (SITC 71). Clothing and textiles, however, continued to dominate more than 44 percent of all exports.
India to Japan
The main feature of India’s exports to Japan over the entire period 1962-1991 is the dominance of iron ore (SITC 28) throughout. Annual average imports of iron ore into Japan from India were $401 million in 1962-1971, rising to $556 million in 1972-1981, and $572 million in 1982-1991.
The period 1962-1971 saw, in addition to iron ore, export of raw cotton and jute fibres (SITC 26), crude agricultural matter (SITC 29), crude fertilizer (SITC 27), animal feed (SITC 08), sugar (SITC 06), ferrous alloys (SITC 67), and fish and preparations (SITC 03). The period 1972-1981 saw very high growth of exports of fish and preparations (SITC 03) and polished diamonds (SITC 66), as well as some growth of textile manufactures (SITC 65). Starting from almost zero, India’s market-share of Japanese imports of fish grew to an annual average of 7.31 percent during the period 1969-1985, before falling back to 2.7 percent in the 1990s. The latest period 1982-1991 has seen the dominance of polished diamonds equalling that of iron ore, as well as significant growth in clothing (SITC 84) and petroleum (SITC 33). The main exports of India to Japan are at present polished diamonds, iron ore, fish, ferrous-alloys and clothing. It seems plausible that India’s pattern of exports to Japan has been related to the high growth transformation of Japan’s economy during this time.
India to Germany and France
As with Japan, India’s exports to the Federal Republic of Germany show unique aspects related in all likelihood to the high growth transformation of the German economy during this period. Remarkably, textile yarn and fabric (SITC 65) from India to Germany has shown large real growth during 1962-1990. German imports of Indian textile manufactures were at an annual average of just $55 million for 1962-1971; this increased to an annual average of $163 million for 1972-1981 and to $255 million for 1982-1990. Although this has not been enough to offset the large declines of Indian textiles in the United States and British markets, it may suggest that rapid domestic growth in one large importing market can reduce the impact of loss of competitiveness in a different market. Clothing (SITC 84) has shown extremely high real growth relative to initial conditions. German imports of clothing from India were at an annual average of under $4 million in 1962-1971, rising to annual averages of $96 million in 1972-1981 and $282 million in 1982-1990. The simultaneous growth of textile manufacture and clothing exports from India to Germany may suggest that there has not been value-adding substitution from the former to the latter. Other than clothing, the product composition of Indian exports to Germany has not seen much drastic change.
In 1962-1965, iron ore (SITC 28) was the single largest export only to become abruptly insignificant, possibly implying new sources had been found by importers. Besides textile manufactures, three other traditional exports — leather goods (SITC 61), tea, coffee & spices (SITC 07), and crude matter (SITC 29) — have been among the top Indian exports to Germany throughout the period 1962-1990. Of these, leather goods have shown real growth from annual averages of $34 million in 1962-1971, to $55 million in 1972-1981, to $86 million in 1982-1990. Polished diamonds (SITC 66) also have been a major export to Germany since as early as 1964, with significant growth in the latest period 1982-1990.
India’s exports to France show certain similarities with the pattern to Germany on a smaller scale. Textile yarn and fabric (SITC 65) has shown growth in real terms from annual averages of $18 million in 1962-1971, to $51 million in 1972-1981 to $63 million in 1982-1991. (The growth of textile exports to Germany and France together have not offset the declines to the United States and Britain — average annual exports to the four countries totalling $1.07 billion for 1962-1971, $0.80 billion for 1972-1981, and $0.76 billion for 1982-1991.) Clothing exports to France have shown enormous growth relative to initial conditions, moving from annual averages of under $3 million in 1962-1971, to $57 million in 1972-1981 to $108 million in 1982-1991. Besides textile and clothing, Indian exports to France have included leather goods (SITC 61), crude matter (SITC 29), polished diamonds (SITC 66) and animal feed (SITC 07). In 1982 and 1985, France also reported petroleum imports as the single largest product from India.
Pakistan to the United States and Britain
In the period prior to 1972, Pakistan’s exports to traditional markets in the United States and Britain were dominated by raw jute and cotton fibres (SITC 26) and cotton and jute manufactures (SITC 65).
Since 1972, cotton manufactures (SITC 65) have shown remarkable real growth, and along with clothing (SITC 84) have dominated Pakistan’s exports to these markets. Annual average imports of cotton manufactures from Pakistan into the United States and Britain were $87 million and $76 million respectively in 1973-1981, rising to $182 million and $117 million respectively in 1982-1991.
Pakistan’s share of total textile imports rose from an annual average of 2.3 percent in 1973-1981 to 2.9 percent in 1982-1991 in the United States market, and from 1.8 percent to 1.9 percent in the British market. This contrasts with India’s declining textile exports to the same markets in the same period.
Average annual clothing imports from Pakistan into the United States and Britain were $22 million and $11 million respectively during 1973-1981, rising to $164 million and $62 million respectively during 1982-1991. During the period, Pakistan’s market-share of clothing imports has risen from 0.2 percent to 1.0 percent in case of the United States, and from 0.3 percent to 1.9 percent in case of Britain. Again, these are small changes for the importing markets but large changes from the point of view of exporters relative to initial conditions.
Other than textiles and clothing, significant movement in Pakistan’s exports to the United States and Britain is found in instruments, watches and clocks (SITC 86) to the United States, which went from an annual average of $10 million during 1973-1981 to $26 million in 1982-1991.
Pakistan to Japan, Germany and France
Pakistan’s exports to Japan have been dominated by cotton yarn and fabric (SITC 65) and cotton fibres (SITC 26), both showing strong real growth. The first has gone from an annual average of $79 million in 1973-1981 to $304 million in 1982-1991, the second from $48 million to $75 million in the same time period. Other exports to Japan include fish (SITC 03), leather goods (SITC 61), and petroleum and products (SITC 33).
Pakistan’s exports to Germany and France have been dominated by clothing (SITC 84) and cotton yarn and fabric (SITC 65). Average annual exports of clothing have grown from $19 million in 1973-1982 to $86 million in 1982-1991 in case of Germany, and from $8 million in 1973-1981 to $55 million in 1982-1991 in case of France. In the same periods, average annual exports of cotton yarn and fabric went up from $34 million to $66 million in case of France, and went down from $107 million to $99 million in case of Germany.
Other exports from Pakistan to Germany and France have included leather goods (SITC 61), cotton fibres (SITC 26), sugar (SITC 06) and petroleum and products (SITC 33).
Sri Lanka’s exports to the major industrial countries are marked by drastic decline in exports of tea (SITC 07) and rapid growth of exports of clothing (SITC 84).
Sri Lankan tea exports were at an annual average of $175 million to Britain and $49 million to the United States during 1962-1971, reduced to $38 million and $24 million respectively in 1972-1981, reduced to $23 million and $16 million respectively in 1982-1991. Between 1980 and 1991, Sri Lanka’s market-share of total British tea imports fell from 11 percent in 1980 to 7 percent in 1991. Evidently this loss of market-share was not India’s gain, as India’s share of the same market fell even more drastically, from 33 percent in 1980 to 17 percent in 1991. India and Sri Lanka traditionally dominated the world market for tea. Major competitors since then have been China, Indonesia, Kenya and Malawi.
Sri Lanka’s exports of clothing to the United States, Germany, Britain and France have grown very rapidly, making clothing the dominant export of Sri Lanka in the last decade. Average annual exports of clothing rose from $39 million in 1972-1981 to $361 million in 1982-1991 in case of the United States; from $10 million to $70 million in case of Germany; from $3 million to $27 million in case of Britain; from $2 million to $20 million in case of France. Although rates of value-added growth will be lower in view of Sri Lankan imports of raw materials (from India and Pakistan), clothing has clearly shown phenomenal growth relative to initial conditions.
Besides tea and clothing, significant movement in Sri Lanka’s exports over the long run appears in polished diamonds (SITC 66). Sri Lankan exports amounted to annual averages of $5 million and $4 million to Japan and the United States respectively in 1962-1971; $32 million and $17 million respectively in 1972-1981; and $38 million and $32 million respectively in 1982-1991. Value-added may be considerably lower given imports of rough diamonds via Belgium and India.
Like India and Pakistan, Bangladesh’s exports to the United States have been dominated by clothing (SITC 84) and textile yarn and fabric (SITC 65). As with India, textile manufactures have fallen drastically in real terms while clothing has shown enormous growth relative to initial conditions. While it is possible again that there has been value-increasing substitution from one towards the other, this appears unlikely as Bangladesh’s textile manufactures are mainly jute products. Average annual exports of textile manufactures from Bangladesh to the United States fell from $130 million in 1972-1981 to $75 million in 1982-1991, while clothing exports rose from near zero in 1972-1981 to an annual average of $249 million in 1982-1991. Unofficial (smuggled) trade across the India-Bangladesh border is reported to be high, and it is possible Indian exporters have sought to sidestep United States quotas by going through Bangladesh which does not face quotas.
The remaining significant movement in Bangladesh’s exports to the United States has been in fish (SITC 03), which has risen from an annual average of $8 million in 1972-1981 to $35 million in 1982-1991.
Bangladesh’s main exports to Britain have included jute fibres (SITC 26), textile manufactures (SITC 65) and fish (SITC 03). Average annual exports of jute fibres went from $19 million in 1973-1981 to $8 million in 1982-1991; textile manufactures went from $20 million in 1973-1982 to $21 million in 1982-1991; and fish went from $3 million in 1973-1981 to $18 million in 1982-1991. The remaining significant movement in Bangladesh’s exports to Britain include the appearance of transport equipment (SITC 73) as the top export at an average annual amount of $121 million in each year 1978-1980, followed by its equally sudden disappearance. And clothing exports have shown rapid growth from near zero to average annual exports of $50 million in the period 1988-1991.
Bangladesh’s exports to Japan have been dominated by fish and preparations (SITC 03), with average annual exports growing rapidly from $11 million in 1973-1982 to $54 million in 1982-1991. Other exports to Japan have included textile manufactures (SITC 65), petroleum and products (SITC 33), leather goods (SITC 61) and raw jute (SITC 26).
Bangladesh’s exports to Germany and France are marked by the rapid recent growth of clothing from negligible amounts to an annual average of $60 million in case of Germany and $52 million in case of France in 1987-1991. Other exports to Germany and France have included fish (SITC 03), textile manufactures (SITC 65), and leather goods (SITC 61).
Some discrepancy exists in the data as India does not report any exports of petroleum to either the USA or France in these years.