Abstract
simulation results are much less successful. It is known that in this sub-period foreign savings are endogenized through subsidies and incentives extended to the private sector that were instrumental in increasing foreign credit flows into the private sector. Post 1980 conjecture is the one in which, relative price structure has undergone fundamental changes. In this conjecture the model results are also less successful. These observations while reducing the credibility of the adjustment process the model rests on, gives way to interesting observations. The first is that no single adjustment process holds good in a span of time that covers 15 years. The second, which is in line with the basic proposition of this study, is that the adjustment process in general is not independent of the relative price structure. In the interventionist economy, therefore, it is not independent of policies that affect relative prices. Finally the methodological problems associated with this last observation are discussed. These are that the econometric model build ing is not well suited for explicitly incorporating relative price effects in determining the adjustment process. Furthermore ex ante analysis of adjustment process is difficult in the absence of knowledge concerning the size and direction of interventions yet to take place. -Ill-relative prices that are the usual targets of interventionist poli cies are real wages, real exchange rates, domestic terms of trade between agriculture and the rest of the economy, relative prices of certain key goods and services. Under such circumstances the term `interventionist economy` is more telling than `financially repressed economy`. It is argued that any analysis based on the abstraction that the distinctive feature of an interventionist economy is holding interest rates below equilibrium levels has to be partial in nature. An important function of relative prices in an economy is the determination of income distribution. Every relative price set corresponds to an income distribution structure. Given that savings, ceteris paribus, can not be independent of the distribution structure, it is argued that they can not be independent of the interventionist policies that shape the relative price structure. If so, then the adjustment process in the interventionist economy must involve adjustment of domestic savings. The model that is estimated rests on the adjustment process whereby domestic private savings adjusts to fill the gap between total (private + public) investment and public plus foreign savings. Foreign savings are treated exogenously whereas public savings is determined by GNP. Private investment depends on GNP and total imports while public investment is exogenous. The final simulation results indicate that private savings/GNP ratio is simulated with reasonable accuracy. However in certain sub-periods (1974-1977) -11-simulation results are much less successful. It is known that in this sub-period foreign savings are endogenized through subsidies and incentives extended to the private sector that were instrumental in increasing foreign credit flows into the private sector. Post 1980 conjecture is the one in which, relative price structure has undergone fundamental changes. In this conjecture the model results are also less successful. These observations while reducing the credibility of the adjustment process the model rests on, gives way to interesting observations. The first is that no single adjustment process holds good in a span of time that covers 15 years. The second, which is in line with the basic proposition of this study, is that the adjustment process in general is not independent of the relative price structure. In the interventionist economy, therefore, it is not independent of policies that affect relative prices. Finally the methodological problems associated with this last observation are discussed. These are that the econometric model build ing is not well suited for explicitly incorporating relative price effects in determining the adjustment process. Furthermore ex ante analysis of adjustment process is difficult in the absence of knowledge concerning the size and direction of interventions yet to take place. -Ill-
