J. Clark Leith

Substitution and Supply Elasticities in Calculating the Effective Protective Rate

Introduction, 588. — I. Nontraded input supply elasticities, 590. — II. Foreign supply elasticities, 592. — III. Substitution elasticities, 593. — IV. Sensitivity of effective rate to supply and substitution elasticity assumptions, 595.

The exchange rate and the price level in a small open economy: Botswana

Abstract How valid is the small open economy pricing assumption in a genuinely small open economy? This article first considers the extend and speed of pass-through of foreign price and exchange rate changes to domestic prices for the case of a classics small open economy: Botswana. The evidence, in contrast with the evidence of incomplete pass-through for large industrial countries, is that 100% of foreign price level and exchange rate changes pass through to the Botswana price level. The pass-through is not instantaneous. Adjustment has a half-life of about 15 months. The empirical results are then used to model the effect of alternative exchange rate policies—fixed exchange rate, gradual change, and discrete change—on inflation and on the real exchange rate. Because of the lag in pass-through of exchange rate changes, there is a trade off between the competitive position and imported inflation.

The Static Welfare Economics of a Small Developing Country's Membership in a Customs Union: Botswana in the Southern African Customs Union

Abstract This paper sets out the comparative static welfare economic methodology for evaluation of the gain or loss due to a small countrys membership in an existing customs union (in contrast with the usual case of an outsider considering joining a customs union). It then reports the application of this methodology to the case of Botswanas membership in the Southern African Customs Union, using highly disaggregated data to calculate the components of the welfare changes and the net welfare benefit or cost for four recent years. The result is a net cost to Botswana of up to 3.25% of GDP.