Imports and Growth in Highly Indebted Countries

A real imports of capital and intermediate goods declined§sharply for highlyindebted countries in the 1980s, these§economies were faced with the need tosubstitute previously§imported factors of production with domestic capital and§labor. The study empirically analyzes the degree of import§dependence of twelve developing countries. Estimates of the§short-run elasticity of substitution characterize both§imported capital and intermediate goods to behave like§complements in the production process in the developing§countries. Long-run substitution elasticites differ§considerably among the group of economies, especially for§imported machinery and equipment. The results indicate that§inward-oriented strategies have not achieved the aim of§reducing the import dependence of the developing economies.§In order to visualize theimplications of the differing§degree of import dependence, a partial equilibrium§econometric model is used to analyze the reaction of the§trade account on external shocks and domestic policies in§Columbia and Ecuador. Simulations show that the dependence§on imported production means can transform an "adjustment§with growth" of the external account intoan "adjustment or§growth" controversy.