World Bank Document...Clive Bell a5d Shantayana~ Devarajan June 1982 h - .. -$ Note: - iliscussion...

Development Research Department

D i s c u s s i o n Papers

No. 37

In S e a r c h o f a Five-Year Plan for the R e p u b l i c of Cyprus: zxper!mencs v i t h 2 D-vn.amFc Seni- Inout-Out3at 9odel

by

Clive B e l l a5d S h a n t a y a n a ~ Devara jan

June 1982

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Note: i l i s c u s s i o n Paper5 are p r e l i m i n a r y aa te r i a l s c i r c n l a t e 6 t o - - - s t i m u l a t e d i s c u s s i o r . an& r. r i t i c a l com.en t . Rccerencss i n pub i ica t i -ons ) to D i s c u s s i o n P a p e r s c:?;uld 5e c l e a r e d with the a u t h o r s to p r o t e c t the - t e n t a t q - v e c h a r a c t e r of :?esi, papers. The p a p e r s e x p r e s s :he views of the a u t h o r s a c d s h o u l d noc b e i n t e r ~ c c t e d t o r e f l e c t t h o s e of the Vcr ld Bank.

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>ra f t : no t t o 'ae qao tsd connents velconed

ZZI Search of a Pive-?sar P l a n % r t h e ? e b u S l i c of C ~ D I - J S : Z x ~ e r i n e n t s vi th a D ~ a m i c S e ~ i - I n p u t - C u t p u t Yodel

C l i v e 3 e l l and Shantayanan Devarajan*

June 13 52

*?evelgonent 3 e s e a r c h Depar m e n t , iJorld qanX, and t h e John P . Kennedy Sc5oo 1 qr' Covermen:, Yarrarcl t ' n i v e r s i r y , tespec:ively. The v i a v s e:c?ressed i n t h i s ? a c e r a r e :he au thors ' and should not necessa r i l : ? 5e a t t y i b u t e d to a f t l ? e r Lns:i tution. 'Je a r e q r ~ , a t l y indebted t o t h e fol lowinq people: ?!ark S t - ~ r z g n and '<fc3ael Yard, vho decfded on the b a s i c s t r u c t u r e of t h e S.LY and produced the f i r s t s e t of ~ s t i n a t e s f 3 r i t . Tke o f f i c e r s of :!-ie C : ~ p r - ~ s ? lannfng ?ureau, - ~ h o ,*.ere Tenerous i n qivigg u s t3eir tr-3, a x t r a o r d i 2 a r i l y FatLent i n

a e s u f f e r i n g our ~ n d l e s k e n q u t r l e s and deaands f o r Aata, 2nd 3 e n t l e k s c r . : c c ~ r s :- t h e a a t t e r of k o * ~ t h e economy of Z;?pr~s vorks . 3 u r c o l l e a g u e s 9 e i x 7ac'nnann and Sawa! 3 o o m a of t5e ?uro?e , !-i iddle 'as: and ':or;h .JIfrics 7 e5ar:Zent .I? t + e 'Jorld 3ank. 750 have gi-~efi constan: 2ncouragesent and ':2;2

$2 f r ln i2q t h e q u e s t i o n s 2nd anal:?si; i? t9 i s s tad?. .4rxe 3rud and A:cx "ee taus , ,;hose : o m i d a b l e s k ' l l s aade i: ; o s s l b l a f o r u s t o q e t r,5e ;odel .:T,

~ n d r-~r.g:2q in 3 23uale of =onths . Seehu ? ~ l ~ n i ? p p a n , uho vas I ? d e f ~ t i q ~ b ; e 3-d ? f E l z i e n r F-I 30th a r o e r l n n i 2 g ~ n d runninq r i 5 z o a e l . ,311c :hanks yo :.I 111

- . o.: :.-en. 111 r e n a i - 1 s ~ I r r o r s , .;;7etter ar' ~ n i s s u n , c o n r ~ i s s l o n , o n i n t a n J Y :nal;.-sls, a r ? o u r s a lone .

Xecognia ing t h a t t h e Repub l i c of Cg?rus i s a ma l l , open

acpnony, ve ? r e s e n t a d y n a n l c , s en i - inpu t -ou t?u t n o d e l z h i c h can 5e u s s d

t o t e s t t h e c o n s i s t e n c y and f e a s i b i l i t y of xedfua - t e rn oconomfc 'Plans '

! and x e a s u r e t h e i r e f f e c t s o n cer:aia t a r g e c v a r i a b l e s . Our r e s u l t s

I i n d i c a t e t 'nat a preli-::nary p r s p o s a l f o r t h e 1932-86 Development ? l a n i s

bo th i n c o n s i s t e n t and i n f e a s i 3 l e , t h e r e 5 e i n g i n s u f f i c i e n t c a p a c i t y t o

~ r o d u c e c e r t a i n c o n t r a d e a b l e goods i n t h e e a r l y y e a r s and 3 o t snough

v o r k e r s of c e r t z i n t y p e s th roughou t . Yoreover , t h e ? r o p o s a l i n q u e s t i o n

l e a d s :o l e v e l s of f o r e i g n 5orrowing t h a t nay be s e e n as a n d e s i r a b l y

h i g h . A " r s v i s e d " ? l a n i n v h i c h :he a c t i v i t y l e v p l s in t5e industrial

s e c t o r s p ~ o d u c t 2 g t r a d e d goods a r e rsduc2d cuoulativel.;? t o 10 p e r c e n t

below t h o s e env i saqed f o r 1386 in the e a r l i e r p r o p o s a l is found t o 3e

f ~ a s i j l e , a 1 though z n t a i l i n g s i q n i f % c a n t l z v e l s of -~nenplo?en:. 1 t is

s u g g e s t e d t h a t n o r e jobs c o u l d 5e c r e a t e d through a a o r e l a5our -

i n t e n s l y e p a t t e r n of i n d u s t r i a l growth w h i l e e a i n c a i n i n g a Z z a s i S l e and

s a t i s f a c t o r y zrowth ~ a t h o v e r a l l . S x t e n s i o n s of the oodeP f r o a which

shadow Y ~ ~ C P S f o r ?reject a v a l u a t i o n can 5 e d e r i v e d a r s a l s o d i s c x s s e d .

L . I n t t o d u c t i o n ........................................... 1

2 . Contemporact Zcononic Growth i n Cy?tus ................ 11

3 . X S o c i a l Accounting 3 2 t r i x (SAY) for 1975 ............. 16

2 . The "ode1 ............................................. 33

5 . 3 e s u l t s of :he Yodel .................................. $8

6 . Conclusions ........................................... 6 2

The 2xacr scope o f ? l a n n i > g i n a i x e d , develo?i?;! a c o n a n i s s i s o f t e n

2 i : f i c u l t t o def!.qe. YnliXe t h e i r c c u n t z r p a r t s i n c e n t r a l l y ? l annsd

econczties, F l a n n e r s i n a i x e d economies t y y i c a l l y do n o t set p r i c e s z n d / o r

c u a n t i t t e s :o dete- rz iae r e s o u r c e a l l o c a t i o n t n t h e v 'nols econozy. X i t h e s a n e - .. ,:me, t5e ?recess i n v o l v e s 3 o r 2 t h a n j u s t drawing up t 5 e g o v e r m e n t - s annua l

Scdqer . T n i l z t h e r e a r e nany v a r l a n t s 5 e t v e e n t h e s e ;YO p o l a r c a s e s , :he:?

b v e zro % e n e t a 1 f e a c u r e s i n c o m o n . F i r s t , a l t h o u g h t 3e ? l a m i n g agsacy d o e s

no t d e t s n i 2 e r e s o u r c e a l l o c a t i o n i n t h e economy, i t shou ld t e s t x h e t h e r an

a l l o c a t i o n 13 c o n s i s t e n t . T h a t I s , r ecogr i i z ing t h e i a t e r d e ? e n d e n c e of t h e

v a r i o u s sec 'ors of t h e econonp, t 5 e ?lamer a s k s t5e q u e s t i o n , "Are t 5 e l e v e l s

o f o u t ~ u t and lemand a n v i s i o c e d f a r :he gocds produced 5y t h e s e s e c t o r s

c o n s i s t s n c ui:h one a n o t h e r 13 e a c h y e a r 9f t h e p lan? ' ' Second, it nus r b e

asked v ~ e t h e r :he 2 r o d u c t i o n af any cons!. t e n t 5i11 of ;oods Is f e a s i 5 1 z g l - ~ ~ n

t52 s o c i s t y - 3 endowment of r e s o u r c e s . T h a t i s , w i l l t h e r e 5e s u f f i c i e n t

c a F a c i t 7 I? each p e a r Zo produce :5e l + v e l s of o u t p u t Lap l i ed 5y 3 c o n s i s t a n t

a l l o c a t i o n ?

!row, f o r 3 g iven eccnony, t h e r e =ay be several c o n s f s t e g t and

f e a s i S l e h r o v t h p a t h s , o r "? l ans" . 13 such c a s e s , an i a p o r t a n t r 3 l e of t 5 e

? l a n n i ~ q aqenc:J i s t3 h e l p I n choos lag m o n g t h e s e f e a s i 3 l s t r a j e c t o r i e s . Yo r I t

?o s o , t h e aqency d e c e n i 2 e s t?e i a ~ l i c a t i o n s of t k e i i f f o r e n c ? l a x 5 g r

c z r t 3 i n va r ' ab l e s ~f i n t s r 2 s : , o r " t a r g e r s " 3s "aberzen [ 3 ? 6 L ! voulG ~31: .. - '1 t ? e g . 3 e s e cmmo3l:r i z c l t l d e " r o s s Y a t i o n a l ?rociucc ? e r ~ a ? i : a , ~ ; l a ~ n ? l ~ ) r ~ e ~ t , - -

::-?e ;3verVment ?e i i c< t : and :he h l a n c e sf ?a:nen:s iefic::. - I -. h -

- :P :hi=:! 31?d , 50-e i .auld I r z u e , Ferha?s 30s: s t , -? f f '_zc ln t r ~ l e 3 :

cansister , : and f s a s i b l e ? l a > v i l l xecsss-.ril:r Lnclude an ixves:zent r o g r a r x z e

' 3 su??or t :he 3 r w ~ t 3 ?a=h t h a t c h a r a c t e r i s e s t h e plan. T ~ u s , s l i s : of

"?rojeczsP ' i s :=?lied, t ~ u . X d L ? f i c u l r p a r t s e s , howsver, -&en ? u b l i c

i w e s t s e n t o r o j e c t s a r e p r ~ ; ~ s e d o u t s i d e r>e f r m e w o r k of :he ? l a 3 , a common

esough occur rence when t h e r e is Laper fec t c o o r i i n a t i o n anoaq p u b l i c s e c t o r

agenc i ss o r c i i cumstances f o r c e 2 e p a r t u r e s f r o m t h e o r i g i a a l ?Ian. For t h e

ex :=rna l i : i~s c r e a t e d 3y such ? u b l i c investz lezt p r o j e c t s czn a f f e c t t h e plan's

h ~ a c t on :he t a r z e t -7a r iab las and, i n some c a s e s , t h e c o n s i s t e n c y of the ?:an

i:selF. .It t h e sane t h e , a l l p r o j e c t s should be eva lua ted i n t e n s of t 5 e i r I

c o n t r i b u t i o n t o t h e g v e r a l l o b j e c t i v e s of t h e ?Ian. Thus, t h e planniag and

? r o i e c t a p ~ r a i s a l functions have t o 5e under taken sinu1:aneously by one

agency, o r , a t t 5 e v e q l e a s t , by agenc ies ;r'nich c o o r d i n a t e t h e i r vork v e r y

c l o s e l y . 2 e o s t i n a t i o n of shadow p r i c e s fa an e c o n o a r v i d e framework, as , .

advocsted 5 y t 5 e ~anuals on c o s t - b e n ~ f i c a n a l j s i s ( L i t t l e and ! l i r r?ees [13:51,

F Y I 3 0 [1972]), e x e n p l i f i e s t h i s p r i n c i p l e .

La t h i s p a s e r , ve p r e s e n t a a o d e l . ~ h i c h p e r t ' o n s a l l of Lhese t a s k s

f o r a s n a l l , open economy. The aode l i s a p p l i e d i n t h e c o n t l x t of t 5 e Follrth

3 e a e l o ~ 3 e n t P lan (1982-1956) of the Republic of C y ~ r u s . 3y c a p t u r i n g the

essential f e a t u r e s or' t h e in terdependence of t h e ecocorny, a s x n i f e s t e d i n t h e

i -+ - u l a r , f i o u of ? r o d u c t l o n , i ~ c c n e s and dezand , the y i e l :=sts r ~ a r i a u s

zro-~:5 patSs For c o n s i s t e n c y and f e a s i b i l i t y . 12 add1 t i o n , :he i3pl ica: ions

o f t'ese ; rovth ?a:ks f 3 r t h e :arTet var ia5lzs ove r t3e ? l a 3 ;er iod a r e

d e r l y r e d . ?i;lali:r, :5e z o d e i se t - res a s t>e b a s i s 3 C 3 l i n e a r p r 3 3 r n n ~ i n g I

- .va l . s t Lon.

o u t ? a r z i c u t a r c h o i c e of ? l a n n i z g =lode1 f o r this e: rerc ise , and o u r r e a s ~ n s f3r

s o c i a l a c c o u n t s ~ ~ C r i x ~ h i c h s e r t e s a s a a a j o r ? a r t of t h e zociel 's d a t a

j a s e . The n o d e l i t se l f and t k e t e c h n i q u e we have used t o s o l v e i t a r e t h e

s u j j e c t s of s e c z i o n 4. 19 s e s z i o n 5 , .Je d e s c r i k e t h e resu1:s of x n n i x g r h e

nods1 ~ i r h 50th a proposed ? I a n dra*m u? by t h e Cyprus 1 L a n n i q 3ur?au and a

r z v i s i s n of :Sac I l a n , and t h e 2 C i s c a s s t h e i z p l f c a t i o n s of t h e s z r e s u l c s .

'Lzally, i n sec:ion 6 , ' ~ e s u m r i s e cSe s a l i e n t p o i n t s f o r poi ic-1 and the? go

3n :o d i s c u s s s x r e n s i o n s of t h e a o d e l .

Given che n a t u r e of p l a a n i n g fa d e v e l o p i n g c o u n t r i e s , i: i s . c l e a r C

:hat such a n e x e r c i s e r e q u i r e s t h a t t h e economy be v i s v e d as a s y s t e n .

T ~ ~ p i c a l l y , t h i s -7iew i s e x p r e s s e d Ln t e n s of an s c o n o n i c node l . hihile n o d e l s - a r z b u i l t f o r v a r i o u s pu ryoses , a p l ann ing a o d e l x u s t have c e r t a i n f a a t c r e s .

-. :::st, s i x c e ,Je a r e check iag f a r t h e i n t e r s e c c o r a l consistenc:r of . l a r fous

z r o x t h p a t h s , ? a r t i c u l a r l y v h e r e g o n t r a d e a b l e zoods a r e conce rned , t h e n o d r ~

h a s to Se z u l t i s e c t o r a l i n nazurz . That i s , i t shou ld d i s t i n g u i s h anong t h e

d i f f c r z n t s e c t o r s of t h e economy and c a p t u r e :he r e l e v a n t f l o w bet-ieen

s e c c a r s . T5e ~ o d e l shou ld be a b l e t o c e l l u s , f o r e x a n p l e , how zrowth i a shoe

3 a n u f a ~ t u r i n g a f f e c t s t h e de3and fo,r cons t tuc : ion and l a b o r , s o ;re can t e s t . - ~ h r t h e r :he 9 r o j e c t e d b r o v t h Ln c o n s t ~ ~ c t t o n outpu: and t k e suppi;r of l a b o r

- - I r e consi;:ent vi:h :his ,srowch i a shoe ?anufac:xri;lg. "us, the aygrega:+ ' i L

: a c r c e c ~ n o a i ; x o d e l s of :he 3a r r sd -3oaa r t:J;e, vn ich :rea: :he 2 z t f r e ser of - - - r ?roiucz;::n ac: i .~i : ies i n c5.e JCSRCny 3s 9nr ,>r :;ro s e c c ~ r s , a r e m o t sui:aj:s I

I

- . . f 7 r OUT ;ur?oses . 5econd, sLnce ?Lzns c ~ v e r , 3 : ~ de::ar:i~n, :he ?at5 gf the

?cnnc=y 3,pr 1 ~ t r i ~ d 3f ::=e (.:sually f i - 7 2 ears!, : tze -us: e n t 2 r ~ k e 70221

i n an e x p l i c i t xanner. I n p a r z i c z l a r , t h s =ode1 shculd shov the chanses i n

:he *conony I n che l a t 2 r yea r s of rhe ? l s n vhich a r e t h e ourcone of d e c i s i o n s

zads i n :he e a r l l s r years . Zezce, ;re r e q x i r e a cu l c i -pe r i od aode l . "is does

xot mean, however, t h a t a ? lanninq =ode1 is t h e same a s a f a r ~ c a s t i n 3 ziodel.

Tnereas zke l a t r s r no rna l l y c o n s i s t s of s q u a t i ons vhose ? a r a r e t z r s ha?^ Seen

s s c l a a t e d economet r ica l ly :o provide the S e s t s t a t i s t i c a l f i r t o a s2r of

h i s t o r i c a l obse rva t i ons , a ? l a m i n g aode l has t a 3e based an c a u s a l

r a l a t f o n s h i ? ~ , so t h a t t h e z f f e c c s 3f d i f f e r e n t ? o l i c y nea su re s can 3e t raceC

through.

I n a d d i t i o n t a t he se :yo z e n e r a i r zqu f r cnen t s , our choice of =ode1

is i n f l uenced by c o n s i d e r a t i o n s s p e c i f i c t o the economy ia qxes t ion . L ik s

x o s t deve lop ins countries, ~ J ? ~ J S has some veaknesses i n i ts d a t a base -- though i t is supe r io r t o a o s t . In p a r t i c u l a r , t i ~ e s e r i e s d a t a frm 3hich cne

can e s t i m a t e ?reduction func t i ons f o r each i ndus t ry and c o n s u ~ e r s ' demand

fucc t i ons f o r g o d s do noc exis:. Consequently, bu i ld ing a non- linear gene ra l

e q u i l i j r i u n a o d e l , vh ich s i ~ u l t a n e o u s l y s o l v e s f o r ?rites and q u a n t i t i e s , i a

not an op t i on - un l e s s one is ?repared t o s p e c i f y thc r e l e v a n t s e t of

parametsrs :ran a ~ r i o r i cons ide r s t i ons . I n t he f i r s t i n s t a n c e , ve have

chosen a :!.xed c o e f f i c i e n t s ( l i a e a r ) aode l of :he Lzont le i :yFe, al:hougn vi:h

s e v e r a l ~ o d i f i c a t i o n s , :o 5e Sescr ibed l a t e r . Yke advantages of the i i n e a r

specif ica: ion a r e : (1) i: r e q u i t e s only po in t e s : i = a t ~ s s f ?roduc:ion

t u n c t i s n ?aranet253, razher :ha2 :he I l r : iag of -2hoiz car-:es; and (it) i: ; , s ' ?! L

c n p u t a t l s a a l i y auch l e s s t e : zana iag . Tke y i n t e s c i - a t s s t e f s r r ed :a he re ire - . - . ,e -- ( f i : c ? d ) coe f f - i sn :~ of :he ?rqduct ton : x h n o i o s ~ f o r :::e ;1nr5~us - ;ecr.>rs. .Ls -:e s h a l l see l a ;ec:ion 2 , ::?ese es:i;lar?d '3:~ t u i l i 4 z s 3

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: :ontradeajle qoods, 5y c o n t r a s t , a r e those f o r sihich n e t z x p o r t s a== ---I- <

s e t 2xogenousl:r (z:r?i:ally a t ze ro) and o u t ? u t i s d e t ~ n i 3 e Z snbogsnousl:~. ';e

a s s ~ e t h e s e s e c t o r s a r e n o t c a p a c i t y c o n s t r a i n e d i n any p e a r ( c r e q u i . ~ a l r n r l : ~

t 3 a t c a p a c i t y ex?ands a t c o n s t a n t z ia rz ina l , e q l a l t o a v e r a q e , c o s t ) , so t h a t

2 o n t t s d t a 5 l e good i s c o n s t r u c t i o n : t h e o u t p t of t h e c o n s t r c c t i o n s e c t o r i s

E e r o n i s e d 3y :5e m o u n t of c o n s t r u c r i o n p r c h a s e d 5y a l l o t h e r s e c t o r s as

2 a r t of =he i r i a t e - e d i a t e deaand and t h e d e l i v e r i e s of cons t r -ac t ion co

i 2 v e s a e n t a c t i - ~ i t i e s , which depend on t h e f u t ~ r e course of o u t p u t . D e s p i t e

c 5 e i z n m e , "non t radeab le" goods xap, i n f a c t , be t r aded . Por i n s t a n c e , i f

Cy?rus f a c e s a quo ta on, s a y , oxporrs of T o t a t o e s ( x h i c h go almost e n t i r e l p t o

'he Zurouean Connon Yarkec) , 25en the c o u n t r y nay not be a b l s t o ex?or t as

lazy 3ota:oes as she v i s h e s . I n o t h e r words, p o t a t o e s vould be t r e a t e d , a t

-% - , , e zarzzn, IS nont tadeab le 3oods, v i t h e x p o r t s s e t a t t h e l e v e l of t h e quo ta .

"he t r a d i t i o n a l input- output xode l t r e a t s a l l s e c t o r s a s F5 t 5 e y

-:ere ? roduc inz x o n t r a d e a b l e s -- hence t h e t z n " sen i - inpu t -ou t?u tM f o r t h e

f o r , u i a t f o n enoloyed h . r e , which o r i g i n a t e d y i t h Tinbergen [1966].

:u5seqllently, t h e concept .Jas e l a b o r a t e d on by Hansen [ 1 9 6 7 j , vi:h

a p p i l c a t i o n s by Xuy7enhoven [ I 3 7 3 1 t o n a t i o n a l ecanomies and by 3 e l l and

3s . fara jan [13791 t o t k e r e % i o n a l , c a s e . F 'nally, a fundamental ? t e s c r f p t i o n ix r e

the ~ a z u a l s o n s o c i a l cosz-3enefi: a n a l ; ~ s f s -- t!-,at :5e shadow s r f s e s o f

:r?dezS:e ~ o o d s ie t h e i r votld ?rites and :hose o f 2ontrxieabLzs 5s :he:: - -ar; ixal snsdow c35t3 -- IS 1 l o $ i c a i ex tens ion of ::ye s e r 1 i - i n ~ u t - 3 u : ~ u t

I I - - incoae e rzeczs" I L ~ ai lowed f o r . The inccne zendra ted by r o d u c c i o n f e e d s

j a c ; ~ i n t o t h e s : ? s ~ ~ D ei:her a s eonsu3pr ion denand (via a l i n e a r e x ? e a a f = n r t

~ 7 s ; t ~ ) o r ss a a v i n ~ s [ t o f i a a z c ~ i aves==enf ) . I n :he language of in?u t -

OU:?U~, o u r s i s a "closed- loo?" r t h e r t h a n a n "open-loop" a o d e l .

.Je s a i d e a r l i e r , a 2 lann ing =ode1 sho-uld cap:'~re the f a c t t h z t a

? Ian a p p l i ~ s t o an economy over a ? e r l o d of t h e . In t h i s n o d e l , t i ~ e is

i z t r o d u c e d a t .yo l e v e l s . F i r s t , by specif:r ing t h e growth ?a th of a c t i v i t i e s

?roducLng tradeable zoods , ye d e r i v e :he growth pa th of a c t i v i t i e s ?roducii13

~ o n t r a d e a b l c goods t h a t is necessar] t o s u s t a i n t h e t r a j e c f o r y OF :he s e c z o r s

~ r o d u c i a g t r a d e a b l e s . Secocd, t h e a o d e l I s l i n k s d a c r o s s y e a r s thraugh t h e

Lnvestsent f u n c t i o n . .Q t h e pur?ose of i n v e s t n e n t is t o i n c r e a s e f u t u r e

~ u z ? u t , z e s p e c f f y a s e t of equa t ions l i n k i n g t n v e s t x e n t d e l i v e r i e s ia any

z i v e n y e a r t o t h e change in o u t r d - ~ t i n f u t u r e y e a r s . Also, the rn is a

z e s t a c i o n l a g b e f o r e inves tment z a c u r e s , v h i c h v a r i s s , from one t o f o u r y e a r s ,

a c c o r d i n s t o :he s e c z o r of d e s t i n a t i o n and ty?e of i n v e s t a e n t good

d e l i v e r e d . S11 of t h e s e s p e c i f i c a t i c n s d e r i v e from :he ? r f n c i p l e t h a t a n

a l loca: ioa 3 u s t be c o n s i s t e n t a c r o s s , a s x e l l a s vi:hin, pe r iods .

!Je a r e now i n a 7 0 s i t i o n LO s t a t e how 3 p l a n ' s f e a s i 5 i l i t y can be

zes ted . ~ f e h c h i s y~odel . 3y a "lan", Y e Zean a s e t of g 0 w t h r a t e s f o r ;he

s e c t o r s producing t r a d e a b l e zoods a s ;-ell a s t h e p rc jecced g rowth i n capaciL:r

p- of :he s e c t o r s 2roductng non t radeab les . I f :he :rajec:ory of o u t ~ u t s of

:raCea5Les i z q l i e s l e v e i s of out a u t s or' 2ont radea5 lzs ::?at exceed j ?s:alled

ca?acl : izs I n the non t radea5 le s e c t o r s ( - i n z t h e t a s Bequeathed Eron :5e ? a s c , ~ r

env l s loned 5 y =he ? l a n ) , :hen :he ? i a n La ? x f = a s ~ b l z . ?=c a 3 i t 2 0 r s

ca;aci=y of =>.e c o n s t r u c t f o n s s ~ t o r is L n s u f f i c i e n t to a e e t t h i s ?enand, rhen

rLa-a ,.,-,- Ls an <nfeasi3il i : ; r . :+a-~'Lng a s i d e reduc t i c n s i n a5sor?cion i h r2ug:?

- ,.,;ker : ta?r+s o r l3s;et p u b l i c consuap t ion , t h e r e a t e onl:r ',yo o p t i o n s : s i t h e r

c3e $rc;r=h of ou t?u t of c r a d e a b l e s has :o be h c r p a s e d , o r ca?aci:y !.a :he

s e c z 3 r s 7roductn2 nont zadezb les i n c r e a s e d . / : loreover, i n any g i w n y e a r , --::?e

3u:~uz of :radeablzs and t h e F q l i e d o u t p u t of n o n t r a d e a 5 l e s z i v e a n 2s:ina:e

of :he t o t a l l e v e l of ac:ivi:y i n t k e zconomy i n rhac y.zsr. S i x e t k e d e ~ a n d

f o r h j o r is i 2 i i n a t z l ; l l i n i e d t o t h i s l z v e l , ve can a l s o t z s t 7ide:her

is snouo,h l a b o r KO c a r r y ou t the 7lan . F i n a l l y , the l e v e l s of ocher t a r g e t

- ~ a r i a b l e s , i iLz t h e gove;nment d e f i c i t and f o r e i b n Sorrowing, - ~ h i c h a r e

s t r o n g l g i n i l u e n c e d by the economy's l e v e l of a c t i v i t y acd inccak , can be

oaasur2d ia :he s a z e iza?.ner. Ye s h a l l d e a l wi rh t h e s e c o n s i d e r a z i o n s a t sane

i e n g t h i n s e c t i o n 5.

I

Cne f i x a l ; ro int dese rves ;?lention Set'ore end ing t h i s h e u r i s t i c

d e s c r i ? t i o n of :he a o d e l . .Although o u r s is a g e n e r a l equi l ibr iuzb s y s t e n , i t

3 5 3 ~ s shor: of heing f u l l y ItdeneraL" i n t h a t q u a a t i t i ? ~ I r ? sol -led f o r

ir ide?endencl:~ aF ?r;ces. Th i s i s l o g i c a l l y e n t a i l e d 3p rSe 3ssunp t ions I

q~nderl;rixg l i n e a r xode l s . Xovever, it is ispor:ant t o s a e l l ou: v n a t c'aese

a s s u n p t t o n s a r c , and Sauqe t h e i r a p p l i c a b i l i r j t o ~ l a n n i n g ~ o d e l s . T5e

c r : ~ c i a l a s s y p c i o n s a r e thac trier2 a r e c o n s t a n t r z t u r n s :o s c a l e i n ?r3Cucr isn I

and ?erfoc: l :~ a1as:ic s u p p l i e s of f a c t o r s . Under t h e s e c o n d i ~ i o n s , ?roduc:ion

Sou, t he cons t an t r e t u r a s tzchnology on yhich the m d e l i s based is

de r i ve6 a s the s e t of iapuc bundles chosen 3y each i 9 d u s t r y t o 3i.1lsize c o s r s

r l l a c i - ~ e t o soce vec to r of 2 r i c e s . If the se p r i c e s chaa%e, so v t l l t3.e c o s t -

x i a i x i z i n g s e t of i apu t s . ?.erefora, b j keepicg t h e t e c h n i c a l c o e f f i c i a n t s of

? raduc=ion f i xed over c i ne , ve a r e assmi- ig char relati- :e p r i c s s do not change

over tize e i r k e r . i

' ~ i i l e undoubtedly s t r ong , t he se assutnptions =;J 5e l a s s

ob l ec t i onab l e i f w e keep rhe pur7oses of a ? l a m i n g aode l i n a ind. .is I

7Lanniag d e a l s v i t h t h e long per iod , x i t h an zmphasis on t he s teady- s taca I

5 e h a ~ ~ i o u r of the ecocoay, the assumptions of cons tan t r e t u r n s Lo s c a l e and t5e

abseace of f i xed fac:ors or' ?reduction seem reasonable. Arty r e n t s a cc ru ing t 3 I

- . ir:<ed f a c t o r s , o the r than t r u l y non-produced ~ o o d s , v i l l be eroded away over a

?CG% zncugn t i m e i n t e r v a l . The assumption t h a t p r i c e s a r e : ixed, however, m y

appear l e s s ? l a u s i b l e , e s p e c i a l l y i n :he l i g h t 02 the worldaide i q f l a t i o n

ex?erienced over t h e pas: t ~ l o decades. 3 u t , a s a g e n e r a l i z c r e a s e i n :he

~rLco_ l e v e l , i n f l a t i o n is not r e l evan t ; f o r ours is ax, assumption abou t f i xed

:e la r ive p r i c e s . Yoreover, f o r p r i c e s co change w i t h i n t h e ~ c o n o d g , :hers has ---

:Q be e i t h e r soae excess demad , which is i n c o n s i s t e n t vi:h our assunpcion

t h a t t h e r e i s e q u i l i b r i u n La s e r y yea r , Q C a chanse i n r e l a t i v e - ~ o r l d p r i c e s

o r f a c t o r ?rites. Taramecric changes i n :he l a t t z r a r e , of coursk. ? o s s i 3 l e , e . t

and i a a compani~n p iece z e s h a l l show ?ow t h e i r eff2c:s on zhe ocher l a r k a t H*..?

7 r t c e s can be es:isateb. - .I

11. - The f i n a l is&e xe t u rn t o 1x t h i s i n t roduc t i on 13, ,vr.y Cy?rus?". - .At tke rqd of t h e i '3iQP 9, :>e economy qf C ~ ~ p r u s vas f22chixg ,I i r i z l c a l

2conony a?peared t o 5e " o v e r h e a t i n g" , v!th a ~ i g h t e n i a g of t5+ l a b o r mrkc . .

a-d :be rat.? of ? r i c e i n f l a t t o n r e a c h i n g 1 k T e r c e n t I n 1990; tke ;averment

def lc i : , .rhicn ~..:~-:.ucted f o r 6 . 2 p e r c e n t or' GX?, was g r v i n g 3 o r a r a p i d l ; ~ t 5 a n

r evenues , and zuch of t h i s d e i i c i t was f i n a n c e d by f o r e i g n 5or rowing , l s a d i c g

an e x t e t x a l d e b t of SJ00 = i l l i o n ; t 5 e s t r u c t u r e of t h e econom:J Gas changfn4 ,

e t h aq r i cu l :*xeOs s h a r e or' CD? f a l l i n g from 13 p e r c e n t ir! 1971 co 12 p e r z e n t

5 3 1990. T 5 e s i t * u t i o n c a l l e d f o r a l o n q e r . ~ i e v t o e c o n o a i c p o l l c 7 - w k i n g .

Xccordi r iq ly , t h e C o v e r m e c t of Cy?rus d e c i d e d t3 5 o n u l a t e a Five- ?ear ? l a n

= o r i9g2-1936 -- t h e f t r s t ~ e d i u m - t e n ? l a n s i n c e 1 9 7 i . To a s s i s t tSem 3iiS

:he ?:an, t h e ? l a n n i n q 3 u r e a u , i n c o n s u i t a t i o n w i t h t h e 'urape, X idd le Sas:

and Yor th - 1 f t i c a Z e g i o n a l O f f i c e of t h e Yor ld Sank, i n v i t e d t h e a u t h o r s t o

k u i l d a 3edi-m-tan g r ~ v t h a o d e l or' t h e C : ~ ~ r i o t economy. T t soon becaae

e v f d e n t t h a t a c losed- loop , dynamic, s en i- inpu t- ou tpu t acldel srould be t h e -

i 2 e a l c 5 o i c e : i t s degands f o r d a t a d i d n o t go x i l d l y beyond hat u a s

a v a i l a b l e : t h e " s n a l l c o u n t y " assumpt ion vas c e r t a i n l y a p p l i c a b l e t3 lCy?rus;

:3e z o d e l cou ld t e s t f o r :he c o n s i s t e n c y and f z a s i 5 i l i t y of :he ? l a n , and

z e a s u r e t h e a f f e c t s of t h e p l a n on t a r g e t v a r i a b l e s ; and l a s t l y , t h e s o d e l

c m l d ':e used to e s t i n a t e a s e t of shadov p r i c e s f o r p r o j e c t e v a l u a t i o n , and

:o a d d r e s s some of t h e b r o a d e r p o l i c y q u e s t i o n s abou t t r a d e- o f f s be tveen

deve?opnent r ~ j e c r l - ~ e s , which t 5 e g o v e r m e n t -das i n t ~ , r z s t e d i n 7osir.q. ' -h i l z

L r e s o r e o= :he f z a t u r e s of t h i s ~ o d e l had a l r e a d y been deq?elc?ed i n t h e contex:

3f 3n 33plLcntLon t o a r z g i o n a l ec3ncrng ( 3 e l l and 3eva:ajan [:?;?I), t hey 5ad - - l o t 'een i ~ ? l i ? d a t :ie z a c i o n a l l e v e l . oreov over,.+;^ a d a p t i n g t5e xodc l ro -

xotivacLon is not s i331y t o J D D ~ ~ a : h e o r e t i c a l a o d s l t3 s s p e c i a l case .

T a r h e r , t h e Lapetus f o r t h e a o d e l a s -2el l a s f o r c e r t a i n f e a t - ~ r o s t h a t i t

c o n t a i s s come f r c n developmen-s u i t h i n Cy?rus. To unders ta2d these f e a t u r e s

and i s t e r p r e t t h e r e s u l t s of t h e xode l , i t i s necessa ry , t h e r e f o r e , t o have a t

l e a s t 3 c a r s o r y o v e r ~ i e v of t h e Cypr io t economy p r i o r t c ~ :he 1'382-56 -

3e*~e loo=ent ? lan . Th is i s t S e subjec: of t h e next s e c t i o n .

2. . 7 o a t e n o o r a ~ Tconomic Grovth Ln Cvprus

A t Independence i n 2960, C:~?rus had nany of :he f e a t u r e s of a l e s s

developed economy. .%laost h a l f of t h e e c o n o n i c a l l y ac:ire ?opui:tion y a s

engaged i n a g r i c u l t u r e , t h e ? r i x a r y s e c t o r s accounted f o r o v e r 30 percen t of

z c p o r t s , o n l y 15 percent of v i l l a g e s v e t e e l z c t t i f i e d acd t h e sane ? r a ? o r t i o n

of ~ ~ r a l households enjoyed pi?ed wate r supply . Other i n d i c a t o r s , however,

?ofnted t o fairl:r h iqh s t a n d a r d s of z e l f a r c . L i f e ex?ec=ar lon a t b i r t h a c d

i n f a n t ~ o r t a l i t y were a r e s p e c t a b l e 66 y e a r s and 30 p e r rhousand,

r e s z e c z i v e l y : the a d u l t l i t e r a c y r a t e v a s 50 p e r c e n t , and p r i a a q r and

secondary school r n r o l l n e n t r a t e s -sere about 90 and 50 ? e r c e n t ,

in t h e c e x t t h i r t e e n :fears, t h e economy grew and changed r s p f d l y .

G r~s s domest ic ~ r o d u c t i n c r e a s e d a t j u s t over 7 pe rcen t a n n u a l l y i n r e a l t e x s

' ar.d the s h a r e of t5e seconda t7 seccor r o s e %iqniEicantl :r ac t h e es?er.se of :he

a . 3:r the end of t h e '3'.x:?es, ra?Zd ~ c o n o z ~ i c 3 rov th '-.ad caused

z:?e r a t i o of fnvestaen: t r G 3 ? bad r i i e n t o a b o u t 1 3 lercen:. . J ~ : ! I 3 3oCes: -

7 a : e t i ~ l r o ~ r e s s , jut cmnclna: :cz;icns i i c ! n o t subside azd ::lo :vo

c m u n l : i ~ s :gnti?.uec! zo l i - r e iubs:an:iall:? l p a r t .

-111 t h i s caae t o a n a b r u p t end i n the s u m e r of 1375 . .I smal l ,

ultra-sationalist f a c t i o n Iscnched a t za?ora r i l ; r s u c c e s s f a l - c o u ~ a g a i n s t t h e

d e ~ o c r a t l c a l l y z l s c t 3 d governnent of t h e day, and t h i s , In t u r n , s?ark=d a

f u l l- s c a l e invas ion 3y t 5 e a x e d f o r c e s of Turkey. !-,'hen :ke f i g h t i n g kad come

t o 2 c o n o l e t e s t o p , t5e tc r ' c i sh a n y had occu?ied a l z o s t 60 Fercent of t S e

i s l a n d . -111 Crpek C y p r i o t s , about 130,000 ? e o p l e , f l e d s o u t h fron t h e

o c c u ~ ~ i e d a r e a s , and over t h e next :rear, - ~ i r t ~ . ~ l l y a l i TurI:isn Cp?riozs i n :he

sou th le=: f o r :he l o r t h . S i z c e ::?en, che tdo zones h a l e o p e r a t e d , in e z f e c z ,

a s s e ? a r a t e s o c i e t i e s and economies; t h e r z is no zovement of ?eop le , and a p a r c

fzcn x i n o r imuggling, t h e o n l y t r a d e is i n v a t e r and e l e c z r i c i t 7 .

i t v i l l cone as no s u r p r l s e t h a t t h e s e upheavals r e s u l t e d ia qass i - re

economic d i s l o c a t i o n . Is t h e a r e a c o n t r o l l e d 3 y t h e Goverment of t h e

Xepublic of C:?prus, which Is t h e o n l y a r e a of i n t e r e s t t o a s h e r e , t h e ,

- f s l l o v i n q c=nparisorr 05 1975 v i r h 1 9 7 3 / prov ides a - r iv id p iccure . 13 2973,

1?';3? vas 20 percen t lower , i n v e s t x e n t 55 percen t lower , s o v e r x e n t revertiue 30

?ercen: lower; unemploynent had r i s e n f r o a z e g l i g i 5 l z l e v e l s t o 20 percen t ;

tour ism, a very important i n d u s t y and source or' r 'orziqn exc5an2e, had f a l l e n

o f f 3y ?O Fercen t ; and -3Sout a q u a r t e r af the popula t ion was i n need of

?here fo!lowed a renar 'cable recover:r. T5e 3over:mant ?ursued 1 I *

?x?ansf3nar? ILscal and a o n e t a r y p o l i c i e s , and t h e unions sgteed t 3 r e s t r a i n t s

gn Toney vaqes , uhich cornolmerred 5oupant f a r n i g n de3azd. T h e r e *ass a l s o

~ l s e f u l a s s i s t ~ n c e frm abr3ad , i n the f o n of < r a n t s and l a a n s . '?ec th'e key

- f x r o r Lx t3e r ? c o v e q v a s c1ea:l:r t 5 s ha=:! 'iot'c 32d ? n t z r ~ r f s e 3f :he Z:f?rict

8 I

l e ~ ~ l z . 3-7 ;?76 , teal G3? had recovered :o 1:s l e v e l L T ~ 1373 , and <r3,wt:7

: fer - .af t?r ;rns 30 ragid :hat 5y :?;a, r e a l su:?uc u a s ; I l3n:l;~ 3hcve . J ! I O : I:

-~ou:d ;~a.:e Seen had t k r t r e n d r a t e ? o r t h e p e r i o d 1960-73 c s n r i n u e d .

:?oreover, =hLs r ecovery 2 r o v i i e d jobs i n 71sn ty . Yke r a t e or' r t g i s t e r e d

u n e q l o y n e n t F e l l t o 7 ? e r c e n t Ln 1375, 3 ? e r c e n t i n 1977 and j u s t under 2

? e r c e n t i n 1978 and 1979 j3ank of Cy?rus, 19811. Ci:h nos: of t h e r e f u 5 e e

? o p u l a t i o n rehoused 5y :he end of 1979, and t h e e s t a b l i s h n e c t of v i r t o a l l y

f u l l employ,enL and g e n e r a l p r o s p e r i t y , i t a p p e a r s t h a t r e c o v e r y i r o n t h e

- L , i 5 u l a t f o n s - of 1974 u a s cnm?lec= 3y t h e egd of t h e decade.

I t z o u l d be A s l e a d i n g , however, t o s t o p :hers; f o r t h e r z werz , and

r z n a i n , p o t e n c i a l k j s e r i o u s d i f f i c u l ~ i e s i n 2 u b l i c f i n a n c e and che ba lance of

3 a s ~ e n t s , a s y e l l 3s a o u n t i n g i n f l a t i o n a r y p r e s s u r e s . ' i h i l e :he save--men:

vas s a v i n g a j o u c 17 p e r c e n t of i ts revenues i n :he e a r l y ' s a v e n t i e s , ?ublLc

s a v i n 9 s v e r z z+ro o r n e g a t i v e tn t h e g e a r s f o l l o w i n s 1974. Indeed , i n 1974,

government e x p e n d i t u r e s zxceeded government revecues by a l n - it 40 p e r c e n t . -

3 u r i n g t h e f i r s t ?base of t h e r e c o v e r y , a s u b s t a n t i a l g o v e t m e a t d e f i c i t u a s

not on ly d i f f i c u l t t o a v o i d , but a l s o d e s i r a b l s i n i t s e l f a3 a s t i z iu lus :o

ex?ans ion; 5uc by :he c l o s e of che decade , L t v a s c l e a r t h ~ z curren: b u t l a y s

had a c q u i r e d a l i f e of t5eir o m a s ? u b l i c s e c t o r employaent and vages

con t inued t o expand r a p i d l y . 3 u r i n g t h i s F e r i o d , 7 r i v a t e : ;aviags behhved i n a

yore f a v o u r a b l e Yay, r F s i n g from about 8 2 e r c e n t of G3? i n 1936 t o about I5

p e r c e n t (29 ? e r c e n t of ? r i v a c e incomes) i a i 3 3 . T5e l z t z s t zv ideoce is t h a t 9 a

J c n e s c i c s a v i n 3 s c o n t i a u e d to r i s e r a p i d l y d - ~ r l n j t ke p e r i o d 1973-31, r e a c h i n s

L. - ' 9 33 Fer:ent of GSP 11 :!-.e Las t :Jear. Thf; vould have s u f f F c e d t o r e u c o r r t S e - '9

?osi:Lon p r 9 v ~ a i l i n g i n :ke ear?:? 's2ven:ies v e r e i: no t f o r :he fac: i h ~ ~ t h e - - r 3 c i o o f in&s;xenc L O ;3? had '.c?ersd a r x n c ? 0.32 s i x c r 1975, 3 r s i L s c z i o n - I

, . aoc o n l : ~ of :he jesands ,:f r e c o n s i r u c ~ l o n , juc ?:so of - ? e r r I L : ~ L ~ v ~ I s 3 :

18sor7 t i o n 1.7 :he l o c a l .-conoa:~.

- .h i s l a r g e e:ccess of dones t i c t l ve s t - en t over do=esc:c sav ings

r z su l zed , of course , i n a corr2s7onding in f low of f o r s i g sav l3gs . 3 2 l a t t e r

-ders abou= 10 percent of G3? f r o n 1377 t o 1980, vhen they f i2aaced alaos: 30

7ercen: of d o n e s t i c i n v e s t a s n t j3ank of Cy?rus, 19811. -Although a ? o r t i o n of

these Lnflorrs tock the f o m of i2ves:xents ( a a i s l y In z e a l e s t a t e ) by C:r?riocs

I L - r i ~ g abroad , ~ h i c h ;rill z o t e n t a i l 3uch i n t h e va:? of f uzu re l i a h i l i : i ? s ,

f o r z l g . Lndebtedness has j u r ~ e o n e d . Tke de5 t - se rv ics ra:Lo, v h i l e s t i l l a

=odest lCl ?er:ent o r s o :n 1980, has i z c r ea sed ver;r tapicil :~, and ill con t i a ce I

t3 Co so f o r soce t i ~ e , even i n the f ace of s o r e a u s t e r e j u 5 l i c 7 o l i c i e s .

i These heavy demands f o r soods and s e r v i c e s co i2c i3ed . ~ i t h g loba l

I n f l a t l 3 n and soxe d e t e r i o r a t i o n i n t5e economy's j a r t e r t e n s of t r a ce . A t

:he sane t i z e , t he r e s t r a i n t s on vages and s a l a r i e s t h a t had been i ~ p b s e d Ln

:he % m e d i a t e a f t e = a t h of tSe even ts of 1975 vere ? r o g r e s s i - ~ e l y d i smn tLed

towards :he end 02 the decade, a s t he consensus f 3 r s a c r i f i c e -~eaIcened iri t h e

face of recovery and labour supp l i e s becaae q u i t e t i g h t . Dgring :he Thi rd

Zxer;enc;r ? la> 1973-1981, znplo:rees8 ea rn ixgs rose a: an annua l r a t e of 23

percent i r i nominal t5n.s and 11 3er:enc ia r e a l t e n s . I n respocse t o a i l -

t>.ese ? ~ ~ S S U ~ E S , :he r a t e of i g f l a t i o n ro se from 5 2ercen t ? e r annum i n 1976

:3 15 ? e r c e c t i n 1390, before eas ing t o 11 Tercent i n 1981.

3 e government 's j i r s t response t o :hese problexs vas an at:en?r in r . a

1975 t a reducz tke z r o ~ t h of :he 3one:r i ~ ? ~ p l : f . T : ~ i s vas fo l loved by a s e r i e s

- - 3f - easur?s 20 restrict c r e d i t l o r e Jirec?.:;~, r n i c h kegan :o 3ave ?,,I 2 ~ : e c t on -

Lx ' 2 6 0 2r.d 1ctual1:r dsc l l -ed 52 ?F'3:4:. " h e a:te=pts ~o c o n ~ r o i ;u5 i ic * - c3nsuap:lsn a e t 2i:h zeagre success . Such ?x?endi iures 3r2v 2c In aanual ra:e

. - 9, ' 5 ?er:en: I n ; ~ c n i n a l = e m s i u r l n q t he 3 L z d 3zetzenc:1 ? L A X . a t . 2 ~ 2 .;eL-

a j o v e :he ? l a n ' s t a r g e t . Y2t eeJen i f 2 u b i i c consunpc ion ? roved t e

" ~ n c o n t r o i l a 3 l s " , 3s i t is ~ O V f a s h i o n a b l e t o s a y , one i n p o r t a n t f i s c a l ?oLicp

-jas i n t r o d u c e d : t h e i m ? o s i r i o n of s t i f f s o c i a l s e c u r i t y t a x e s 13 1981, =ihTch

2 r o b a 5 l y b a s had a s i g n i z i c a n t d e f l a t i o n a r y i a p a c t .

Tn any e v e n t , t h e r e a r e now s i g n s t h a t economic ac:i.rity Segsn t o

zrow a t a s l o w e r pace f r o n 1380 onwards. *art from Chs s l u a p i n 5nvesc3en t

and :he 2 a s i a s of i n f l a t i o n i3 1981, t k e r a t e of unen?loyment r o s e s l i g h ~ l : 7 Ln

1950 and s h a r 7 l y i n 1951. X h i l e t h e a v e r a g e a n n u a l rate o f grswzh of GZP o v e r

t he ? e r i o d 1975-31 exceeded 3 F e r c e n t , i t had f a l l e n t o 5.8 ? e r c e n t 13 1980

and 2 . 6 2 e r c e n t i n 1981. One r e f l e c t i o n of t h i s s lowing dovn was an

i z q r o v e n e n t i n t h e 3 a l a n c e of t r a d e : t h e c u r r e n t v a l u e of tx?or:s Srew 3y

a l x o s t a t h i r d i n 1381, -dbi le c h a t of i s p o r t s g r s v o n l y h a l f as f a s t . Xi:h

:he ve ry r a p i d g r o v t h of r e c e i p t s f r o % t o u r i s m p r o v i d i n g e x t r a h e l ? , t h e

c u r r e n t S a l a n c e a c t u a l l y inp roved i n 1951, f o r :he f i r s t t i x e s i n c e 1975.

.L'tzr c u r r e n t a c c o u n t d e f i c i t s i n 1975, 1379 and 1980 of 159.6 s i l l i o n l , i 7 2 . 6

n i l l i o n and 480.9 a i l l i o n , res?ec : ive ly , t h a t f o r 1981 yas a S o u t i 6 5 a i l l i o n .

- ,o sum up, a f t e r 20 y e a r s of inde?endence , v i t h t h e v i o l e n t

i x t e r r u p t i o n of t h e e v e n t s of 1 9 7 i , C;~?rus h a s 3ade r e n a r k a b l e progresis. ? o r I

c a p i t a income exceeds $3 ,500 ; on ig a quarter of :he e c o n o s i c a l l y act:-je I

2 o p u l a t i o n 1 s now m-igasec , tn a g r i c u l t u r e , and ;3anuFac:uring a c c o u n t s Zcr I . *

a l z o s t :hrse-q-uar tz rs of a l l nx?ocCs; l i E 2 ?:<;ec:anc;? a t b i r z h is about 7 3

: I E ~ ~ S 3n.? :ke r a t e of Lnf lnc ~ o r z ~ 1 i t : ~ conFar2s i a v o u r a b l ; ~ yl:h v e s t z e a - '9 E3~ropc; ~ d u l t li:-.rac:r and e2rql :zent i x s econday? : rducacica ,:re .rir:dall:: - -

. ~ n i . f e r s . l + 311 - f i l l a g e s h a x el?c:rici:;r and ? i?ed 2a:sr; Srs, : e l ? . ~ i s i x s I

- 0

aca o t h e r J u r a j l e s ? r o l l f ? r a : s . 32spL:s t he f u l l r 2 s : ~ r a t l o n of ?h:?sic.il

x ? L : a l ~ n d ?rcducrl,.-e :apac F::?, ' :cve7~er, i e r 5 a u s ? r o b l = x s r?naiz. 12r;e

5udzetar:r d e f i c i e s had led t3 r a . j i d l y g r o ~ i - q f o r e i g n Lzdebtedness a s w e l l a s

' ~ f l a t i o n a r y ? r e s s u r e s , s o t 3 a t sone changes i a f i s c a l ?ol i t i*s a r a h i s 5 l j

? e s t r a b l * . "oreover , Cy? t .~s i s a = o r e open econony a o v t h a n i t v a s i n 1960,

ax! v i t h i t s heavy dependence on re la t ive :? u n s o p h i s t i c a t z d z ~ a n u f a c t u r + d

2:<ports, i r s i n t e r n a t i o n a l compe t i i i v e n e s s - i s h i g n l y s e n s i t i v e t 3 -Jage

rates. -.us, w i t h 3 o s t of t h e Dore obv ious 3 p p o r t u a i t i e s f o r inves:ziemt i a

z a n u f z c t u r i z g hav ing Seen e x p l o i t e d i n t h i s r e c e n t p e r i o d of r e c o v e r y , some

a t i l u s m e n t s i n t h e s t r u c r a r z of a a n u f a c t x r i x g i n d u s t r y a r e ? r a b a b l y c a l l e d

r . Any ?rogranme f o r growth o v e r t h e cominq f i v e y e a r s n u s t t a k e t h e s e

c c n s i d e r a t i o n s i n t o accoun t .

3. .I S o c i a l Xccounring " a t r i x (SJ:4) f o r 1973

- - ,z p r o j e c t i o n s of o u t ? u t s , incomes and o t h e r -7arFablss of i n t e r z s t

a r e t o i n s ? i r e much c o n f i d e n c e , t h e y a u s t ? roceed frcn a set of i n i t i a ~ l

c o n d i t i o n s t h a t have been r e l i a b l y e s t i a a c e d . T h i s m a n s t h a t ye need t o ? u t

c a y e t h e r a q u a n t i t a t i - ~ e a c c o u n t of a l l t h e r s l e v a n t f lows i n t h e econchy f o r

sone r e a r i n t h e r e c e n t F a s t ( t h e c l o s e r t o t h e f i r s t g e a r of t h e ? I a n t h e

b e t t e r ) . ":,e obvious fraslework f o r t h i s s u r a o s e is t h e so- ca l l ed " S s a i a l

.:.ccounting ?atrix"G/, -- o r 5.u.

.\ 5x4 is s i m p l j a s y s t e a of s c c g u n t s :n ~ n i z h (Sy conven t ion ) t h e . -7aria;s incomings of e a c h aild e v e r y accoun: a r z r e p r e s e n t e d 5:r an o r d i r e d iou

azd t 5 e zor resoond inq q u t q o i n g s 5 y 3 s i a i l ~ r l : ? o r d e r e d c o l m n . 3 u s , :he

- ~ h o l ? i s 3 squa re :abieau, 2ach c e l l of uh ich c o n t ~ . i n s :he t t a n s a c z i o n s

5et-deen a ?air o f a c c o u 2 t s is t h e ? o n g f aa o u t l a y of :he one 2nd 3n i - c c a e - - w !Q'

3' :Ye o t h e r . T ' i i s arrziy ?ro-r fdes-a 3 i c c x e of a l l :he : r>csactLons i.7 :he I

econonv a: a yornent Ln : f ze , i-d is so do i -g , I: ~ l s o reveal3 soTechl$3 3 f ::~e

s:rXctu:e of t h e ecgnomy. .is the p r i a c i ? l s s of doub le- en t ry 5 o o X i e q i 3 3

ap?1:r, &he sun of t h e e l e a e n t s naklng u? a ? a r t i c u l a r c o i u a aus: 'ae s q c a l zo

f a i r Teasu re of c o n s i s t e ~ c y on :he e n t i r e set of e s t i a a t a s , and t h e scope f a r

c a b r i d l e d s p e c u l a r i o r . is nuch reduced chereby.

T5e o t h e r thing v e s h a l l ceed i n =king q u a n t i t a t i v e ? ro jec rLons i s ,

3f c o u r s e , a s e t of T a r a n e t s r s - azd i n che ; r e s e n t c a s e , 3 larse one a t

tka:. .bong t h e = o r e i3porzan: p a r a n e c e r s a re : ~ h e inpuz-output c o e f f i c i e n t s

f o r t k e ? r o d u c r i o n of boods; :he c o e f f i c i e n t s of the consuner dercand S Y S : ~ ~ ;

and t h e c o e f f i c i e n t s of t h e =tapping :hat s e n e i a t 2 s t h e s e t of i n s t i t u t i o n a i

i zcones f i 0 3 t h e s e t of f a c t o r incomes. :hny of t h e s e p a r a n e t s r s are d e r i v e d

Zroa :he SAY, e i t h e r d i r e c t l y o r i n c o n j u n c t i o n 3 1 t h s u b s i d i a r y ev idencs . .a

i t is e x t r e ~ e l y r a r e t o have S M ' s f a r a s t r i n g of ;:ears (one is j r a t e f u 1 fa: . - 2nou2h m t e r i a l t o e s t i m a t z a SAY f o r a ? a r t i c u l a r y e a r ) :he e s t i a a t i o n of

- 1 i r t c a l l y a l l pa ramete r s r e s r s on c r o s s- s e c t i o n ev idence . k d e e d , nore c f ~ 2 n

than zoc , :her= is j u s t one ~ S s e r v a -n. !~ ih i le t h i s na:? 5e a r a c h e r shdky

5 a s i s , :izie and c i r c u n s t a n c e rarel;: p e r n i t t h e c o n s t r u c t i c n of something n o r e

s o l i d .

-is noted L n sec:ion 1, Sy i nvok ing t h e a s s u n p t i o n of c o n s t a n t

r e t x r n s ~o a c a l 2 , t h e i n t e r i a d u s t r y f l . 3 ~ ~ i n t h e S.;Y : r i s ld a s i l z a t e s of t h e . Q r - - lnpuc-out2u: c o a z z i c i e n t s d i r e c t l : ~ . For example, t h e . ~ n o t l n t o f cons:r.~c'-.ion

- - ;er-!ices 3ur::lased by the shoe 2 a n u f a c t u r i z g s e c t o r f o r c , l i r e n t ase, iiv:Cdd 9 u

' 2 : ~ :he 3ross ,u r?u t af t h e shoe z n n u f a c c z r i a g s e c t o r , is =he ~ 3 e f f i c L e n t i n U L .. * - -:.s - shoe s sc := r ' s technology r e p r 2 s e n t i n 3 ~ k e consc rucz ion r o q ~ r o d ?er unit m .

x n i c h 2s a c o n s i s t e n t s e c gf a c c o u n t s . r e i t s r a c e , tkie f a c t :hat a 5.~Y's

r o w and c a l a m s u n s have co be g q u a l z n s u r z s t h a t z o t a l l y e g r e s i o u s o s t i = a = = s

3f I n d i - r i d u a l c e l l s ;rill no t go unno t i ced .

So 3uch f o r g e n e r a l p r i a c i ? l e s . The n e x t s t e p i s t o d e c i d e ;ha:

s o r t o f aceounzs ( o r c a t e g o r i e s ) should a?pea r f n t h e SAY f o r Cgprns snd in

?;hat d e g r e e of d e t a i l s h o u l d e a c h 3e t r e a c e d . I n s h o r t , r n a r shou ld be t h +

s c h e z e of d i s a g g r e g a t i o n ?

S t a r t i n g ~ i t h t h e broad c a c e g o r i s s , ?roduc:ion a c t i - ~ 5 t y l s v e l s and

c o - a o d i : ~ b a l a n c e s are c e n t r a l considerations i n d r a v i a g up a c c n s i s t e o t

p l a n . The re a r e t r o reasoL:s 'or k e e p i n g :hen i n s e p a r a t z a c c o u n t s r a t h e r t h a n

hav ing s a c 3 a c r i v i r j j r o d u c e a c h a r a c t e r i s t i c conmodity. Yirst, she

d e f i n i t i o n s 3f activities and c o n n o d i t i e s enp loyed In t3e i z d u s t r i a l c e n s u s

and consune r e x p e n d i t u r e s u r v e y , r e s p e c t i v e l y , a r e such t h a c aany a c z i v i : i e s - groauce c o r e t h a n one commodity. Xence, as 3 zmpping from a c t i v i t y l e v e l s 53

domes t i c s a p p l i e s of c o m o a i : i e s ;rill 3 r needed anyway, it is d e s i r a j l e :o

have t 5 i a napp iag a s ? a r c of t h e SAY. Second ly , t h e r z is c o n s i d e r a b l e

i n t s r e s t i n t h e f u c u r e b a l a n c e 5et;reen l a r g e- and s m a l l- s c a l e f i ~ engaged ia

rkie s a a e a c t i v i t y , f o r t h e y use d i f f e r e n t ?reduction t 2 c h n o l o g i s s and

distribute :heir v a l u e s added i n d i f f e r e n t ?ropor:ions among f a c t o r s of

~ r o a u c t i o n . 7 i r h such a c i i s t i n c t i ~ n , t h e r z u i l l be =or2 a c r i v i c i e s :kan 1 I

comodi::es.

I n view-af :he c i r c u l a r .lows :hat l i n k ? r o d u c r l o n , incones anc - -9

deaand, a set of ? n s t i t i l c i o n s ',s ca-r:aini:~ needed, f o r :hey a r e t he ul:l=ia:a - - - :eci?ian:s of :ke*ncones ~ e n e r l t 2 d 5y 2roducc ion and :?.ey 2ecLde 30.4 such -

I E I

I s c o n e s a:? spen t . .: c lose l : r z 2 l a t e d 3ues:Lon 19 ;ihtt:'.er =;?ere snou ld \e

a r e p r o 2 o s a l s f o r c h a ~ q e s i n t h e l e v e l and s t t u c r c r e of i n d i r e c t t a x e s d u r i n g

c3e c o u r s e of t h e ? Ian .

b s c 3 e ~ a t i c S > 2 f e a t u r i n g tbe above c a t e g o r i e s i s ' l a i d o u t i 2

"a5le I . E ~ ~ i d e n t l y , t3is i s j u s t t h e q t a n d a t d s y s t a 02 n a t i o n a l a c c o u n t s

2 r 2 s e n t e d i n z l a t r i x f o r z Our z s t i s a t + s f o r i9i3 ate set o l ~ t i n :able 2 , t o

- ~ h f c 5 ye now t u r n .

S t a r z i n q v i t h v a l c e added i n ~ r o C u c t i o n a c t i ~ f r i t s <row 1, c o l m n 5 ) S / , -

t5is i s 54L8.5 3 l l l i o n . -is f o r e i g n S a s e s a r e c o n s i d s r e d :o 52 r e s i d e n t

i x t i t u t i o n s , t h e 59.1 z i l l i o n p a i d as vages and s a l a r i e s :o t h e C;j?riots who

T;orlc Ln them < I , 3) aap 5e c o n s i d e r e d a s " d o c e s t i c " v a l u e added. Yience, Z r o s s

d o m e s t i c p roduc t a t f 3 c t o r c o s t is E457.5 = i l l i o n . T o t a l i n d i r e c t taxes ( n e t

of s u b s i d i e s ) a r e f 4 5 . 7 a i l l i o n ( 2 , 9) , s o t h a t g r o s s d o m e s t i c p roduc t a t

x r k e t p r f c e s i s 2503.2 n i l l i o n . The n e x t step i s :o add on n e t f a c t o r incone

f rm abroad (1, i ) , s o s t of which i s a a d e v~p of :emit:2nces by CypdTots

.dorlciaq a b r o a d , and s o one o b t a i n s g r o s s x a t i o n a l ? r o d u c t a t n a r k e t p r i c e s ,

P roceed in3 t o i ~ s t i t u t i o n s ' c u r r e n t a c c o u n t s , we 5 e a i n w i t 3

Incomes. F i r s t , i n s z i t u t i o n s r e c e i v e d 5577.9 x i l l f o n Crm t h e e a r n i n g s 3 P

aanloyed F a c t o r s ( 3 , 1). Second, t h e i n d i r e c t t a x e r l e v i e d (435.7 ~ i l l l i o n i

qo Lnt:, t h e Yreasurp 's c b f f o r s ( 3 & 2 ) . " i rd , t n s t i ~ u t f o n s pay one a n o t h e r . I

'130.3 illi ion i n c u r r e n t t r a n s f e r s ( 3 , 3 ) . i n t h e f o t n of . i t r e c t t a x e s ,

- l : t ? r e s ~ p a l n e n t s , d i . ~ i d e : ~ d s , s o c i a l s ecu r i : :~ 5enefi :s znd tSe l i te . :our:h, ' R

-4galasc ::?esz r e c = l ? c s , f o r a i s n bases ( a "dones t ic" i z s t l t u t l o n ) pay

a u t i 3 . 1 z i l l i o n Fn -;ages and s a l a r i e s t o t x e i r Zy?riot. +zplcy=es ( 1 , 3 ) , and

hoqlseholds and :our is== ?zy Z31.5 a i l l i o n in s a l e s and e x c i s e taxes ar.d

: a r i f f s on con-co3peti:ive Laports of cocsunsr zoods ( 3 , 2 ) . 13 the n a t u r z of

c ,..ings, -- cu r r en t t r a n s f e r s ( 3 , 3) a j p e a r on both s i z e s or' tke account , so t h e r e

i s an s x ~ e n d i t u r e of 1130.3 a i l l i o n t o x t c h i h e irkcone or' t h e saae anounr.

T3e c o n b i ~ e d sav i2gs of households, f i ~ s and aovernaent ( i , 3 ) a r + iLL7.3.

- i l l i o n , vhich l s a v e s i119.0 . a i l l i on f o r t he combined c u r r e n t ou t l ay s of

households , t o u r i s t s and f orsik% bases , and g o v e r m e n t . O f :his, 2339.6

z i l l i o n Soes on c o m o d i r i e s vhich a r + prodaced ? a r t l y o r xho l ly a: horns ( 5 , 3 ) ,

and g79.4 a i l l i o n OTI non-conpecLti.re i z p o r t s ( 7 , 3 ) .

On the c a p i t a l account , hoo;eholds, f i n s and government have

combined savings ( h , 3) of Gli7.2 = i l l i o n , which a r e a u q e n t e d 5y a ne t - 2api:al inf low ii'on a j r o a d ( 5 , 7 ) of g53.2 A l l i o n . t h e ex?endi turss a g a l 2 s t

:hesz incomings a r e : 54.5 n i l l i o n i n t a r i f f s on non-coapeti:iS~e i3por:s of I

I * iwes:=ent zoods ( ? , 4 ) ; 11A0.2 n i l l i o n in o u t l a y s on d o n e s t i c a l l y ~roc iucea --.. iaves:sent soods ( 5 , 5); and f 55.6 n i l l i o n on the izfror ts themselves ( 7 , 1).

Yhus, :otal q o s s i nves t aen t La f ixed c a p i c a l and S C O C ~ S anounrs t d i292.L

I i l i i o n .

- -uzlli;lg t o t he z a c e r i a l . ' s a l a n c e ~ , dornest :~ product ion accivi : ies

Celi.:er 5735.6 q i i l i o n ~f comodi: ies a t producer p r i c e s ( 6 , 5 ) , vhich a r z

- sui? ; tsrncad 5y iij,$ z i l l f c n of so rn?ec i t i -~e inpor:s ( 7 , j), on *ihi:h :ariiis

* ai f 7 . L -slillio:! ars Levied ( 7 , 5 ) . Thus, :!~erp, is a :o ra l su??i:r sf - c o n o l l z l e s (ochar : s n -on-com?e:i:i.ie L3por:s) of i a53 .1 g i i l i a n , Tizs

invest=en: ac:5uirles ( 5 , i) accmn: f o r Z110.2 ? i l l i o n ; i x t + r - i - d u s t y ? dezasd

- ! 5 , 3) 1s i 3 i l . 3 z i l l i o n ; and e :qoc t s ( 3 , r ) a r 2 2137.5 zti l lTon.

.ki notzd above, domest ic ;rroduccion a c t i v i t i z s d e l i v e r G786.j

z i i l 5 o n d o l l a r s of g o s s o a t p t ( 6 , 5 ) . 3 e c o s t s of ? roduc ix3 t h i s ou=?ut

3 r e : ziL~8.A 3 i l l i o n i n -Ja;ments t o f a c c o r s ( 1 , 6 ) ; $1.9 s i l l l o n in n e t

. . i>d:recc t a x e s ( 2 , 6) ; 125i.3 d l L i o n i x d o n e s t i c a l l y 2roduczd i a t e m e d i a r e

Inpu ts ( 5 , 6 ) ; and i 9 4 . 4 z i l l i o n Ls c c n - c a x p e t i t i v e i 3 p o r t s of i a t e m e d i a c e

zoods.

? i x a l l y , t k e r e a r e transac:ions 3i:h the r ts t of t h e vor ld . Out lays

o n i n p o r t s a r e s e t ou t i n r o w 7, the i n d i v i d u a l i t e m of which hayre Seen

d i scussed above. n e t o t a l o u t ~ o i a g s of S294.5 a i l l i o n (i, 3) a r 2 aatched

5 : 220.: a i l l i o n i n n e t f a c t o r incoce f r ~ m a b r ~ a d (1, 7 ) ; i O . 2 = l i i l i o n in

ex7or: t a x e s ( 2 , 7 ) ; g.33.2 milLian Ln zon- factor incone f r a n abroad ( 3 , 7 ) ; - 4 5 3 . 2 a i l i i o n i n f o r e i g n s a v i n z s ( 5 , 7 ) ; and i137.5 m i l l i o n in expor t s of

5ocds and ser- ices ( 5 , 7 ) . I

' J i t h t h e g e n e r a l s t r u c t u r e e s t a b l i s h e d , s e can turn t o :he i e t a i l s

of d i s a g g r e g a t i o n w i t h i n each cacegor] o i account . The r e s u l t i n g

w.. .- d i s a g g r s g a t e d SAY c o n t a l x 132 accounts .

L . t

One as?ec: of :he renarkab le recovery f r o n :he d l s l o c a c i o n of

vas :he a t t a i n m e n t of near full-o_api~:?zent i a 1979, a condl:Fan which has 3ean - - -,aF.ttainea t o t h e ?resex:. A t :he s m e : h e , :;+ suppiy-denand 5alances I n - - - '- -..e a a r k e r s I3r d l f : ? ~ e n ~ c a ~ e ~ ; o r l t s of i a j o u r -%re di f f ; l r=n: : -;hi22 :?.ere Is * ioze e ~ ~ i i e n c e tha: ski112a 3r.a :ex<-siLlleC '~ lue ' co l l a r -;orl<~rs ha-re keen Lx

1: Ls c l e a r l y i apc r can t i a capcure tke e l S e c t s of :he ~ r o w c h i n out?uc, on :he

ieya2ds f a r t h e -?arFous c a ~ e 3 o r i e s of Labour. (The i u ? p l l = s of : ~ o r k e r s ~ i l i

Se f a i r l y i n e l a s c l c f o r soae years ahead 3n account of :he Ion2 l ag s i n :he

rzsponses of t he educa t i ona l sy s t en and i z d i - ~ F d u a l s ' cho i ce s concernizg

:"?,ether t h e r e -dl1 3e enough workers of s ac5 ::r?e t o support a

3 a r z i c u l a r prov:n path dues Iavolve slightly nore s u b t l e cons idera t iong than

i i ~ p l p dE!riVing t he d e s a d f ~ r rhea f i o n a g ive2 b i l l of o u t p t . ?or i f c5e

:snposi=ion of ccnsuzer demand depenzs on rhe d i s r r i b u c i o n of fncone, t h e

decand f o r Lajour and t he Lsval of ouc?u: of noncraded goods a r c n u t u q l l g and

s i nu l i aneous ly l e t e m i n e d , so t h a t p o i e n t l a l l y s2rFous e r r a r s of

%Y ro,sul: from hav ing j u s t one s o r t of l a 5 - . be arguea

::?a: the distribution of Fncoae is or' i n t e r e s t i n i:s ckm r l g n t . One

?articular i z s t a n c e ix poin t is t he governnent ' s cancer? t h a t t he r e should not

3e a l a t a e - s ca l e exodus of vorkers t'rcm a g r i c u l t u r e dur ing t he near falture.

These consFderat ions l ed t o che :allowing c a i e g o r i c s of uorZers :

a ? r o f e s s i o n a l , t e chn i ca l and a a n a ~ e r i a l 1

a ' i h i t e c o l l a r ( c l e r i c a l , s a l e s and s e r v i c e )

S k i l l e d blue c o l l a r

a Seni- and u n s k i l l e a 3 fue c o i l a r

- - I? t>e zsses o f f a c t o r s ,>the: :han labour , :he = i n d L i t L ~ c t i v s

i

resc Qn ;ec to r 7 5 .?n?Soy~en: and o ~ ~ e r s h i ? r a t h e r :ban :he ?a t a r e of : h t ~ - - z . l s l n g =hex, "c:larac=srFs =ic" f a c ~ o r s :laq:e ?!J: L n 3 cautious reapnelrak.ce. L-

. . . . . cznl:a, 1; :o 2e ,x-,zed I n -2;-'n ilxei : z c t s r s , ;uch 2s Izr.d, iz - - ; : ---- ' - - e

3is t r lhu: ion of incone and :he S a l a n c e 5 e r z e s 9 l a r g e and s n a l i E ixs , i t z a k e s

good s e n s e t o d i s t i 3 g a i s h 5et:een c o r ? o r a t a ;nd u3incor?orata,d "ca?i:al".

S t k e v i s e , as state- owned e n r e r ? r i s e s a r e qu i t e i n p o r t a n t , t h e i r "capi:al" i s

?u= i n t o a s e p a r a t e category. t o r yanc of d a t a , and i n t h e i 3 t e r e s t s of

5 h p l i c i t 7 , on17 c o r ? o r a t e c a p i z a l is s u b j e c t co d e p r e c i a t i o n . ? ~ J s , :ha

t s n a i n i n g f z c z o r s a r z as f ~ i l o u s (with due a p o l o g i e s f o r t h e i r i n e l z q a n t

3anes ) :

6 Cnincor?ora ted , non- .~gr icul :ura l c a p i r a l

a iTn incor?ora ted , a p r i c t l l t u r a l c a p i t a l

C o r p o r a t s , n o n- a g r i c u l t u r a l c a p i t a l

a C o r y r a t e , a q r i c u l t u r a l c a p i t a l

a D e a r e c i a t i o n of f i x e d c o r ? o r a t e c a p i t a l

Government c a p i t a l

.is i n d i c a t e d above, t h e d i s t r i 5 u t i o n of incane among 5ousehblds is

9' interest bo th i n i t s e l ' and 5ecsuse consumers' expend i tu re ?at:ern$ and t a x

? a T e n t s v a r y u i t 5 t h e i r l e v e l 3 of inccme. The ' x ~ e n d i t u r e Sur-ley of 1971 e

-

li!stinquis'nes betveen r - ~ r s t and urban househo lds , a n a t u r a l diqlL;ton v h i c h

so ~ e s h e s t a t h e r -dell vi:h t h e ;c?aratLon 3i ~ q r i c u l t u r l l f r m non-

a q r i c x l r x r a : a e C a ? ~ t 3 1 * q . 2 / ? a r cv:r ?u r?oses , each of :he c a t e g o r i e s of r z r a l I

and 1lr5ar: i auseho~ .4s ? a s 5eex s o l i e <:to = ; . o , i h e "..ip?erS' :rzup i n 30th :ases

a.d -zac:?insqr. Tke d e f i n i ~ i o ~ s af t h e s e c o n m o d i ~ i e s f a l l v ~ t h c s e Ln :he -A..

IzCuscrLa1 Census f o r 1973. 3 ccon?lete :ke l i s t , e h e r e a;= f i f t e e n

; ~ a ~ o d i : L e s u'nich a r a so r , a l l ; l -~ i?wed as n o n t r a d e a k l e s : r e ? a i r s , u: i l l : ies ,

i S n S t ~ ~ t f ~ n , s e r v i c e s , t t a n s ? o r : a t i m and ? u S l i c a d n i n i s t r a t i o n . The 2xacc

d e c a i l s are set ou t i n T a 3 l e 3 .

TY2 l a b e i s sn t h e a c z i v i ~ i e s a r + i d e n t i c a l :o :hose on :he

c o m o d i ~ i e s , vi t h m e s o d i f t c a c i o n : z i n i n g . q u a r r y i n s , re?airs and a l l

l x d u s t r i a l s e c c o r s b a r c o c t a s e i 2 d u s t . r ~ a r z s u b d i v i d e d i n t o l a r g e- asd s n a l l -

s c a l e o p e r a t i o n s , u h e r e " la rge" f i x s a r e d e f i n e d a s t h o s e an?loying 5 o r Doie

v o r k e r s . S e x % , t h e r e ar2 77 a c t i v i t i e s 311 t o l d .

Tke d ~ t a i l s of how t h e S.29 v a s e s t i ~ a t e d and %ha= s o u r c e s of da:a

-;ere us2d ;rill be set o u t a c l e n g t h in a n append ix t o a l a t s r d r a f t o? :his

?aFer . For t h e p r e s e n t , a a e r e s k e t c h of :he =or2 l a p o r r a n t e l e a e n t s a u s c

s u f f i c e . 3er2, ve n o t + t h a t t h e c i r c u l a r f low t h a t conneccs ? r o d u c t i d n

. . ~~cr :v~ : -Lrs , incones and deziands p rov ides a n a t a r a l l i s t .

S:ar:ing vi:h a c : i v i = f e s , t h e s n b n a i r i t e s which , ;hen a g g r e g a t e d ,

l a k e up c o i u m 5 i n T a j l a 1 h a t e j een e s c i ~ a t e d f r c n v a r i o u s off i t l a 1

?ublica:ion: and d a t a 5 i l e s . Forcunatei :r , :he r e t u r n s of t3.2 ~ z b u s t r i a l r . I

Cer,sus ,or !378 a r e s t o r z d on :ape, s o t h e 3e~era: icrn of ::?e ac:Lvit:r -Jer-cJrs

f ? r l a d u s t r l r ;ras f a i rl;r s t r a i g t ; z f o r - ~ a r d . In t!le c a s e of a q r l c u l t u r e , :ke - - I

.:<rlcxi:ural Cansus f o r : 3 7 ? r ~ v i C e d t h e xai?. 5 a s i s f g r t~?dac*d est :?acss,

- _ - - ~ g e t A e r vi:h o f f t c i a i r e 7 r t . i an :!le a a t u r 2 and <:<=en= ~f s u b s i i i 2 s :o * - - ~stlcul:xr?. 3 e =s:ixa:es I g i :?.z ac:lv..ic i e s ? r o a u c i n s ncn-5 radea ;ocCs

. . . . . . . . :r;._-Ln:: -Ji.Z.-2 :.;ose lc=z- i r=; - . s . I2 tY.e cguzse ,>r' sncn i . s = l = a r l o n , :he so-

- : u l l y Tra2ed Gocas

,- L Z T ~ J L S ?oca toes Gege ta5 les P2 - L, ,NS

L ives t a c k Ztsh

3a i r - - 7roduc:s Ixi t and -1egetabla cans ing 3aXing Other food A n h a 1 f e e d s So:: d r i n k s and 5everages T e x t i l e s C lo th ing Sea t h e r Too t- ear Xood produccs ? u n i t u r e l a p e r P r i n t i n g Chemicals 3iI r e f i n i z g 3 r l c k s Czaent :<eta1 p roduc t s :.!ac:?ine qj I!snufactures n.a.c.

Gr*?es : f l s c e l l a c e o u s c rops L i v e s t o c k ?roduc:s ?o res t r y Quar ry izg ? r o d u c t s :.ii=erals .Ucohol Tobacco O t h r n o n - z e t a l l i c ?roduc:s Xe?airs t l e c z r i c i t y !Jater C i ~ i l c o n s t r u c t i o a 3 u i l d i n s - non-residen:ial a u i l d i n g - residential Zot21s and restaurants -- , . anspor t

Corxnuni ca t i o n s F i n a n c i a l s e r v i c e s Other servi:es Zduca t ioa 3 e a l t h ? u b l i c a d 3 i n i s t r a t i o n Trade

*If ?::?or= l e v e l s a r e posiEi7re , :hey a r e 3 . 1 ~ 0 f i x e d , so :he good I n i s non-craded a t the x r 3 i . n .

r , I I

L

failed "xak2 a t r i i " , t . 2 . (6, 5 ) i n "bls 1 , uhich xa?s sc:Lvi:y k v e l s i n t o - - C - #

>.=arc :roa :he ieaar,ds f o r Ln~erz-,edi=tt2 3ooCs, ;.hit5 m2rZo-l 12 :he . r .. :ourse ;i :he lbove ca:c-~la:13ns, :P,e c . ~ r t e r . t or::l~:rs '3:~ ::I= =oqrer:r,e1n:, :he

v i r ~ z a i l y Z i r e c t l y fron g f f i c i a l sources . 527 ia3 decided t o accept t5s

consuapcion a s a r e s i d u a l . The coapos i t i on of ~ x ? s n d i i u ~ e s 3:~ i o u r i s t s and

f o r a i g n 'iases uas ' g u e s s t i ~ a t e d ' on t5e b a s i s of hearsa:~, our g r n s?en i ing

- ~ n i l e iz C;~?r=ls and c a s u a l obssrva:ion of l i=assoL on a ho t af t3rnoon. Qu i t e

Lxie?en6ent ly , ye ?s:i3ated Linear ?x?e:di=ure s y s t e n s f o r rurz: and urban

households us izg the grouped da t a from the *sehold 5x=ezd i t u r e Sur-ley c~f

1971. .&zed srirh the c o e f f i c i e n t s thus c!erived, we ver2 then ab l ? t o

c a l i b r a t e the s e t of i r , t t r c e ? t t e n s so as t o ~ r o d u c ~ , the c o n t r o l t o t a l s f o r

s r i - r a t e consunpt ion, comodi:y by comedic:?, i n t h e SXY.

7uur;ling t o t he so- cal led " a l l o c a t i o n n a ~ r i x " , ;rhlc'n asps :5e set t f

i a c r o r inco:les i n t o i n s t i ~ u t i o n a l incomes, i: is vor rh no t i ng a t the o u r s e t

t h a t :he ostima;zs of the fo rxe r c o n s t i t u c s , co :he bcs: of o u t knowledge, t h2

f i r s t s ec 2f income accounzs f o r Cy?rus, a l l extan: (7u j iFshed) f i j u i a s being

5ased on G2P 3y s e c i o r of o r i g i n or c a c e s o r j of + x ~ e n d i : . ~ r ~ , . For :his reason , I

t h e r z i s sone i n t e r e s t i n f u rn i sh ing thes* esti=a:es he r e (Tao l t 5 ) .

The c o n s t r u c t i c n of the n a t r i : ~ :ha: 3aps t h i s vec to r i a t o the vec to r

3f ins t i :u t iona l incones i s a t o p i c alzos: 7or:hy of a ?a?er i n i:s o m

r i g h t . S u f f i c e i: t o s z ] t h a t :he e s ~ i n a t i o n commenced v i t h =he d i s t k i b u t i o n

of ixcones 3rd ex?endi:ures a s revealed by . rhe Xouseholi Z:c=endi:ure 5 u r ~ e y L -

I

f o r i371 and a succe s s fu i a t z ezp t :a r e conc i l e these d a t a ~ i t h :he I

I

:Drres?ondlzg f i g ~ r e f o r aqgregate ? r L . ~ a t ? . consuap:ion i n :5e nat Lcna! - - '4

accauncs f o r :?at :rear. Sujseauen: Ln:zr?ola:ior.s u s i a s '-.he !!an?oc;er jur-rev' - - *

i ? r 1973, :he : I i c ro - i zn suq i ~ r !?73, :he 2 e ~ o q r n = h i s Pesor: i c r !973 2 d i2et I -

.:.gr lculz;r l i 7snslrs - 2nd Ll5sra l r e so r r :a 3a:res' i ? n : l a -- ;rzcuc!ed :us,: I

-.. . , . - . .e r:;?.: ;ca=tzr'_rig ( l f +Lenr2nts Lx the " lake -,at-;- . " :or - '1s I D 32 ;> -e ~2

? r g f + s s i c n a l , t 2 s h n i t a l and ~ a z a z e r i a l -2orksrs 9 . 5 5 5l . r )h - 51.5!?

:;ni KC c a l l a r ( c l e r i c a l , s a l e s and s e r v i z e ~ o r k e r s 3.38 5 4 . 2 8 57 .a6

Ssni- and unskLlled b lue c o l l a r 2.73 23.17 30 .95 -2orkers

Soverncent c a p i t a l - 9 .?l 9 .?I

TctZil 4.11 sfbd. &j i 57 . , jL

1 t Y

I

,za-< ,---.:. :>.e renaiader f r o 3 :he Linear restrLc:ions t h a t connec: L:s rzv 1,ll:d

I

;?:-;an zeta:;. ,kt? rfiaal ro su l : l s :=?roaaced L 2 l z s entLr=r;? L 2 2 0 1 4 j, -

i. 3 e I!od?l

:z :hla sectLon, ye ? r e sen t :he a t r - ~ c t u t c q f t he z o d a l ~ h i c ! ~ -das

in t roduced i n secz ion 1 and -;hose d a ~ a 5ase was descr i5ed ia s e c t i o n 3. T>e

=ode1 is a s j s t e = of s i -u l t aneous , 1:near equa t i ons , r e ? r e s e n t i n ~

r a l a t l o n s h i ; ~ anon5 va r i ous economic var5a5 les . :;e f i r s t s:ell gut these

?quacions , ex? la l> ing t h e i r under lying assun? t ions . Next, ve descr i5e :he

~ a c h n i q c e used fez s o l - ~ i ~ ~ t he ztodal and skc7d 'acw the so lnzfon Leads t o a czs:

f o r :he fzas i3 i l i :y of :he ?t-:e-Yzar ?Ian.

4 . 1 The Eaua:ions of t!?e Xodel

5.1.1. Yaze.: l a 1 Sa laaces

1 3 .e fnzdaxenta l *quat ion of :his a o d e i , and of a l l Linear x q s l s f o r I

e-hat: c a t ~ a r , is t h a t of = a t e r i a l 3alarice. Tor every year 7 , ve eqoaie total

silppiy 7 f a c o m o d i t y wi th t o t a i desand f o r tSaE cocnodi ty . Let q; (33 3e - *

the t o t a l supply of connodicy i a t c r ea t ed by domest ic ?roducr ion

ac rLvi tFes . Zf :here a r e such c o u n o d i t i s s , then Q(:) is the (n:cl)

~ ( 5 ) i s saua ted t o a l l t h e uses :o - ~ h i c h t he se s o m o d i t i e s x y be ? u t ~ The

F~>. -a ..Lre uses a r e : i ~ t e r ~ e a r a c e demand I(:) , c o n s u ~ p t i o n Genand C(-) , Lnve$tzienc

- decand J(:) , srrvetnnent denand G( :) , nec export deaancl ( 7 ) ar.d azy

L .. . e qcher au:ar.oaous deaand ( ) . aence, f o r each 7 ,

( ,: ) -, f2( 5 ) = -, 7 ) - c< -) + Jt:) - G( 7 ) - Z( :) - :( :) . .9 .5

. - ncv :he Lndi;r',Cual con;lone%s of Ca3ar.d (5.z-., :he rigkc-hand-siie T J ~

r, ( 1) ) , 32i l e s c r l S e how :ke:~ 2 r e 2et!!!r,ixea 3y :!I? ~ o u e l .

-~* I

I z t s ~ , e d L a : s Ceaand f o r 3 c 3 ~ a o a i : ; ~ L s c r e e t e d 5 y i t s use a s 3n

Lxpct i n t o :?.e ?roduc:ion of soze o t h e r ( o r perhaps t h e s a n e ) c o ~ o d i t ~ . I n

o a r fra=lexork, xi. 'nave a sat or' 2 ? r o d u c t i 3 n a c r i v i : i e s rn i cn r z q u i r e i a p t l t s

of co-slodi:iss. Ye a s s u z e t h a t i n p u t s arid o u t ? u t s have a Fixed coeff:,:lent

r e l a t i o n s h i ? , t h a c is , che arnount of .=ounoai:y i r e q u i r e d 2 e r u n i t of

*.

a c c l v i t : ~ j is incispendent of the s c a l e a t xn ich ac t lv i : ;~ j is run. -2

0 , i f :< is t h e s c a l e a: yn ich a c t i v i t y j is n n , ( j = !, , . . . ,a), 31id j

a: . i s :he pe r mi': requirement of comnodity i 5y ac:l-rlty j , then z o t a l ~j

i z t e r z e a i a t e Cenana f o r connodir :~ I is

I Z ;re 1st 1 Se t h e n:cn m t r i x !la; 1 , then t h e veccor caln be - j

I

--+ere : ( is =he v e c t o r of X . ' s a t some tLze T . 3

pt4.-+ A.L.3. Consumption demand

3. 3 o u s e h o l t s i

!;e a s s u s e t k a t household consunpt ion demnd 1s r e l a t e d :o dLs;osab;+

>ouseno;d incore by a l 'near s:<pendi:u:~, s y s t e n . "at i s , f ~ r z_,~er? "-7

- - a d d i z f o n a l ?ound of d l s ? o s a b l e incoae, a ccnstrtnc Etac:l>n is s?e?c1 or. $ 3 ~ 5 -*

L

I . . - ~:oz-,oait:r. . ~ n o t h c r c 3 z s t a n t f;ac:fon ts ;aved. These f r a c ~ i o n s la;?, h ~ ~ e V e = ,

Ir .. -. JT .:ar:r ac ross ::r rar;3n: :ous;holii j r c u p s . .k zex t loned 1:: s e c t l o n ? , :here 1rzg

!:< = 9 , 1 0 , 1 1 ) and their c o n s u n ? t i o n i s assumed t o f o i l o v a s i n p l ? ,

? r o s o r c i o n a l ? a t :ern :

To i n c l u d e t h e c o n s u z ~ p t i o n of Lhese i c s = i : u t i o n s , e q u a t i o n ( ? ) is

r e v i s e d ED:

( 3 ' ; C < 7) 3(1 - s)Y3(:) + 3 + 3*?5e(t) . -

Yote a l s o t h a t s a l e s :axes, e x c i s e d u t i z s and t a r i f f s on non-

c ~ a p e c i t i v e h p o r t s ? a i 2 by t o u r i s t s and o t h e r f o r c i g n i n s t i t u t i o n s can 3 e

Consunpcion by C j p r i o t households is d e t e m i n e d by :he l e v e l of

: he i r d i s p o s a b l e incomes. Ye ncv d e s c r i b e ho-d :hose f acones a r e e a r 3 e d .

- ~ s s e n t i a l l y , houseno lds e a r n t h e i r g r o s s i ncones :krough t h e i r othnershl? of

f a c c ~ r o of ?roduc:iqn. ? a y a e n t s t o f a c t o r s , ip t u n , are Ce?cnd&nt on :he

Le- el of sc:itri:ies ?a :he economy. Sir,ce t h e accivi::? l e v e l s a t ? , :o an e# *--

e:c=?&, 1Lzkec :o c~nsu . ; . p t ion i exand i n the ecancny < see squarfo t i ( I!), rke .9

3 o ~ e Q LS of i he "closed loop" . l a i i ~ ~ y . - * 9 " te . ae2 i ; l jy j e s c r i k i n g how f a t z c r 3aVen:s 3re d e t e n i n e ? . -

a. T a c f 3 r 0a:rcests L. -;I - :h

let ir 5e t h e ~ a y z e n t zads :o t h e s : a c t o r 5 y :he j s j

.~c:fv:'ty when t h e l a t t e r is o?e ra tFzg a t t h e unit :~ -ve l . .% 3i:h ?roductis:!

c c e f f i c i ~ n t s , -de a s s o n e v i s inde2enden t of :f4 . Then t h e t o t a l i n c o ~ e s l -I

a c = ~ ~ i z g t o t h e sth f a c t o r i s -

qo :?,at t h e - l e c t o r of f a c t o r p a p e n t s is

;rher.= 7 = Iv ! azd i s of o r d e r (S x a). . l o t s t h a t v is a row v e c t o r and s j S

:hat 3 is t h e z u a b e r of f a c t o r s .

b. Incomes a c c r u i q t o ~ r i v a t e i a s t i t u t i o n s - To a l l o c a t 2 t h e s e f a c t o r incomes t o i:!stitu:lons, w e d e t e r n i n e t h e

i n s t i : u r f ons ' w n e r s h i p of f a c t o r s from t h e " a l l o c a t i o n s n a t r i x " of t5e SAY.

3:r z o n a l i s i ; . , ~ lac:? co luan or' t h i s aatr i :~, ye o b t a i a t h e f r a c t i o n of t k e t o t a l I endo-ment of a f a c t o r 3 t h a t is ow.ed by i n s t i t u t t o n k , v i z , %s

. L e t t i n 3 w:;. J.r. - J = . ju, AS I , t h e f a c t o r incone a c c r - ~ i n g t o i~ . s t i : u tLons is

3.- - % . .

- >

%"i2 -- hi ( 5 ) '[*( 7 ) = 2!;( ~j .

. I

Tki; i o e s = o t , :2owever, d e f i n e t h e ?re-=ax i:.comss ~f institutions,

; ince c h e r e a r e t r a n s f e r s I n :ke f t p ~ r ' d i - l i d e n a s , L::erest ?oymdnts ~ n d I

.9 r 2 : e l ~ c s i r o n t h e r+s: o f :he zorlb. S:ar:ino, 2i:h h o u s ~ h o i d ; , .;s :lave -

*

-.' * ' ,) . ( = -:?(;) - ( L - z -1; j,. ? , ( 7 ) - : -,-

c .< ,:3r? 7s. 7 :'<- j ,

f r ac : lozs of sos:-rax 7rofF:s = a i d t o s h a r e h o l d z r s i n houssho ld c l a s s X ,

%s and Xk3 a r e :he i n t e r + s t ?a9ents 5y f i n a n c i a l ' i n s and zove rnnsn t on

2 e ? o s l c s and /o r 3onds h e l d by houseno lds and XO!J, d e n o t e s c u r r e n t r s c e i ? t s A<

and t r a 3 s f s r s from abroad.

Tor n o n- f i n a n c i a l ? r % v a t e e n t e r ? r i s e s , w e ha-la

For non-5:xancial s t a t 2 e n t s r ? r i s e s , ye have

( 8 ) ?,(-c) = ~;(s) + [ x - ~ ( z ) - 3 87' 's)] + MX,(~) .

f o r f i n a r c i a ? . e n t + r ? r i s e s , ve have

v'nere and X a k C ; ) deno te i n t e r e s t ? a y e n t s e :o and by, r e s p e c t i v e l : ~ , ?<3

che i t 5 ins:i:ution i? c o n n e c t i o n xi:h i t s b e a l i a g s vi:h t h e f i 5 a n c i ~ l

s e c t o r . .All i n t 2 r z s t Y a p e n t s and f o r e i g n t r a n s f e r s a r ? exogenous :a t h e

i n t h e c a s e of c o u r t s t s , f o r e i g n bases ~ n d o c h e r f o r e i g n ras ibsn:

ins t i t2 :Lons ( d i ? l o m a t i c 3issiqs, e c s .) , i a c o a e s a r l j i v e n by t h e i r

u -

e CO

W

C)

r: 1.1

S->?.:inz t h e :!cdzl

Zquacions ( 1 ) - ( : 3 ) r e s r e s m t 3 s inuLzaneous s:~s:en of l i 2 e a t 4

2 q u s l i = i e s . if t h e inves t aen : e q u a t i o n (13) .Jere a x c l u d e d , ze could s o l c e :!?e

5:rszes f o r each y e a r r by s ; ec i fy i ag 1 2 v e i s I.(t) of :he a c t i v i t i e s 1

?rx!ucixg r r a d e a b i e goods and s:cpor:s ( 7 ) of n o n t r a d e a b l e s . T:le s o l u z i o n A j

- ~ o u l d y i e l d a c o n s i s t s n t s e t of > o n t r a c e a b l e activity l * v e l s , e x ? o r r s of

t r a d e a j l e s and ixcomes f o r a:: i ; ~ s t i : u t i o n s . That i s , t h e incones ?(:)

z e c e r a ~ e d 31 t he z o d e l vou ld be c o n s i s t e n t - ~ F t h t h e l e v e l of a c t i - ~ i t y Ln t h e

ccononp X(:) ( i n t e n s of f a c t o r ?aven t s g e n e r a t e d by t h e l a t i e r ) - and u i t h

:he consumption demands C ( 7 ) izaplisd 5y Y(s) u h i c h , i n t u r n , auso s a t i s f y

t h e = a t + r i a l b a l a n c e e q u a t i o n s .

3ue t o t h e i n v e s t s e n t e q u a t i o n (13), hcwever, t h e sys tem canno t be . ...

s o l - ~ e d f o r each y e a r v i t h o u t r e f e r e n c e t o f u t u r s y e a r s . Quize s i n p i y , 3s n u s t I

knov !IOV o u t y t vill zrow i 2 t h e f u t u r e :o s o l v e f o r t h e denand f o r tnves tz lenr

goods roday , and we =lust know the l a t t e r t o s o l , ~ e f o r o u t p u t s and incones

it is a l s o n o t p o s s l b l e t o s o l - ~ e t h e sys tem " fo rva rds" thrbugn

: h e . TSat i s , xe canno t s p e c i f y a s e t of i n i t i a l c o n d i t i o n s (t = OD f o r t k e

z o i s l , and then d e t e n i n e the q ~ a l u e s of the endogenous -1ariab1es f o r che f i r s t

a = 1). The ~ r o b l e m h e r e is cha t t h e r e a r e aany =or+ s e c t o r s I n i h e . I

~ c o n c a g than :>.ere a r z s e c t o r s ? r o d u c i n s i n v e s t s e n t soods . 3y s p e c i l f y l z g t 5 e

. :..::la: -, sc~ndi: ions, ye ';laV:e i',e~en:.-.ed t+.e vo?use of :n-lestnent goods ?roducea

.. l n t e r s e c c o r n ? ?Llaca: l c n or' l;lces :=en t 1.1 :he ?te7J<;us :;ear, ;;e :ana.J: ;ol-..e

--.I- - ,. ::( --- .. . - I ~ i . 7 ~ 9 : ) .

,. 3y t h e l e a s i 5 i l i ~ : ~ of a ?Lan, ue r z f e r t o t v o zeqn i remen t s .

?:rs:, :he L e , ~ e l s oL oui?uz of n o n t r a d e a b l e s i a p l i s d by :he ? l a a =n~s t no:

.xcceed t h e l e v e l s of c a ~ a c i z y i n r h e s e s e c z o r s . Sec-xd, the denand f o r l a 5 o u r

z e n e r a t 2 d by rhe p l a n ' s gr3wth p a t h a u s t n o t exceed t h e s u p p l y of l abour .

-4s f o r t h e f i r s t , ze f o l l o v a x e t i . ~ d used by ?!anne and 3 c d r a

{I9661 : ;re com?are t h e a c c u a l v a l u e s of t h e o u t p u t of n o n t r a d e a b l e s i l n t h e

ix i t i a ! , y e a r v i i h :he " ? r e d i c t e d W v a l u e s z e n e r a t e d 3y :he -3odel. I f t h e

l a t t e r a r e h i ~ h e r :han t h e fc:?er by :he anount of any a c t u a l excess c a p a c i r ; ~

i n :hat y e a r , t h e ? Ian is i a f e a s i b l e . The r e a s o n i n g 5eh ind t5is a rgunen t goes

a s l o l l o u s . b p l a n is i a i e a s i b l e i f , i n any g i v e n y e a r , t h e r e q u i r e d o u t 2 u t

of a n o c t r a d e a b l e exceeds i ts c a p a c i t y . The backirard s o l u t i o n t e c h n i q u e

a s s u r e s i 5 a t i f i n f 2 a s i 5 i l i t i s s should a r f s e , t hey x i 1 1 do s o on ly i n t h e

f i r s t y e a r of t h e 2 l a n . Thus, ve a s k , "Is t h e r e enough c a p a c i t y i n t!?e

i n i t i a l y e a r t o g e n e r a t e t h e consistent t r a j e c t o r y 3f a o n t r a d e a b l e ouc?u t s

e n v i s i o n e d by t h e p l an?" I f t h e a o d e l - ~ e n e r a t e d o u t p u t i e v e l s of I

n o n t r a d e a h l e s i n t h e i n i t i a l y e a r a r + h i g h e r than :he a c z u a l c a p a c i t i d s of

t h a t y e a r , t he answer is no, and t h e ? l a 3 is i n f e a s i b i e .

Turniag t o t h e second f e a s f b i l i t y check -- t h a t t h e r e be s u f f i c i e n t

l a b o u r -- t he denand f o r l a b o u r in ;ke economy is o b v i o u s l y l i z k e d t o the * -

l e v e l of a c t i v i t y in t h e econosy. 3 i - ~ i d i q g l a b o u r i n t o f i v e s k i l l c a t e g o r i e s ,

ye s s s u n e t h a t t he l a b o u r r e q u i r e n e n t f o r s k i l l t ype r ? e r uni: o u t p u t of

L coe i5 l : i an t .=;I, ?.owever, shans? ove r : h e ~o i ~ o r ? o r 3 t s 2roduc t Lvi:;~ - - - i n c r e a s e s . .it line 7 ,mth.en, :3tal rimand f o r l abour of ::T?e r is :

I * -

- k e , r e LZ- i s a-c=no=cus l a b o n r Cezar?d (317 f o s s 2 ~ z d l i c a r y 3ases ard .

3 e f e a s i 5 i l i t y check :hen Is p e r f o r x i 3y c o q z r i z g de-2 f o r

a k l l l =y?e r vi:h (e:cogencusly g iven) supply o f rke s z z e .

T- --pro-zerrests Fn l z j c u r ? roduc=s~i :y a r e r e p r e s e l t z d 3y a s:oady, -

srzcal growth r a t e :

Zlj (0) 2 ( 7 ) = r j [l i c:

zr j I' Yaw, how c a n t h e zociel 's r e s u l t s shed l i z h t on =he z a r z e t Vari-

ablzs? I n :sect ion 1, v e idezzLf led r h e zovernnent acd b a l z c c e of p . = y ~ e n r s

L e f l c i t s a s two such v a r i a b l e s . :?e 2cw show how 5 0 t h of t k e s e can 5e coz;lu:ed

5 - suiZzb1z razinipulation of :3e o u t 7 x t of t h e zode l .

Since governnent ex?endi:urs is s p e c i f i ~ d exoyenousl:~, :ke d e f l c l :

is 3 e t e m i ; l e d by government ' x o a e . The :a t t a r FS a filnccion of tkq - 1 a r i ~ u s

:axes v h i c h , i n t u r n , a r e r e l a c e d t o the 1a1lei af ~cti- it:? ia t h e economy.

3 i r e c t t a x e s (nec oi : r s n s f = r s ) ;aid t a t k e SDv2rznent a r e :

S a l e s t a x e s , occ. , on households and t o u r t s t s , a t c . , a r e :

... , a r i f f s on conpetltl.:e iaporEs a r e : -

Vihere ' is :he ( r s v ) v e c t o r 3f v o r l d ?rice!; r'cr s i ~ c h o o d s and u' i; 3

(row) . ~ e c t a r of m e s . !:;ot2 t h a t a s ( ) Coes - not c o n z s i n non-con?eti:ive

- i x p o r c s , c = , 1 , ~ ~ r . - c o m p e t i : i ~ e i a p o r t s be%-3 coonodit:r 5 3 . 1 5 2

-" .arLff co1lec:ions an non-conget i t i - ~ e i 3 p o r r s used a s i n t e r n e d i s c 2

i n ? u t s Ln ?raduc:ion a r e ;i7en 3p: -

3

-dhere 3 is :he v o r l d p r i c e of such i 3 ? u t s used i n a c z i v i t y j . 5 3 , j

S i a i l a r l ; ~ , z a r f f f c o l l e c t i o n s on i a ? o r t e d i n v e s t s e n t goods a r z :

;here JjjPG(:) and * (t) a r e t h e p r c h a s e s of such goods by the " 33 ,?!I

governzent and p r i v a s e s e c c o r s , r e s p e c t i v e l y . -

Taxes on production a c t f v i : i e s aay cakz t ~ o f a n s . F i r s t , :&ere aay

2e t a x e s on ou:put. T5e t o t a l c o l l e c t i o n of such t a x e s ( o r s u b s i d i e s ) Is: I

-;here i' is t h e (row) - l ec to r of ad v a l o r e n t a x r a t e s on ?roduccicn. I

Secondl:?, t h e r e a r e K3:teS ( o r s u b s i d i a s ) on the m e of i n t e r r s e d i a t e i n p u t s . I

h t 3: denocz ti@ :a:< subs id;^) on a u n i t of c o m o d i t ; ~ i a~seci a s kaput in - I I

~c:Fjli:;r j . Then t o t a l t axes on i r i t 2 n e d i a t r . - i zpu to a r e : I

- I I -

' f I

<:!.I> 6 ,.--r . * A ( < ) = -1' ?>:i( , I -

* - I = 7~ - ~ ? . e r b - I J : ! ar.d .I' i s 1 ::av) .:ec:3r of 3nrs. ::CLI s i i c e : a rBfs - j

C-J -"---- .,,. -,a3etiziv:c? L=~or :s usec', as Inta=-,edla:. l - p u : ~ :-.ave h e n sllsvkl fsr

- \ \ ., . . . , . I : , : s 3 r e - 1 ) . :ence, -1 :s ( 1 -< ( 2 - L ) ) "

, . -40-

Suming the a jove , -;e o b t a i n ta:al (net) :ax revenues:

s TL(7) + TI:<(:) .

12 addF=ion r o r a i s i n g revenues through :a:ces, the governEent xay

I jorrow f r m f o r o i g n e t s and/or o t h e r cionestis i ~ s t L t u : i o n s . let :he s c r v t c e

I ? a l y e n t s on l o r c i g n ae3 t i n year s be S F L ) ( t ) and gross borroving f r ~ n

I abroad 3e C73(7) . Then ne t borrowing from abroad is :

(32) :ns(s) = GFB(Z) - 3~3(-) . S i x i l a r l y , i f j r o s s jo r rov ing f r o m the donesz ic s e c t o r s is GDB(-) ,

nec d o z e s t l c borrouing by t5.e goverzaenc is given by: I

Gove r~nenc ou t l ay s on cu r r en t and c a p i t a l accounts arc! u 'F( r ) and

-m -he t o t z l de f ic i : is t5e sua of 3 T) and hi3( r) . r

m. To zec a handle on the balance d f pagnents d e f i c i t , i: Ls neces sa r ?

Pr5vacs co r ?o t a t z ; a - ~ i z g s a r e :

;her2 ?Lr3(:) Cenotes =he l e v e l of 2e t f o r z ign Sorzovicg by p r i - ~ a t i

lnscl:ntions in year ( 7 ) .

As t h e s y s t e a of equa t ions above has too -any deg;zes oi i t e edon , ye

-,rlst s ~ e c i f 7 s o w of :he v a r i a b l e s exogenously. Sirice =here is l i a i t e d I

l ionescic jotrowing F a Z ; r ; r ~ s , ve s e t hTB( :) (and hence G D B ( 7 ) ) frcm o t h e r

? r ~ j e c z i o n s , and ve a l s o c a l c u l a t ? t h e s t r e a n of s e r - l i c e payments f r o a tke

f o r z i g n debt ( S F ? ( t) ) independent 1:~ of the nodel. Cansequentl y , r e bolS?e f o r

53r2 i33 borrowing 5y :he goverzncnt ::F3(7) and 'ay :;le ~ r i v a t e s e c t o r

?W3(:) . ?u t ano ther yay, %e ~ b t a i n fr9m the node l :he i s p l i c a t i o n ~ af :he

2 . 1 ~ - ? 2 a t ? l an f o r ~ u b l i c acd ~ r i v a t t f o r e ign Sorrowin3 3y iCezciEyi,zg azd I

aeasur ing the resource gaps which c r e a t e the nerd f o r t h i s borrowinq.

I n ch i s section, -:e 3ave ? resen ted an econoay-vide m d e l j'nic5 can i . r

5e csed :3 :est f o r t he 52asibi l i t : f nf a Five-Ysar I l a n , by capcuriqg che

fz :=rsec t s ra l f lairs acd dynaafc r r l a c i o n s n i ? ~ ;rhich aay c r e a t e " ' ~ ~ ) c ? l a n e c ~ ~ s " - - . . f a r :kt? 1133. rlavirig s p e l l e d ;II= the ~ o d e l , descr-l>e'b the sol.~::s;l :~c;lnF.~ue - - .

and.li ;c-*- f:s u se s , ve nosr cum :o the d ? p l i c a r i ~ ~ m .YP the 1oCe1 LC :?.e . r I ;?91,-i?96 2e.relocxenc ? l a 2 f , r ;::?ruj.

I

Careals 10.7 11 .2 l ocaczes 13.0 13.2 V s g e c a ~ l s s 9.3 9.7 P . , l = F d S 7.9 z . 2 7 - ,;-;esc~ck 20.9 21.5 - s ~ l l 1.7 . m 3a l r:r 1.3 . . - 6.1 5 -5 - . : ~2:: anc t z g e t a 5 l s ca i lc iag - i z a l l 0.: 13 . i - 5:g 3.3 - 5 .a I

3akf 33 - s z a l l 5 .0 5 ..I - big 7 .0 7.2 O tke r food - s c z l l 4 -0 5.1 - 353 15 - 3 15.3 ha i za l f2ed - szall 0 .i 0.7 - j i g 3.5 3.6 - . . So; z c.-l3ks - s z a l l 0.3 0.1 - b i ~ 5.8 6.9 - s x l l 1 .lr . , >:<zlles L .J - b i g 2.1 2.2 P , ,othiz3 1 - s z a ~ l 9.3 L0.2

- 3:s 39.1 $1 .? L2a:her - iall 0.6 0.5 - - j i g 6 .9 I .5 - : 30t;lear - s a a l l 1.1 1.2 - b i g 17. i 19.; ;iood ~racuccs - S Z E ~ ~ L 3.9 3.9

- 3 i 3 5.6 5.3 Ttlrai :urs - xu11 5 7 5.9

- j i g 3.2 3.3 ?s?er - 5-dll 0.3 3.3

- j i g 9.3 l a .o 2-: ' - ' . A ~ t ; 2 3 - s-ALl ! .1 - 9

& . . - jig 3 . 0 .A I ^ % eC14 - -*1-...-<3~3 - s = ~ L 2.2 2 - 5

- j i 3 2 5 . : 2 2 . 3 7 + . ? > F : ..," 7 I _ - ---..*-A 3 - s x i l 0 . i J .a - 553 3 . : 2 .l 3 r l z k 3 - S-XL~ 1: .A (1 . <

- b i g - -. 7.1 1 ._)

C2l2er-i~ : d m ! :'J - 3 '!=:a: 2r~cuc:s - s a l : 5.3 i.!

. . - - - - , - . - 2-5 -3.2 - 2 - 3

?acz:;lsr-i - s=alL 3 . i - - - 2 = . . - - - - 7

. , - - 5 - 9 . - - , . 3 ' I - - . . , = - - - . ,-- . . . G . , d - . z L - - < 1s 2 . 2 . c . - : - 5 = - - -.A - .J

. . T .

. - . - d * 7 3 ..< - . .3

c r e d f t ; o r j e c a u s e t h e govermient L r s e l f aay be r e l u c t a n t t o s e e t h e 2conoa:r

s a d d l s d u i t h a heavy burden of far2i;g d e b t , even if :he Ze5t can 5e s e r ~ i c e d

vit '3out Lnuue d i f f i c u l t y and t \ e t e r n s of f o z e i g Loans do n o t beco3e auch

z o r e onerous 3s t h e l e v e l of i c d e b t e d n e s s r i s e s . TSe l e v e l of a e t f o r e i g n

C b o r r c v l n g eze rges endoqenously from t h e n o d e l , and t h i s i s one r e s u ~ r vn ich

x u s t be zxazized ~ i t h sons c a r e .

The Cyprus ? lann ing Sureau's b a s i c p roposa l f o r 1982-36, a s of e a r l y

1 P R 2 , can 3e s m n a r i z e d a s fo l lows.

. I n a g a r e g a t e , t h e va lue added i n a c t i v i t i e s ?roducins f u l l y :raded

a m n u f a c t u r e d ana a q r i c u l t u r a l goods vould jrow a t roughly 7 and 3

percen t p e r annum, r e s p e c t i v e l y ( s e e T a b l e 5 f o r e x a c t d e t a i l s ) . -

( i i ) Zeal e x p e n d i t u r e s by t o u r i s t s and f o r e i g n b a s e s vould i n c r e a s e ircm

about 288 n i l l i o n i n 1982 t o about S113 n i l l i o n i n 1986 ( b o t h i n

( i i i ) Xeal c u r r e n t e x p e n d i t u r e s by :he goverllnent -aould r i s e a t 3 per:ent

a year .

% i i e :h is P l a n jroducod a f a f r l y a c d e s t r s t c of ~ r o w t h CDP r . I

l a b o u ~ i.5 3 e r c e n t Fer annun) by :he s t a n d a r d s of 2975-81, i r !s b o t h

?nconsis:ent and i n f ? a s i 5 1 2 . 3 2 inconsis_tency ?s ? l a i n Sron t he 51c: t h a t - :5? 7 s e k e n t srovth La t r a d c a b l e s - r e a t e 2 a i, (izd ao: 3 , ? e r c e n t grouch r a t *

in ~ o l t r i d e a i l l a s . .is :o -.!I. i n f a a s i b i l i : % f i r s t , i c e n t a i l s heavy e x c e s s I

dzgand f o r s k f i l e d i l . 1 e c - 1 1 ~ ~ v o r k e r s izhr?ughou: t h e ?:an, and f g r

. . a=r : c .~~ : -~ ra l v o r k e r s a t the :lose 3 5 t h e ? l a n . .lltl-Lou,:h :he f lq -~r s s in 1 3 b l e

- 1:2 2s: rg Se :sXez l J . t e r s l l ; r , not o n l ; ~ Secsuse a l l as:iaat2s a r e

t a j l + 7. !:2..el~loved ~ o r k e r s 5y S k i 1 1 7s:e.zoyr i2 t h e ' 2 l r s t Try' ?Ian*

S k i l l Category - 1982 1353 ~ 9 3 ~ - 1995 - 1956

' r o f e s s i o n a l , t e c h n i c a l and 3 a n a g e r i a l - 2,759 1 ,666 1,615 1 , 6 5 1 L ,921

' -?i i~2 c o l l a r ( c l e r i c a l , salrs scd s e m f c e ) 5,357 7,008 7,5S7 3,139 3,517

I

S k i l l s d b lue c o l l a r -2 , i 5 6 -& , S " 3 -6,701 -7,539 -7 ,722

Ssai- and x n s k i l l e d b l u e c o l l a r 2,000 11367 3C9 i 3 2 59

*A x e q a t i v e e l t r y i n d i c a t e s e x c e s s deaacd.

I

inherently ? tone t o e r r o r , bur a l s o Secause t 5 e r c is soxe scope f o r i n t e r -

o c c u = a t i o n a l x o b i l i t y , n o t too ~ u c h comfort can be d r a m from :he l a ~ t t e r . The

ev idence in qouse [ t o S l ] , vhich i s reproduced h e r s in :able 3 , f o r t ~ h e r a ~ h e r I

t u r 5 u l e n t ~ e r i o d 1975-2979 ( i n vh ich one ~ o u l d expec t h igh a o b i l f ::I)', suq3es:s

t h a t t h e 2 r e d i c t e d e x c e s s de3and f o r s k i l l e d b lue c o l l a r uorkers will1 n o t be

2 e t 3y aovegenta of v o r k e r s frcm o t h e r c a t e g o r i e s . Over t h e l o n s e r run, C . *

r e t ~ a i n i n g ?rcg:;zmes, chanqes i n :5c struc:urc of vages and s a l a r i d s , and a

r.shaoi?q qf :>e aduca:ionsl ; r s t e n x i q h t , f x combinat ion, 5ring ~ b q u : t h e a *

f r171.t a o r t 2 f c h a ~ g e s :2 l abour suooi:es: but t 5 e r a112 . ~ n l i ' c e l y t o ~ralte - * : . -ezsel .~es 521: $1 1 9 ? 6 . C v c r s l l , even if l ~ b c u r v e t ? -er f .c t ly z1ow12 mong

I t 3 ' x : .,-. 7 caco_o,orJ-es, :he 3reui::ion 13 :hat :>e 1a5our x r ! c e r _ . ~ o u l d 5eQt?ae

- - T'e next consid;ea:ion is ;"nether t k e r e is s u r r i c i e n t capaci:: in

? l a c e r o F r ~ d u c e non-traded zoods i n t?.e f i r s : y e a r of t h e Zlan.

U n f o r r u n a t e l p , v e do n o t I a o - ~ v h a t t h i s c a ? a c i t y i s , s o t h e p ruden t

( c o n s e r ~ a c i v e ) t h i 3 3 :3 do i s t o s o l v e t h e =ode1 Sack a s f a r a s 1373 and -

can?are :he sodel ' s p r e d i c t i o n s of =he l e v e l s of a c t i v i t y i n t h e s e c t o r s

?roducLzg non- traded goods =L:h t h o s e ia t h e SAY i t s e l f . ( F o r c o n p i e r s n e s s ,

T z j l e 3 a l s o r e p o r t s t h e p r e d i c t i o n s f o r 1973 and 1980, s i n c e u p - t m B a t ~ an?

r e l i a b l a e s t i a a t e s f o r those y e a r s s a y 5 e a v a i l a b l e soon.) Once a g a i n , t h e

? i c t u r e L s by no =cans r e a s s u r i n g . -4ssurniq t h a t t h e a s t i a a t e s i n t h e SXi

r e o r e s e n t f u l l c a ~ a c i t y workinq , t h e r e i s s i 5 n i f i c a n t exces s demand 3 r out;tut

i n t h r e e key s e c t o r s : c i v i l c ~ n ~ t m c t i o ~ , n o n - r e s i d e n t i a l S u i l d i n g acd

:rade. I n agzregaee , e x c e s s demand f o r non- traded goods i s a l s o l a r a e .

TaTnless t h e r e is sc rong evidence t h a t t h e r ~ vas a l o t of unused c a p a c i t y 5 3

t h e s e sec:ors i n 1379, i t is hard zo r e s i s t t h e c ~ n c l u s i o n t h a t t h e ' F i r s t

-..- - L & / is i n f e a s i j l e on t h i s second c o u n t , a s -dell a s :he f i r s t ( l a b c u r

s u p u l y ) . The a r r i v a l of e v i d e ~ c e on such ou tpu t i n i379 ar.d 1980 adp,

?loue*rer , :Jarrant some r e v i s i o n .

T h i r d l y , u e t J r n t o p u b l i c f i n a n c e and t h e S a l s n c e of payaents . The

;overxnenr's o u t l a y s on c u r z e n t consumptfon, i n r e s t x e n t , t h e s e r v i c e o, .~ I f U

f o r e i q n deb t and n e t c u r r e n t z r a n s f s r s a r e +xogenously , ? i v e n . Z / ".:a!. :ax

- :=venues, 57 c o n t r a s t , a r e endoqenous, so t h a t -di:h n e t d o a e s t i c 3 i ~ f ~ 3 ~ i z z - '3

~i.;??. ?xo?enousl:r, new fote_F33 borro-vtng ( o r l e n d i n g ) jy :he 2 o v e r r a e n t is - - - 1 ! e t 2 n i z e d 3s I res i j l ,ua l . .IS air2ad:r noted i n section 3 , s f n c z qovir-;next r

m h

i-.veseze?: Fs exoqcnous, ? r <-lace f o r e i g n 5orrouir.g is sr.dogenous.

-. -.e - ! e t a l l e d r2sul:s f o r ::te :?a:ar.ce of ?a:rJe?rs 3 r 2 se: , t i t 1.7

- - -- - 5 . 3 e s e flows 2 5 f 3 r e i q n sa*;',2gs clverage sou: ? -,er:en: 2 : ,d?, 3

, g r ~ ,,o ~ ~ h i c h 5s sozevha t l c ~ e r t h a n =>a t i n cke ? e r i o d 13it?-1?~?0, j u i s:lll - ,.-.= ,..-us:2Lcably :7f gh [3ack G = C:73=-:s, 19911. Ct-er :he C D U T S ~ 35 t h e ? I a n , :3.z

,,, ; c r=fo lLo abrcad , I3 zedi:ion :o qcvs rzzecc S u i l d s u , ~ a scall i z c r l a s e 53 ' * -

=s~:Fzg Its d e j t se r - r i c ixg o b l i g a r i o n s . T5is s q c a r e s q u i t ~ w e l l ?JL:S rhe -zak

a s s u z ? t i c n l ~ n e e = ? i x i n g :he ? r o j e c t i o c s of t k e leb: serv! - 2 ?aF.encs hi:>

Table 9 . E'roduction X c t i v i c 7 Levels iz t 5 e '?<=st 1 7 7 ' ? h E -- ( # ~ l l i c c 1973 ? r i c e ~ )

. * va te r 3 .-525 3.546 9.311 9.137

Yotc l s and r e s t a u r a n t s

C2nnni1:cat ions ! 1.25i3 1: .A71 11.305 i 3 . 2 5 0 I*

'.-nancLal se r - r i ces 2 5 . i 2 7 25.319 2 5 . 2 1 7 2 7 . 3 5 0

?2ucs t ion l i . 7 3 3 17 .;3L j :? . 3 j 8 2'3.891

- - 3 5 1 ~ 7 0 . 3112nce o f ?=:nen:s i n t h e ' l irs: Tr:rO ?Laz: 1392-19?i ! illi ions i n 1373 ?ri:es)

- -.:cyorcs ( z e t of c o n s e t i : ivre i a p o r t s ) 75.0 7 4 .i 8 4 . 3 9h .S 104.5

' I o ~ - c o n ~ e c L t i v e i m o r t s

'725 I a v i s i S l e e a r n i n g s"

p r i v a t e So r rowing

* i 3 c l u d i n g n e t r r a n s f e r s f r o n ab road , l z s s repazments of ? r F n c i p a l and i 2 t e r e s t on f o r ? tgn d e b t .

-4er.t i n r o t h e ? I a n a s Tar: of t h e exoaenous c o n d i t i o n s , so no -2serva: ions a r e

D l a i n l y , the l e v e l of r e a l a b s o r ~ t i o n n u s t be reduced i f ue a r e t o

o j t a i ? a f e a s i b l e * ss ye11 a s c o n s i s t e n t , growth pa t f i . Xs t h e g o w r 2 q e n t a s

c u r r e n t o r l t l ays a r e ? : q j e c t ~ d t o qrov 3: o n l ; ~ 3 p e r c e n t a :rear and s t i f f

s o c i a l s e c v ~ r f : ~ :axes =lere i a m s e d i n .110Sl, ;he bu&en of 3d:ustae.l: ~ u s t 3

I

~ r o r i u c z i 3 n "7i:c" c n v l s i o n e d 37 :>r plan 's 2 u t h o r s , -4e t ~ ~ o s e a sec of a n n u a l ,

u n i Z z r ~ 3r300r:Iccdl ' 1 3 ~ ; 13 311 ::lese actlvi::r l e v e l s , ~ n i c ? . ::~?uia:$ r s I I0

?s rc+n t r e d u c : l ~ n 5 : :?e ' F i r s t Yr-7' 3z-;-~1:;7 - - leve:s f ~ r L??6. 3 e fn;:

1 I . TSe S r s u r 3 b t c s D I '?3l-e Added 3y S e c t o r : '3evised0 ? I 4 3

'!ininz and q u a r r y i n g 0 .I -1 .? -3 .O 3.5 13.5 I

e - "agufac t u t i z g 3 . t 5.3 4.7 3 . 9 k - 2

I

3 l e c t r : c i t : ~ an? v a t e r L . 1 3.6 3.6 3 . 3 P . 5

C o n s t r u c t i o n L.3 2 .i -1 .L -7.1 l b . 3

y r a n s ~ o r t and conmunica t ions i -3 4.5 5 .6 5 .S 1 . 7 I

' ~ l o l e s a l ~ and r e t a i l t r a d e s 2 .i 3.5 3 . 1 3.3 1.1

?anking and r e a l e s t a t e 15.3 4 - 5 L.3 5 . 5 , 14.9

'ublic a d 3 i n i s t r a t i o n ? ..3 2.5 2 ..5 2.3 '2 .9 I

Szr-rites 6.7 5.6 5 - 3 5 -1 6.9 - I

"ousiny 3 . 3 3.5 3.2 2 . 9 l5.1 I

7 ~ Tab le 1 2 . GDP and ? r o s s Pf:sed 'Eavestxent: '?evLsedO ? I a n 1

( 4 a i l l i o n i x 1979 ~ r i c e s ) . t

i ' I

I

1952 1983 :a35 1985 1086

GD? a t f a c t o r c o s t

, t r o s s f ixer! i a v ~ s t z e r . ~ 1 5 5 . 2 1'33 .i 173.3 1 3 6 . 7 i ;71.3 - o f -;hick: ?ov+tn=ent 5s .L 33.3 1, 32.3 .

Ii3 1 3 1 . 5

~r i r a t e I:?.? 130.3 I S 8 .O 151.9 I YLO.0 ~

. .. ..,,-pre i n c ~ ~ s s ate concerned, i t is of i n t z r e s t t~ look a t t he rz:as

3? z,rg;rr? o f post- tax i n c m e s cf i z s t f : u t i ons , -ahTc'~ a t ? a s fol lows: I

I n s t i t u t i o n A-r+rs?e ancna l f r o v t h d a t z I

~ o u s e h o l d s : r u r a l l o v e r ~ ~ r a l upper urban lower u r i a n upper

I ; t a t = e n t e r p r l s e s b.? I

I

I t

y5e d e t e r i o r a t i o n i n t he d i s t r f 5 u t i o n of household incomes is u o r t h nh t i nX . I

As be'ore, Tie now s x a i n e t h r e e key aspeczs of S e a s i 5 i l i t:r. ' iherz

:5e labour qarkec is concerned, Tab le 13 i n d i c l t e s t h a t t h e 'Rev'.sedO(?lan is I

a l l - r oo - i ?a s ib l+ , t h e r e being a a:ead:r r i s e not only i n t o t a l u n e a p l o b 2 n t ,

Sut even i n t ? c numbers of s k i l l z d b lue c o l l a r oo rks r s . 37 t 5 e end o t h e I ? I a n , t 3 e over311 u n e n p l o ~ e n ~ r a t e reaches about LO 7e r cen t . ~

L

Table 13. Znenploged Yorkers by S k i l l Category: 'Revised' ?lhn

S k i l l Category 1 9 8 2 1984 1983 1946 - 1983 - - 1 -- ' r o f ~ s s i o n a i , t e c h n i c a l 3,4759 3,276 3,355 3,363

and m n a g e r i a l , ,

' h i t2 c o l l a r ( c l e r i c a l , 7 ,375 a ,573 3 , 5 6 8 10,S75 s a l e s and s e r v i c e ) - -

;k l lLe ig5 lue c o l l a r .L

- 1,383 1 ,911 3 , 7 5 6 5,10L

Seqi- 3Sd unskillzd - - 1 9 : , - L - 2 , 3 2 9 2 , 3 2 9 ? ,;35 5l.xe milar ..

- - 3 . , ,7 - ?* - L L c - c ~ ~ ~ A '- -733 93 0 7 39 533

- - 7 ~ r n i a q t o t 3 e 2a:rzr gf t k e c a o a c i t y t 3 :raduce non-tzadzd g ~ o Z s ,

I

Tab la 15 i n d i c a t e s a t w h i l e t:-'.e ' 3evtsed ' T l a n 5s u n c ~ l c s t i o n a b l y an ~ ~

L a 3 r ~ v o e e n t a v e r t h e ' F i r s t Try', t h e 9osi:ion i s s t f l l n o t vho1l;r

s a t i s f n c t o r p . T h i s s u g g e s t s t3a: f n v e s t a e n t s i n t h e s e s e c t o r s ~ u s t 3el I

sozevha: l a r g e r t h a n r3ose i 3 p l f c i : i n Ta5 le 11, e s p e c i a l l ? i n 19S2 a& I I

3 . ?.e s e c t o r s ?reducing t r a d e d gsods vould t h e 2 sr2v somewhat 20r~2 S ~ C W ~ : J I

i n :he e a r l y :?ears nP t h e ? I a n , jut sozerihat C a s t e r i n latsr p e a r s . $ 1 ~

f i g u r e s i 2 Tab la 1 3 sugges: t h a t :hers shou ld be enough l a b o u r t o a c c h n o d a t e

r e l a t i v e l : ~ z i n o r a d j u s t z e n t s of t h i s s o r t .

S X? :?ode1 ~ , -* - S e c t o r 1975 p 1378 1979 1980

I

?lec:rici::r 13.730 13.965 L A .Oi5

. J a t e r 5 . L25 '3.393 8.759

Cons:tuc: Lon - ci-:?l 18.345 3 . 1 2 5 15.966

y ~ ~ i l ? i z q - non-res i d e a t i a l 21.561 29.551 i ,107

? u i l d i n g - r e s i d e n t i a l * 69.373 69.973 7s .if33

? o t ? l ; and r e s t a u r a n t s l?& .768 ? $ .3 12 27.2613 7. r a n s j o r : 5 2 .859 5i.OS.5

7 i n a n c i a l s e r r i c e s 24.627 25 . w 5 2 5 . 5 L 9 2 i . i i l 5

? L n a l l y , t h e r e is :he b a l a n c e o f payxents . Z e r e , t 5 e cosi : ion f s I

xuch z o r e c o m f o r t a b l e , t h e t o t a l i z f l o v of Eore i sn c a p i t a l ? u r i n g :be

'Xevised' ? I a n be ing o n l y a q u a r t e r of t h a t i n t h e ' Z i r s t Try'. One

? i f f e r e n e e v o r t h n o t i n g i s 'ha t t h e z o v e r m e n t now i n c u r s nsVa f o r e i g n 1 I I

l i a 5 i l i t i e s ove r t h e c o u r s e of t h e ? Ian . T h i s i s e a s i l y e x ? l a i n e d : tax (

r evenues S rov v i t h G3P ( v h i c h i s nov l o v e r ) , ; i h i l t o u t l a y s a r s exo3enousl1 :~ I

<*e l . Converse ly , t h e ? r f v a t e s e c t o r h a s t o r e s o r r f a r less t o f o r e i g n ~ I

f i nanc inq ; f o r v i t h i n v e s t x e n t s 5y :he g o v e r r u e n t f i r e d exogenously , ? r i . ?~a te

Lnves txen t f a l l s more s h a r p l y t h a n p r i v a t e s a v i n g s a s a r e s u l t of t h e fall1 i n

:he r a t e of growth i n G3P.

5 x ~ o r t s ( n e t 3f c o a p c t i : i - ~ e irnoorrs) 3 7 . 5 90.2 95.1 9 9 3 . i I

of wnich: nev z o v e r x n e n t Sor rov inq L

p r i v a t e borrowing

'3 I I * i r i c lud tng ne t transfers froa 15road. less t23ay3en t s of ? r i n t i ? a l acd kntzces:

:n fo re<- j e 3 t . - Ir - * I **? 2eqatLvew I i g q r e f x d i ~ a ; i ~ a n o ~ i t f l o ~ ~ , i.?. l c c d i n g . I I

~ 6 - I

. A i l t S i n 2 s c o z s i d e r e d , :he '?zvised' ??an a p p e a r s :o 5e fe3s i5Xe -- z r 3 v i d e d s u f f i c i e n t l ?ves~=e? : s 3r2 jad? e a r l : ~ on 5 2 :ie s z c r o r s ; roduci~ng

I

I

I yo r z c a ? , v e have sho*.n t h a r t h e ? r 3 ? o s a l s d r a m up 5y =Ye , ? l a m i - %

q u r e a u a t t h e end o f iW1 do n o t c o n s t i t u t z a f e a s i 5 l z ?Ian . 3espi:$ :he

n o 2 e s t r a t ? of g r a v t h of ? u b l i c c o n s u n p t i o d d u r i n g :he 2ir3 and tYe t i f f 1 f n c r s a s e s i n s o c i a l s e c u r i t y t a x e s which c a z e i n t o 2tfec' . i 1381, t t e ta::ets

I

1 f o r t h e qrowth nf e s e c t o r s producing f u l l y zzade2 , ~ d s ( ? r : n ~ i p j 1 ~ I

= a c u f a c t u r e s ) a r e j u s t too a n b i t f o u s i n t h e l i g h t of f u t u r e s u p p l i e s of l a b o u r I ~ 2.d t h e c a p a c i t y :o produce . o w t r a d e d goods a t t h e s t a r t of t h e ? l a + .

I foreover , even Cr' one v e r e t c i g o r e sucn c o n s t r a i n t s on t h e s u p ? l y i d e , such I 1 a growth p a t h vou id r e s u l c f n a h e a v i e r burden of f o r e i p ~ n d e b t e d n e b s than

t h e ? r e s e n t , vh ich :s i t s e l f w i d e l y c o n s i d e r e d :o te unsus ta i ; ?ab le .

Lacking t P e d e t a i l e d knowledge o f , and 2rp;r:ise on , i n d i r k d u a l

I I

sec:ors possessed by t h e ? l a m i a % a u r e a u , our r e v i s i o n s t o t k e l u r e a u e s I I

- 2 r o p o s a l a r e a n y t h i n g b u t r e l i n e d . Yet, <n s a k i n g cross-the-board ,I

I x o s o r t i o n a l c u t s i n rhe p r o j e c t e d o u t p u t s of s e c t o r s 7 r ~ d u c i i l g f u l l ( y t r ~ d e d

P

. i i l i c b ' ~ ~ ~ grows a t 3.9 p e r c e n t a g e a r . An t = ? o r t a n e f e a t a r e st Chi] ? I a n , I

~ o o d s , z e have r e s p e c t e d ;he r a l a t i v e ? r i o r i t y accordcd :o t hen 5 : ~ ,.

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t o o t n o t e s

3 3e s u r e , 1.: i s t h i s a s s i m ? t i o n which i s 3e ing t e s t e d when I;re t e s t f o r the f e a s i b i l i t y of t h e Five-Year P lan . -1s e+?la ined i n s e c r i ~ o n 3 , -Je p e r f o n t h e r e s t 5y assurnins t h a t c a p a c i t y i s +qua1 t a deaand f o r n o n t r a d e a b l e s f o r a l l 5 u t t h e i n i t i a l y e a r of t h e g lan. Fe tihen c o a p a r e t h e c a ~ a c i t y i n t h e i n i t - i a l yea r which i s r e q u i r e d t o generatle t h i s f e a s i 5 l e trajectory v i t h what i s , 13 f a c t , a v a i l a b l e i n :he f l i r s t yea r .

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T P such a n i 3 f e a s i b i l i : y o c c u r s a t t h e v e q ? b e g l ~ n i n g of t h e p l a n and :here is some g e s t a t i o n pe r iod S e f o r e invosrmeqt i n t h e sectolr i n q u e s t i o n x t u r e s , :hen t h c r o i s no th ing t o 3 e done Sur f o r thk o u t ? u t a5 . t r a d e a b i e 3oods t o be c a t . T h i s i s t aken up a t soce 1 s n g t h 5h s e c r i o n i.

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If t h e r e is b u t one primaqf f a c t o r , t h i s r e s u l t goes through even i f t h e f a c t o r i s no t i n p r f e c c l y e l a s t i c supply . I n f a c t , i t 1s s i b p l : ~ a r e s t a t e m e n t of she n o n- s u b s t i t u t i o n theorea . 1

I

These d a t a , and mos't of t h o s e appear ing e l sewhere i n t h i s se!::on, a r e dravn l a r g e l y from Cyprus [1982] . I

The f i g u r e s from 1973 a r e 30 p e r c e n t of t h o s e f o r t h e undi-ridLd i s l a n d , t h i s being t h e p ropor t ion > f Greek C y p r i o t s i n t h e ? o ? u l a t i o n a s a uhole .

The deve1oonent of SAY'S a s t o o l s f o r p o l i c y a n a l y s i s owes mu h t o ? y a t c c and h i s c o l i a b o r a t o r s [1973, 19771, who havc b u i l t on the e a r l i e r work of Stone.

Tlenceforth, ;be n o t a t i o n ( i . 1) w i l l r e f e r t o the e n t r y i; thb c e l l f o m e d by :he i:h row and j t h columt~ of any t ab l sau . ,

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!7e r e s o r t z d t o t h i s s i a p i i f i c a t i o n when h ~ i l d i n g a SAY and xode l s f o r t h e Xuda r e g i o n of nor thwest Ya lays ia . Our r e a s o n s

I

Al;hou,?,h i t was conducted be ?;re t h e de f a c t o p a r t i t i o n of :hL I s l a n d , -- . I

the s u m e y had onl:r Greek-Cypriot % o ~ s e h o l d s i n the sanp le . hence , ve

a s s o c i a t s d ?or s o

can app ly tks s u r r e y d a t a t o t h e 1973 p o p u l a t i o n o f t h e xepub / l i c of Cy7rus v i t h some conf idence. I

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doing a r e set o u t i n ? e l l , 3 a z e l l and S l a d e [1982]. ~

I - i

These c c n p r ? s e ? . 7 p e r c s n t a r l 35.7 Fercen t of a l l r u r a l a n d u r j a 3 g i o u s e h o l d s , r e s p e c t i v e 1 7 . :he c l a s s l a t e r p a l s a r e no:, 30-:ever, ;+8 s m e ; it t n r m oug t h a t both m p e r inccme xr3ups account Z3r ?orcen t >f t \ e :%a1 i 2 c s n e rece ived 2~ t h e i r r + s > e c t i v e c a t s

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3 e debt ser- r ice ? a G e n t s shou ld , of c o u r s e , be endoe5nous; 5&r s i x c n the -oriel is solved 3ac!cvards, ue l u s t guess .;hat :hese flows ~ i l h 3 e . Jus: 13 ve did i - : t i e case of the a c t i v i t y I e v ~ I s i n the s e c t s r s ? r 3 d u c i t g x o n - ~ r a d e d ~ o o d s dur ing t h e 2 0 s ~ - t e n i 2 a l y e a r s of t k e ? I a n .

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I

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Tinbergen, J a n . '*Some l e f i n e r n e n ~ s of :he Semi- Input-Outjut :?etb4d, ' P a t i s t o n neveloornenz 3eview - 6 : 2 4 3 4 7 , 1966.

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I ':>!IDo. C u i d e i l n e s f o r ? t o j e c t Zva lua t ion . Yew York: Vni:zd Ya+fons, 1972.

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World Bank Document...Clive Bell a5d Shantayana~ Devarajan June 1982 h - .. -$ Note: - iliscussion...

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Transcript of World Bank Document...Clive Bell a5d Shantayana~ Devarajan June 1982 h - .. -$ Note: - iliscussion...