Empirical Estimation of Parameters

Table 23.1 shows that l ranges from 0.3 to 0.6. Taking the average value for four periods corresponding to low income and middle income country group, l becomes equal to 0.5 which is the same as other authors' estimate [39].

Our calculation of 6 using data from International Monetary Fund Financial Statistics is shown in Table 23.2. Countries are chosen based on available elasticities estimated by other authors. The values for 6 are averages of the ratios of current account credits to total current account credits and capital account credits from 1989 to1998, depending on available data. For instance, for Canada, 6 z 0.97, ^z1 + (0.97)( — 0.83)+—1.02z —0.83, and — 4IZ—( — 0.83(0.5) z 0.41. For the countries listed in Table 23.2, the modified ML condition is satisfied, i.e., 4<0. The analysis in the next section is based on this ML condition being met.

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