TRENDS AND CYCLES IN IMPORT PENETRATION IN THE UK: COMMENT*
| Published date | 01 February 1979 |
| Author | R. A. WILSON,J. D. WHITLEY |
| DOI | http://doi.org/10.1111/j.1468-0084.1979.mp41001006.x |
| Date | 01 February 1979 |
TRENDS AND CYCLES IN IMPORT PENETRATION
IN THE UK: COMMENT*
By J. D. WHITLEY AND R. A. WILSON
INTRODUCTION
In a recent article in this journal Hughes and Thiriwall [1] conclude that, for
many industries, cycles in import penetration ratios at the MLH level are
positively related to demand pressure in the labour market. While the implica-
tions for manpower policy are not alarming if increases in import penetration in a
boom are correspondingly offset in a recession, Hughes and Thirlwall go on to
argue that there is a ratchet effect on imports so that cyclical increases in penetra-
tion ratios fail to be reversed in downturns.
This paper attempts to show that, not only are the results of Hughes and Thin-
wall less significant than they appear to conclude, but that the paucity of observa-
tions and their methodological approach produce results which are not supported
by fuller analysis. In particular the use of additional observations and alternative
tests of the importance of capacity constraints on import penetration produces
little support for their case.
We begin by examining the approach adopted by Hughes and Thirlwall in
some detail and note its shortcomings from a methodological and analytical view-
point. We then proceed to consider the role of capacity influences on a set of
conventionally specified import demand functions over the period 1954-75.
A CRITIQUE OF THE HUGHESTHIRLWALL APPROACH
The first page of the HughesThirlwall paper contains the statement,
'The main factors influencing the growth of imports are the growth of domestic
incomes, changes in relative competitiveness of domestic goods and changes
in the capacity of the domestic economy to meet the demands. .. placed
upon it.'
They continue however by stating that,
'We are not concerned here with the first two factors,
This highlights our first criticism of their approach which is that they appear
to beg the question of what has determined the increase in import penetration in
the UK economy by assuming at the start of the analysis that it is constraints on
the supply side that are responsible and relegating the two other factors to the
role of a time trend. We argue in this paper that the role of demand and relative
competitiveness must be considered explicitly and that the importance of capacity
influences can only be assessed in the context of a fully specified model of imports.
* The research discussed in this paper is part of a larger programme conducted by the
Manpower Research Group and financed by the Manpower Services Commission.
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