July 9, 2009

Balance of payment problem

Objectives, Questions and Hypothesis

The investigating of balance of payment problem, focusing on the effects among financial institutions particular to the banking industry as the research may bring in desirable possibilities that, Tanzania can follow and execute ample ways according to research context and informative basis that deals to balance of payment and its underlying problem. Research spontaneity and preciseness is vital for the overall organization of literature, also methods used in research being part of study assimilation.

  1. What is meant by balance of payment? How does balance of payment problem happen?

  2. What are some of the consequences of these payment problems? How to it can be avoided?

  3. Is there a theory/model directed to balance of payment problem? Give example (at least 1-2) and elaborate

  4. What are several factors that affect and influence balance of payment problems? How is it manifested?

There can be claims that certain balance of payments crisis is to be found in the prevailing high degree of capital mobility and financial globalization of the institution, as under circumstances, shifts in foreign capital flows and anticipation of a banking system bailout may produce large imbalances between stocks of financial assets and foreign reserves, threatening the sustainability of balanced payments as there adheres to several reserve losses as accounted by the payment crisis. Thus, large financial imbalances do serve as a fertile ground for the crises which leads to some devaluation producing in deep recessions and might be treated by appropriate financial policies. Research base on the balance of payment problem, according to secondary sources that links to researches that implies a literature ground. The proposal will review recent theoretical literature on balance of payment and its known problems as based on real world observation, there is a need to discuss literature insights.

H1: There is positive effect of balance of payment problem in the banking industry

H2: There is negative effect of balance of payment problem in the banking industry

Examining relationship between changes in international reserves and changes in balance of payments in Tanzania from a short run economic model of the balance of payments that will be formulated and estimated as such output and prices are recognized and behaviors of monetary and fiscal matters are clearly modeled. The monetary variables appear to have played a relatively significant role in the development of prices, but they were only marginally significant in the process of balance of payments adjustment. The simulation can indicate that tradeoff existed between faster economic growth and better balance of payments performance.

Sample Literature

For literature, some policy makers argue that deficit is easily financed, temporary and not sign of structural weakness, the conditions in which it is appropriate for country to overspend its current income with the intention of repaying loans out of future income. Following review of operation in mechanism of balance of payment adjustment according to Mundell-Fleming model, literature implies to modern analysis of dynamics about balance of payments adjustment under flexible exchange rates. The general framework will be applied to characterize case study and survey interaction between balance of payments and certain equilibrium with discussion of empirical issues into the balance of payment theories/model as well as analysis. Cline and Weintraub (1981), have indicated that, "balance of payments problem sometimes appear to be endemic disease among developing nations as current economic orthodoxy teaches, in order to qualify for short-term international loans to tide over the present crisis, country should first enact package of reforms to remedy the situation in the medium term" (p. 149). There were no apparent link balance of payments and banking crises, when financial markets were highly regulated, following the liberalization of financial markets across many parts of the world, banking and currency crises become closely entwined. Most often, banking-sector problems predate the balance-of-payment crisis, knowing that a banking crisis was underway helps predict a future currency crisis. The financial vulnerability of the economy increases as the un-backed liabilities of the banking system climb to lofty levels.


For the method, the survey will be in form of case analysis which will be examining causes of balance of payment problems, gauge the vulnerability of the economy on the eve of crisis, to assess whether the crisis itself could be forecasted by financial development, the need to make sets of judgments, to define notion of what is classified as a crisis, agree on list of variables that are potential leading indicators and to determine if crisis happens within reasonable period of time of banking and balance of payment crises. The core methodology can be using a survey method as there places an ideal interest to balance of payment integration from such problems centering on banking industry from the field of financial laws and regulations. The need to identify and assess model of such balance of payment problem/crises

Cline, W. and Weintraub, S. (1981) Economic Stabilization in Developing Countries. Brookings Institution, Washington, DC p. 149

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