short-term responses to trade and incentive policies in...
TRANSCRIPT
Short-term Responses to Trade and Incentive Policiesin the Ivory Coast
Comparative Static Simulationsin a Computable General Equilibrium Model
Gilles MichelMichel Noel
WORLD BANK STAFF WORKING PAPERSNumnber 647
f . .. - Ar @ q , .J
I;'V1' fei0,
Vfi -'- ' l~Sdf l1i
S .w - S . | .1
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
WORLD BANK STAFF WORKING PAPERSNumber 647
Short-term Responses to Trade and Incentive Policiesin the Ivory Coast
Comparative Static Simulationsin a Computable General Equilibrium Model
Gilles MichelMichel Noel
The World BankWashington, D.C., U.S.A.
Cc-pyright © 1984The International Bank for Reconstructionand Development S THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433, U.S.A.
First printing June 1984All rights reservedManufactured in the United States of America
This is a working document published informally by the World Bank. To
present the results of research with the least possible delay, the typescript has
not been prepared in accordance with the procedures appropriate to formal
printed texts, and the World Bank accepts no responsibility for errors. The
publication is supplied at a token charge to defray part of the cost of
manufacture and distribution.The views and interpretations in this document are those of the author(s) and
should not be attributed to the World Bank, to its affiliated organizations, or to
any individual acting on their behalf. Any maps used have been prepared
solely for the convenience of the readers; the denominations used and the
boundaries shown do not imply, on the part of the World Bank and its affiliates,
any judgment on the legal status of any territory or any endorsement or
acceptance of such boundaries.The full range of World Bank publications is described in the Catalog of World
Bank Publications; the continuing research program of the Bank is outlined in
World Bank Research Program: Abstracts of Current Studies. Both booklets are
updated annually; the most recent edition of each is available without charge
from the Publications Sales Unit of the Bank in Washington or from the
European Office of the Bank, 66, avenue d'Iena, 75116 Paris, France.
Gilles Michel is an industrial economist in the World Bank's Industry Department,
and Michel Noel is an economist in the West Africa Programs Department II.
Library of Congress Cataloging in Publication Data
Michel, Gilles.Short-term responses to trade and incentive policies
in the Ivory coast.
(World Bank staff working papers ; no. 647)
Bibliography: p.1. Ivory Coast--Economic conditions--1960- --
Mathematical models. 2. Ivory Coast--Economic policy--
Mathematical models. 3. Equilibrium (Economics)
4. Statics and dynamics (Social sciences) I. Noel,
Michel. II. Title. III. Series.
HC1025.M53 1984 330.9666'8'00724 84-7519ISBN 0-8213-0371-6
ABSTRACT
The Ivory Coast experienced a series of external shocks in the
last seven years which led to a severe deterioration of its financial
position and to negative growth since 1981. This occurred at a time when
the growth potential of the country had declined and the ability of the
economy to adjust was limited by distortions in the system of macroeconomic
and sectoral incentives. To remedy this situation, the Government has
undertaken a program of stringent financial recovery and of structural
adjustment, articulated around substantial policy reforms.
This paper analyzes the short-term effects of various trade and
incentive policies that can be envisaged within this program. The analysis
is carried out through a series of comparative static experiments done in
the framework of a computable general equilibrium model. Simulations are
performed to assess the impact of exchange rate adjustments, tariff reform,
the introduction of an export subsidy and, finally, removal of quantitative
import restrictions.
Extracto
La Costa de Marfil experiment6 una serie de conmociones externas en
los ultimos siete afios que produjeron un grave deterioro de su situaci6n
financiera y un crecimiento negativo desde 1981. Esto ocurri6 en un
momento en que el potencial de crecimiento del pais habia declinado y la
capacidad de ajuste de la economia estaba limitada por las distorsiones
del sistema de incentivos macroecon6micos y sectoriales. A fin de
remediar esta situaci6n, el Gobierno ha encarado un programa riguroso de
recuperaci6n financiera y ajuste estructural, articulado en torno de
considerables reformas de la politica.
En este estudio se analizan los efectos a corto plazo de varias
politicas comerciales y de incentivos que pueden considerarse dentro de
dicho programa. El analisis se realiza a trav6s de una serie de
experimentos estaticos comparativos realizados en el marco de un modelo de
equilibrio general computable. Se realizan simulaciones para evaluar el
efecto de los ajustes cambiarios, la reforma arancelaria, la implantaci6n
de un subsidio a la exportaci6n y, por uiltimo, la eliminaci6n de
restricciones cuantitativas para las importaciones.
La C6te d'Ivoire a subi, au cours des sept dernieres annees,
plusieurs chocs d'origine exterieure qui ont amene une deterioration grave
de sa position financiere et une croissance negative depuis 1981, au
moment meme oa le potentiel de croissance du pays se trouvait r6duit et ou
l'aptitude de 1'6conomie a s'ajuster 6tait freinee 1ar des distorsions du
syst&rPf d'incitations macro6conomiques et sectorielles. Pour rem6dier a
cette situation, le Gouvernement a lance un programme de redressement
financier et d'ajustement structurel tr&s strict, centre sur d'importantes
reformes des politiques d'action.
Le present document analyse les effets a court terme des
diverses mesures d'incitations et d'actions en matiere de commerce exte-
rieur susceptibles d'etre envisagees au sein dudit programme. L'analyse
comprend une s6rie d'experiences statiques comparatives r6alis6es dans le
cadre d'un modele d'6quilibre gen6ral quantifiable. Des exercices de
simulation ont 6t6 effectues en vue d'evaluer les effets qu'auraient des
ajustements des taux de change, des r6formes des tarifs douaniers, l'in-
troduction de subventions a l'exportation et, enfin, l'elimination de
contingents d'importatioIIs.
ACKNOWLEDGEMENTS
We are indebted to Sherman Robinson for his continuoussupport and advice throughout this study. We also bene-fitted from many helpful discussions with Kemal Dervis.We thank Timothy Condon and Benoit Morin for valuableresearch assistance.
Table of Contents
Page
Introduction 1
I. Background 3
Chapter 1: Overview of the Ivorian Economy 31. Structure of the Economy 32. Recent Economic Developments and Policy
Issues: 1976-1982 13
Chapter 2: The Model 181. General Structure of CGE Models 182. The Treatment of Foreign Trade in CGE Models 203. The Ivory Coast Model 23
II. Policy Experiments 35
Chapter 3: Exchange Rate Adjustments 351. The Exchange Rate Issue 352. Economic Mechanisms Involved 383. Analysis of the Experiments 41
Chapter 4: Tariffs and Export Subsidies Reformsin the Industrial Sector 52
1. Policy Issues 522. Economic Mechanisms 543. Analysis of the Experiments 56
Chapter 5: Quantitative Import Restrictions 651. Background 652. Economic Mechanisms 673. Analysis of the Experiments 68
Conclusion 72
Annex 1: Equations of the Model 75
Annex 2: The Ivory Coast SAM 85
Annex 3: Sectoral Tradeability Indicators 89
References 90
Introduction
After two decades of continuous growth, the Ivory Coast economy
experienced a series of external shocks over the last six years: the coffee
and cocoa boom in 1976 and 1977; a 40 % decline in the terms of trade between
1978 and 1982; and sharp increases in real interest rates on international,,.
markets. These shocks have led to a rapid deterioration of the country's
financial position and to two consecutive years of recession in 1981 and 1982.
These dramatic changes have affected the Ivory Coast at a critical
phase of its development. Since the mid-seventies, the growth potential of
the country had progressively declined due primarily to low returns on public
investment, inefficiencies in puJ'ic enterprises, and inadequate support for
agricultural development. At the same time, the ability of the economy to
adjust was severely hampered by rigidities and distortions in the system of
macroeconomic and sectoral incentives, particularly with respect to the
exchange rate, tariffs, quantitative restrictions, and export incentives.
In order to remedy this situation, the government has embarked on
both a stringent financial recovery program and a structural adjustment
program that calls for substantial policy reforms, in particular in the system
of incentives in industry and agriculture.
The purpose of this paper is to analyze in a general equ:ilibrium
framework the short-term effects of various trade and incentive policies that
could be envisaged within the framework of these programs. This is done
through a series of comparative statics simulations carried out with a
computable general equilibrium (CGE) model of the Ivorian economy, which has
been built along lines already followed in an increasing number of countries.
In Chapter 1, we present an overview of the Ivorian economy and
discuss the most salient economic developments over the last six years.
-2-
Chapter 2 is devoted to a general discussion of CGE models, with a special
emphasis on the treatment of foreign trade, and to a detailed pre,-entation of
the Ivory Coast model. Turning to policy simulations, an analysis of
experiments on exchange rate adjustments is presented in Chapter 3. After
stressing the importance and the scope of the exchange rate issue for the
Ivory Coast today, we briefly discuss the economic mechanisms involved, and
then turn to an in-depth discussion of the base experiment and the sensitivity
analysis 0 Chapter 4 contains an analysis of the experiments on tariff and
subsidy reforms, as well as a detailed presentation of the base experiments
and a series of alternative experiments. This policy issue is directly
relateu to the reforms envisioned by the government in the structural
adjustment program. In Chapter 5, we examine the impact of the removal of
quantitative import restrictions on the economy when exchange rate adjustments
are allowed.
I. BACKGROUND
CHAPTER 1: OVERVIEW OF THE IVORIAN ECONOMY
This chapter is devoted to a broad description of the structure of
the Ivorian economy, and to a discussion of the current economic situation and
policy issues facing the country, which constitute the background and the
rationale for the present study.
1. Structure of the Economy
In the first two decades following independence, the Ivory Coast's GDP
grew 7.5% annually, a rate of growth which ranks among the highest in Africa
and among the top fifteen in the world. This performance has been based on a
rapidly growing agricultural sector (primarily coffee and cocoa), which
generated surpluses for in. stment, and on a liberal and pragmatic economic
policy that made the productive use of foreign factors possible. Out of a
total population of 8.3 million, 1.5 million are immigrants who responded to
employment opportunities in the Ivory Coast and to the growing income
differentials with its neighbors. With an annual population growth of 4.3%
per year (including 1.5% due to migration), per capita income increased 3.5%
annually until the end of the 1970s. Although a severe slowdown has since
ocCurred, the Ivory Coast had a per capita GDP of US$1,200 in 1981, ranking
first among Sub-Saharan developing countries-I/ This compares with US$870 for
Nigeria, US$880 for Cameroon and US$430 for Senegal.
The following tables provide some basic macroeconomic indicators on
the structure of the economy.
1/ World Bank. World Development Report 1983. [1983].
-4-
Table. 1.1
Structure of the Ivorian Economy in Three Sectors (in 1980)
Gross Domestic Value Added (atOutput Exports Imports Demand factor prices)
Agriculture 23.3 49.4 5.1 19.1 33.1(inc. integratedindustries: sugar,rubber, palm oil)
Industry 43.1 28.4 78.2 47.8 29.1
(inc. energy, utilities,arnd construction)
Services 33.6 22.2 16.7 33.1 37.8(inc. transportation)
Total 100.0 100.0 100.0 100.0 100.0
Source: Ministry of Finance, Budgets Economiques.
Table 1.2
Structure of Trade (in 1980)
Share of Ratio of Share of importedexports in imports to intermediate inputsproduction domestic supply in total int. inputs
Agriculture 3.5 39.0 22.6
Industry 30.6 15.4 33.0
Services 11.1 15.4 26.6
Source: Ministry of Finance, Budgets Economiquese
Agriculture is a major component of the Ivorian economy and the
basis of its development. It contributes one-third to GDP, provides around
50% of exports, and employs an estimated 75% of the labor force, of which 13%
are immigrants.l/ The Ivory Coast is the world's third largest exporter of
coffee, and the most important producer of Robusta. It is also the world's
largest producer and exporter of cocoa. There are two main agricultural
regions in the country. The Southern Forest and the Northern Savannah have
different climates, natural endowments, culture and income levels.
Traditional cash crops (coffee, cocoa, palm oil and, more recently, rubber)
grow in the rich Southern Forest. The more arid and much poorer North is the
area of development of cotton and sugar production. Food crops are grown
throughout the country.
Table 1.3 presents details of the structure of agricultural
production in the Ivrory Coast. Food crops and cash crops contribute almost
equally to nominal output and value added, while acreage appears to be larger
for cash crops, especially coffee and cocoa. However, the acreage data should
be regarded only as indicators, because many plantations are intercropped, and
part of the area under food cultivation remains unaccounted for due to the
absence of extension services for these crops, (except rice).
1/ See Ph. Fargues [1981].
- 6 -
Table 1.3
Structure of Agricultural Production
Food Cash Main Cash Cropscrops crops Coffee Cocoa Cotton Rice Source
- - - -(Percentages)-- ----------
Share in totalcultivated acreage 1/ 36 64 30 21 1 8 (1)
Share in the value ofagricultural production 56 44 12 20 2 8 (2)
Share in total valueadded 15.8 13.1 3.6 6 .6 n.a. (3)
Share in agriculturalvalue added2/ 54 46 12 20 20 2 (2)
Share in totalexports2/ -- 36.3 15.1 17.6 -- (3)
Share in agriculturalexports2/ -- 100 41.6 48.5 (3)
Sources: (1) Recensement National de l'Agriculture (ENA) [19811
(2) Ministry of Finances, Budget Economiques(3) Social Accounting Matrix in G. Michel and M. Noel, [1983]
1/ The acreage is the theoretical one, defined in the RNA as the acreage
needed to growing a solestand, as opposed to growing in association with
other crops.
2/ Excluding forestry.
Since the early 1960s, the government has emphasized the development
of cash crops, through direct intervention in production consisting of the
provision of extension services by public enterprises, or through market
regulation.1/ Cash crops under regulated prices include coffee, cocoa, cotton
1/ Except when explicitly mentioned, the figures on public enterprises
presented in this chapter are taken from the joint report of the Caisse
Centrale de Cooperation Economique (CCCE) and the World BaTnk [1982).
-7-
and palm oil. For these products, official producer prices are fixed at the
beginning of each season, and a Stabilization Fund makes up the difference
between the domestic price and the price obtained in export markets. This
mechanism provides producers with more stable incomes and has also generated
substantial surpluses for the government. Most coffee and cocoa production
comes from smallholders, who typically benefit from the extension services of
SATMACI, the regional development agency for the Center Zone. Cotton is
produced almost exclusively by small farmers under the auspices of CIDT, the
regional development agency for the north, which provides extension services
and controls the marketing of the crop. Seventy percent of palm oil
originates from the industrial plantations of PALMINDUSTRIE, with village
plantations accounting for the rest. Rubber culture is also dominated by
public enterprises, and smallholders represent less than 8% of total
production. Finally, the production of sugar is entirely controlled by
SODESUCRE, which runs six sugar complexes in the north and the center of the
country.
In the mid-seventies, the government started to give more priority
to the development of food crops. However food crops have not been subject to
direct intervention by the public sector, in sharp contrast with the situation
prevailing for most cash crops. The only exceptions is rice. Producer and
consumer prices for rice are regulated through the Caisse de Perequation, and
assistance is provided by extension services of regional development agencies.
Public enterprises are not limited to the agricultural sector, but
play a role in other key parts of the economy as well, with the important
exception of industry. Although it favors a liberal type of economy, the
Ivorian Government has always relied partly on public enterprises to implement
its development policies, particularly in areas where private initiative
-8-
remained inadequate. Public enterprises are important because of their
contribution to national production and investment. It has been estimated
that one-third of agricultural production is directly dependent on public
enterprises. They are also involved in land transportation, shipping,
services, construction and electricity. Overall, 15-20% of GDP can be
attributed to parastatal enterprises in the Ivory Coast.1/
The contribution of public enterprises to investment is even more
important. According to the Budgets Economiques [1982], their share of total
investment was 29% in 1980, 26% in 1981 and 22% in 1982, after having reached
a peak of 37% in 1978. Table 1.4 gives the sectoral allocation of public
enterprise investment in 1980.
Table 1.4
Sectoral Allocation of Public Enterprise Investment in 1980
Agriculture 18.1
Mining-petroleum 29.3
Manufacturing industry 0.9Utilities 17.7Construction 5.7Services 28.3
100.0
Source: Ministry of Finances, Budgets Economiques.
1/ Estimates of the share of public enterprises in GDP and investment are
based on the Budgets Economiques definition of public enterprises.
-9-
A large part of these investments have been financed by foreign
capital, which has been attracted by publicly guaranteed investment
opportunities. As a result, public enterprises have been instrumental in the
opening of the economy to foreign investors. Accordingly, they account today
for 35-40% of the external public debt. Finally, since public enterprises
investments are ultimately controlled at the government level, they represent
an important policy variable for the government. With both public enterprise
and central government investment, the government controlled as much as 70% GZ
total investment in 1980.
Industry has been one of the most dynamic sectors in the Ivorian
economy.l/ Since independence, manufazturing activity has grown at the rate
of 13% per year, and its share in GDP rose from 4% in 1960 to 13.8% in 1980.
This rapid expansion has been primarily based on import substitution and on
the processing of local agricultural raw materials for exports. Until the
early 1970s, industrial development took place in the framework of a simple
system of incentives, which were essentially based on a moderate tariff
schedule that applied equal protection among industrial activities, and
without quantitative import restrictions. The 1973 tariff reform and, more
recently, the proliferation of quantitative import restrictions, have
introduced increasing distortions in the industrial incentives structure. As a
result, inefficient import substituting enterprises have been established and
a strong bias against exporting activities has appeared.2/
1/ See Appendix B: "The Industrial Sector" of B. den Tuinder [1978] for amore detailed description of the evolution of this sector sinceindependence.
2/ See M. Noel [1982] for a comprehensive study of the system of industrialincentives.
- 10 -
This sector developed without the direct involvement of public
enterprises. Instead, it relied exclusively on private initiative, which was
mainly foreign, especially in the first stages of industrialization. Foreign
firms were attracted by the stable and liberal framework provided by the
government as well as by the incentives provided under the Investment Code.
Table 1.5
Structure of the Manufacturing Industry
Share in Share of Share of Share of Share of Share of Importsindustrial total exports in total import in total over
GDP (in %) GDP gross output exports intermediate imports domesticinput supply
Food process-ing 28.3 3.9 28.7 10.1 21.7 8.8 54.4
Textiles 25.2 3.5 20.2 4.0 29.2 4.1 40.6Chemicals 9.3 1.3 14.5 1.4 47.1 8.8 62.8Construction
material 15.5 2.1 32.5 3.7 26.7 2.7 54.1Engineering
industries 21.7 3.0 11.8 2.8 51.7 35e5 269.7
Total 100.0 13.8 -- 22.0 -- 59.9
Source: G. Michel and M. Noel [1983],
Table 1.5 summarizes some key indicators for the structure of the
manufacturing sector. The sector consists of two distinct types of
activities: those which are based on the processing of local agricultural or
forestry raw materials (food processing, textiles, and construction
materials); and those which import raw materials intensively (chemicals and
plastics and engineering industries). The former were the leaders in the
early industrialization process of the Ivory Coast and are relatively export-
- 11 -
oriented. The second type of industry is much less export-oriented, and
relies heavily on imports for its operations (50% of intermediate inputs are
imported). With the exception of fertilizers, these industries fall far short
of satisfying domestic demand, as is shown by the ratio of imports over
domestic supply. This is because local production is concentrated on specific
product lines and imports in these areas are essentially complementary to
domestic production. Moreover, engineering industries alone represent more
than a third of the imports of the country, and 60% of its total imports are
manufactured goods.
Energy dependence is rapidly decreasing due to the development of
hydroelectric production in the 1960s and 1970s and to the current expansion
of the oil sector. Although the start of power production by several new dams
in the late 1970s has not made the Ivory Coast energy self-sufficient, the
consumption of fuel oil needed to generate electricity has declined by 57.7%
since 1979 as a result. The prospect of the huge Soubre dam, expected to
become operational in the late 1980s, makes self-sufficiency a reasonable
prospect. Moreovpr, petroleum production is increasing, and one-third of
Ivorian consumption of crude oil was produced domestically in 1981. Although
the projections were to be lowered recently, the outlook is still for the
Ivory Coast to become a net oil exporter by 1986. Finally, an oil refinery
with a 4 million ton capacity already meets domestic requirements as well as
exports to neighboring Upper Volta and Mali.
The Monetary arrangements for the Ivory Coast play an important role
in development. The country is a member of the West Africa Monetary Union
(UMOA)1/ (with Benin, Niger, Senegal, Togo and Upper Volta), which centralizes
foreign currency reserves, issues a single currency (the CFA Franc) through a
1/ UMOA: Union Monetaire Ouest Africaine.
- 12 -
common Central Bank, has a common interest rate structure and allows free
transfers of funds within the Union. The CFAF is linked to the French Franc
at a parity which has never changed since independence. It is fully
convertible with the French Franc, and the French. Treasury is responsible for
the necessary operations to maintain parity. Although this limits the member
countries' autonomous monetary policy and prevents the adoption of exchange
rate policy, convertibility with the FF and the backing of the French Treasury
provide advantages that appear to have been beneficial for their development.
The Ivory Coast is also a member of the West Africa Economic
Community (CEAO), a customs union with Mali, Mauritania, Niger, Senegal and
Upper Volta. As a partner in the Lome agreements, the Ivory Coast receives
duty-free treatment for its exports to the EEC. These external ties are
reflected in the trade structure of the Ivory Coast. Approximately half of
the country's trade is with the EEC, while about 10% of exports are to CEAO
countries. Thus almost two-thirds of exports are to countries with which the
Ivory Coast has special relationships and arrangements.
Table 1.6
Trade Structure in 1981
Share of total exports Share of total imports
EEC 54.7 48.4of which France (18.6) (31.1)
Other European Countries 5.1 4.6Sub-saharan Africa 12.3 7.1
(of which CEAO) (9.9) (2.3)USA 11.5 5.4Asia 2.9 7.7Others 13.5 26.8
100.0 100.0
Source: Customs statistics
- 13 -
2. Recent Economic Developments and Policy Issues: 1976-1982
Over the past five years, the Ivory Coast economy has been subject
to a series of external shocks: the coffee and cocoa boom in 1976 and 1977, a
40% decline in the terms of trade following the sharp drop in coffee and cocoa
prices in 1978, the increase in the price of imported oil, and, more recently,
sharp increases in real interest rates on international financial markets.
These shocks have led to rapid financial deterioration and to a severe
slowdown in economic activity. The Ivory coast experienced two consecutive
years of recession in 1981 and 1982, in sharp contrast to the continuous
record of economic growth since the early sixties.
During the coffee and cocoa boom, when prices for these two crops
were multiplied by 3.6 and 2.2 respectively between 1975 and 1977, large
surpluses for the Stabilization Fund were generated and the balance of
payments situation substantially improved. Under these favorable
circumstances, the Government embarked on an ambitious investment program.
The share of public investment in GDP increased from 15 to over 25% between
1976 and 1978. This program was also financed through external borrowing,
which was possible because balance of payments pressures had declined. The
share of investment financed by national savings thus fell from 50% to less
than 20% between 1976 and 1978, while the gross inflow of public capital
increased from CFAF 56 billion to about CFAF 200 billion between 1975 and
1977. GDP grew by almost 10% in real terms in 1978.
However, between 1977 and 1978 coffee and cocoa prices declined by
31% and 10%, respectively, and remained constant at these low levels until the
first half of 1980, while the public investment program was maintained at a
level corresponding to 20% of GDP. This created several concerns. On the one
hand, the Ivory Coast's terms of trade declined by 15% between 1977 and 1978,
mainly due to the decline of export prices and by an additional 17% between
- 14 -
1978 and 1980, due to sharp increases in import prices. On the other hand,
the goverment increasingly relied on foreign borrowing to finance its
investment program. As a result, a public sector deficit of around 10% of GDP
appeared in 1979, rising to 12.7% in 1980, and the balance of payments turned
negative in 1979. The abrupt decline in coffee and cocoa prices that started
in the second half of 1980 further aggravated the situation. In 1980, the
current account deficit represented 16% of GDP, and the net foreign assets of
the Central Bank were exhausted despite continued heavy borrowing abroad,
while correspondingly, a CFAF 118 billion overdraft was registered in UMOA's
operations account with the French Treasury.
In 1981, the government initiated a drastic financial stabilization
program within the framework of an Extended Facility agreement with the IMF.
The program called for a reduction in the public sector deficit to 8.6% of GDP
in 1982 and 6.3% in 1983; a decline in the current account deficit to 11.8% of
GDP in 1982 and 8.3% in 1983; and the restoration of overall balance of
payments equilibrium by 1983.
Although the fiscal targets of the stabilization program were met by
the end of 1982, a series of unfavorable international economic developments
resulted in a significantly larger current account deficit than was originally
targeted. Indeed, the Ivory Coast's terms of trade declined again by 16%
between 1981 and 1982. Simultaneouisly, the country became increasingly
dependent on nonconcessional loans to finance the public investment program
and the public sector deficit, at rapidly increasing interest rates. Finally,
oil production did not expand as expected, reaching a level of 1.3 million
tons in 1982 against the expected 3.5 million tons. At the same time, a surge
in gross foreign borrowings by the public sector from CFAF 277 billion to CFAF
407 billion between 1981 and 1982 contributed to a reduction in the overall
- 15 -
balance of payments deficit within the program target. However, it presaged
rising debt service ratios in future years, and more deficits of the overall
balance are projected at least until 1987. The following table summarizes the
main macroeconomic indicators for the period 1978-1982.
Table 1.7
Macro Economic Indicators
1978 1979 1980 1981/1 1982/1
Growth rate of GDP atconstant prices 9X9 5.2 6.3 -1.3 -1.8
Revenue of StabilizationFund (% of GDP) 10.1 7.8 3.8 1.3 2.4
Public investment (% of GDP) 25.5 22.8 20.8 15.8 12.7Gross public savings (% of GDP) 13.0 9.3 6.5 6.1 2.0Public sector deficit (% of GDP) 8.5 10.1 12.8 9.3 8.9Exports f.o.b. (% of GDP) 33.1 29.0 29.4 32.4 32.3Imports f.o.b. (% of GDP) 25.9 23.8 24.6 24.5 23.0
Source: World Bank Data Base.
1/ Preliminary figure.
This sharp deterioration in the internal and external financial
situation has affected the Ivory Coast at a critical phase in its
development. Two decades of growth were essentially based on the exploitation
of the most obvious areas of comparative advantage, particularly in
agriculture, and on the development of a dynamic, although still limited,
industrial base. The growth potential of the country progressively
deteriorated during the later part of the seventies primarily because of the
low economic returns on the expanded public investment program launched in
1977; the rigidity of the system of macroeconomic and sectoral incentives in
the face of rapid changes in the country's external environment and inadequate
- 16 -
support for agricultural development.
The rapid expansion of public investment toward the end of the
seventies was accompanied by a sharp deterioration in the quality of
investment projects. Unlike the 1971-75 plan, the increase in public
investment for the 1976-80 program was mainly allocated to large projects with
high unit costs. In agriculture, for example, most of the increased
allocation was for six sugar complexes which had unit operating costs two to
three times above world market prices. Overall, it has been estimated that
the incremental national income from the US $8 billion spent on public
investme-nt from 1976-80 was approximately 40% less than it would have been if
earlier criteria had been maintained. This figure translates into an annual
cost to the economy in terms of foregone earnings of around 5% of GDP in the
early 1980se./
The rigidity of the system of macroeconomic and sectoral incentives
has imposed more constraints on growth and on the country's capacity to
respond flexibly to rapidly changing external conditions. The sharp
acceleration of domestic inflation after 1975 and the sharp deterioration in
the terms of trade between 1978 and 1982 led to a large overvaluation of the
CFA Franc vis-a-vis the currencies of the Ivory Coast's main trading
partners. This situation revealed fundamental deficiencies in the incentive
system. Although major agricultural exports were not immediately hurt by the
overvaluation because of their considerable comparative advantage, this was
not the case in the industrial sector, where comparative advantage was not as
strong. Expansion of the industrial sector has been directly affected by the
strong bias against exports in the system of industrial incentives. At the
1/ See World Bank [1979 .
- 17 -
same time, the most obvious opportunities for exports within the protected
CEAO markets have been exploited. As a result, the Ivory Coast will have to
turn to non-regional markets to sustain the growth of its industrial base and"
to generate the foreign exchange earnings required to balance its external
accounts.
Finally, the growth potential of the country has suffered from
inadequate support of agricultural development. Although agriculture has been
a key to the country's successful economic performance, agricultural
development projects have remained a relatively sriall part of the public
investment program, apart from the large expenditures for the six sugar
complexes. More recently, however, the Government has reinforced planning
capabilities in the agricultural sector, with the objective of designing a
coherent development strategy based on an adequate system of incentives
reflecting the medium to long-term comparative advantage of the country in
particular crops.
- 18 -
CHAPTER 2: THE MODEL
Computable general equilibrium (CGE) models have generated a large
literature since the pioneering works of Johansen [1960] and, more recently,
of Adeilnan and Robinson [1978]. The objective of this chapter is to provide
an overview of this class of models and to focus subsequently on the
characteristics of the Ivorian model.1
1. General Structure of CGE Models
Computable general equilibrium models simulate the functioning of an
economy by explicitly capturing the behavior of the various agents
(households, firms, government, rest of the world), the institutional
framework (fiscal system and transfer mechanisms), and the market clearing
processes (price and quantity). As a result, they can be considered
"structural" as opposed to "reduced form" models.,
CGE models are in the tradition of economy-wide multisector models
that have been used for development planning over the last two decades. In
contrast with traditional input-output and programming models that are best-
suited for planning in centralized economies, CGE models have been developed
for policy simulation in mixed economies, in which relative prices vary in
response to supply and demand decisions by individual agents, and where the
government can affect the outcome of these decisions, either indirectly
through fiscal and incentive policies, or directly through intervention in
some sectors of the economy. This class of models has recently been used for
planning and policy analysis as well as for the evaluation of the performance
1/ For a comprehensive analysis of CGEs, see Dervis, de Melo and Robinson[1982], hereinafter referred to as DMR. Since this textbook pro-vides thedescription of a general type of CGE on which the model presented in thepaper is based, it should also be considered general background for thisstudy.
- 19 -
and prospects of an increasing number of developing countries. -
The structure of CGE models is Walrasian in spirit, stressing
interaction among economic agents and the workings of market clearing
processes. At the same time, these models can formally incorporate rigidities
and distortions that are particularly strong in developing economies. The
treatment of foreign trade, for example, can substantially differ from a
standard neoclassical story through the introduction of various foreign
exchange rationing schemes (see Lewis and Urata [1983] or Bhattachyara, Grais
and Pleskovik [1983]) or through quantitative import restrictions (see below).
A CGE model is designed to provide a description of the evolution of
an economy over a number of periods, given the value of exogenous parameters
and policy instruments. Its structure can be separated into a static general
equilibrium model, which solves within each period, and a dynamic between
periods model, which links two successive periods.
Within each period, the model provides a set of equilibrium prices
which leads to a balance of supply and demand on each market, given the
behavioral rules of the agents, exogenous parameters and the way marks s
operate. Supply and demand for factors, commodities and foreign exchange are
derived from each agent's optimal choice and from government decisions.
Basically, it is assumed that households maximize their utility, given their
budget constraint, while firms maximize their profits, given their technical
constraints. Once supply and demand on each market have been determined, a
price system has to be found to clear those markets. At this stage, the
definition of the way each market operates is crucial, as it is often
necessary to impose particular restrictions on markets that represent strong
1/ See, for example, Lewis and Urata [1983], Dervis and Robinson [1982],Armarand and Grais [1983], or Taylor et al. [1980].
- 20 -
departures from the pure neoclassical paradigm (such as fixed nominal prices
or fixed supplies).
After the equilibrium solution is found for a given period, the
between-period part of the model updates all the exogenous variables entering
thie static part of the model. This operation is done using: (1) the
equilibrium values of the foregone period, such as the amount of investment by
sector that is added to existing capital to yield new capital stocks; (2)
government policy decisions, such as a new level of tariffs or public
investment; (3) simple exogenously specified trends, such as the growth of the
population; and (4) pure exogenous variables, such as world prices. The model
can then find a solution for a new period on the basis on the new set of
exogenous data.
CGE models are therefore basically simulation models, designed to
investigate the impact of policies that work through the market system, such
as taxes, tariffs or subsidy changes, or to analyze the impact of direct
government intervention in the economy, such as the profile and composition of
the public investment program, pricing policies or import restrictions.l/
2. The Treatment of Foreign Trade in CGE Models
The treatment of foreign trade has been given particular attention
in CGE models.
Two different approaches have been proposed in the literature for
the treatment of foreign trade. On one hand, classical trade theory is built
on the small country assumption, so that each country is a price taker on
international markets. This assumption makes a strong distinction between
traded goods, which are considered perfectly substitutable for imports and
1/ For a critical view on CGE's see Bell and Srinivasan [1983].
- 21 -
whose prices are fixed on the international market, and non-traded goods,
whose prices are entirely determined on the domestic market. Along with
constant returns to scale in production, this theory leads to extreme
specialization among countries, and it rules out two-way trade.
On the other hand, the structuralist school assumes that imports are
non-competitive, so that the degree of substitutability between domestic goods
and imports is zero (this is, for instance, the assumption in the two-gap
models). Imports are treated as perfect complements for domestic goods. This
approach results in a rigid framework in which trade policy has no role to
play in closing the foreign exchange gap.
The assumption made in this class of CGE models is that sectoral
imports are neither complete substitutes nor full complements of domestic
production. In other words, two-way trade at a sectoral level as well as
price differentiation between domestic and import prices is allowed. Both
features are ruled out by traditional models. The original formalization of
these ideas was made by Armington [1969], who introduced the notion of a
composite good, that is, an aggregate of imported and domestic goods. In this
approach, agents do not demand either domestic or imported goods, but an
aggregate of the two. The composition of the aggregate good depends on the
relative price of domestic and imported goods, which may differ.
This specification could hardly be sustained at the ideal most
disaggregated level where all goods would truly be perfect substitutes with
imports, but is is of considerable relevance at the high degree of aggregation
usually taken in CGE models, and supported by many empirical evidence (see
Armington [1969]). Instead of the strong distinction between traded and non-
traded goods this approach implies that sectors are characterized by different
degrees of tradability depending on their trade substitution elasticities.
- 22 -
Similarly, the extent to which a particular good is complement or a substitute
to its import equivalent varies according to the relative size of trade
substitution and own-price elasticities. 1/
Exports can be treated in various ways in CGE models, following the
type of country under study. The modelling of exports can be based on
assumptions ranging from the small country assumption with fixed export output
ratios to product differentiation with downward sloping demand on the export
market. In the Ivory Coast model, we used a third option in which the ratio
of exports to output in a particular sector is assumed to be an increasing
function of the ratio of export to domestic prices. This specification, which
is retained for the modelling of manufacturing sectors, can be thought of as a
formalization of the arbitrage open to the domestic producers, who would
choose between offering their output on the domestic market or on the export
market depending on the relative incentives perceived in both markets. This
approach allows to model phenomena which cannot otherwise be properly handled
at the level of aggregation used in this type of model.
Finally, it is possible to consider various import rationing
situations in the framework of CGE models. A quantitative import quota
mechanism, which is used in the Ivory Coast model, is described in Section 3
below. Premia rationing, corresponding to the case in which a parallel market
for import licenses exist in a country, or simple quantitative rationing by
direct allocation can also be analyzed, but were not used in our model. 2/
1/ Goods whose trade substitution elasticity exceeds (is smaller than) theirown-price will be regarded as import substitutes (complements).
2/ See Lewis and Urata [1983] for a model where these two specifications aretaken into account.
- 23 -
3. The Ivory Coast Model
This section first presents the data sources and the principal
characteristics of the model in terms of aggregation level, behaviour,
important assumptions and market clearing mechanisms. It then turns to a more
detailed discussion of some particular specifications, which have been
designed to reflect some important features of the Ivorian economy. A
presentation of the way effective protection can be defined and measured in
these models follows. This is a key discussion in this study as it deals with
concepts which are at the center of the ongoing reforms in the country as well
as of the experiments presented in the paper. Finally, we discuss the choice
of trade substitution and export supply elasticities.
(i) Data Base
The data sources used for the model come from Budgets Econaniques
(Economic Budgets), Comptabilite Nationale (National Accounts), Centrale des
Bilans (Census bureau for corporate societies) as well as from a 1979
Consumption Budget Survey and Ministry of Agriculture data. Data from these
various sources have been made consistent in the frameTork of a Social
Accounting Matrix (SAM), presented in Annex 2. A detailed description of its
construction is given in Michel and Noel [1983].
(ii) Principal Characteristics
The main features of the model, i.e. the behavior of the various
agents, the principal assumptions, and the market clearing mechanisms, are
described in this section. The mathematical formulation of the model is given
in Annex 1. Annex 2 provides, together with the SAM, other statistical
information such as production structure, input-output matrix, and consumption
shares.
The production side of the economy is disaggregated into fifteen
- 24 -
sectors. Of these, six are agricultural sectors, six industrial, two non-
traded, and one services sector. Firms are assumed to be price-taking agents
who maximize their short-run profit to determine their labor demand and output
supply. Capital stocks are fixed for a given period. Intermediate
consumption is required in proportion to output according to a fixed structure
by product. Some sectors have a fixed output in the short run and,
accordingly, fixed labor demand and intermediate consumption. This is the
case of "forestry" and "mining and petrl'eum" sectors, both of which have been
assumed not to be price-responsive in the short-run. This latter situation
must not be confused with that of sectors whose prices are set by the
government and which therefore also appear as having an essentially fixed
output in the short run (see iii-(a) below).
Public and private investment levels result from the choice of the
"closure" rule (see (iii) below). They are broken down according to two
different structures in order to determine investment by sector of
destination. Investment by sector of destination is in turn converted into
investment by sector of origin, which forms part of the final demand.
The model distinguishes five household categories (two rural and
three urban) corresponding to five labor categories. Each household
category's income is the sum of its labor renumeration, its profit share, its
transfers and share of remittances from abroad. The allocation of profits,
transfers and remittances between labor categories is exogenous (see Michel
and Noel [1983]). Labor remumeration is the outcome of the labor market
mechanism (see below). The share of consumption and savi-ngs into post-tax
income is constant and real consumption is broken down into consumption
demands by product through a Cobb-Douglas consumption function. All savings
are collected into a "savings pool" (see (iii)).
- 25 -
Labor markets are, at this stage, modeled in a very simple way.
Labor demand for each labor category is the result of firms optimizing
behavior. Nominal wages are assumed to be fixed in the short run, reflecting
minimum wage policies in effect in the country. Labor supply is always in
excess of labor demand at the prevailing wage rate in the short run, and
unemployment is therefore endogenous.
The government collects income taxes, tariffs, indirect taxes, and
the Stabilization Fund surplus (or deficit), as well as a fixed share of the
exogenous capital inflows. Part of this revenue is saved and the rest is
spent in transfers, subsidies, wage remumeration, and public consumption. The
balance of the government budget is done either on public consumption or on
public savings, according to the closure rule (see (iii) below).
All goods are composites of domestic and imported goods, aggregated
through a constant returns to scale GES function, following the Armington
assumption of imperfect substituability (see section 2 above). The relative
share of imports and domestic production of any particular good is thus a
fumction of their relative prices. The allocation of domestic production
between export and domestic market is a function of the relative prices on
these markets, derived through a logistic function (see also section 2 above).
In general, product markets are price clearing, although some
domestic prices may be set by the government. In such cases the markets are
cleared by quantity adjustment, with the volume of exports as the endogenous
variable (see iii (a) below). Factor markets are solved for unemployment
since nominal wages are fixed and do not adjust to match demand and supply.
When a flexible exchange rate regime is chosen, the exchange rate then adjusts
to generate a given level of deficit or surplus of the balance of trade (or,
equivalentely, of the balance of payment since transfers with the rest of the
- 26 -
world and capital rmovements are exogenous) . The model is solved following the
"product market strategy" described in Annex B of DMR. In this method, factor
marlcets are solved Eirst and products markets are then solved based on the
solution for factor markets, after having been ordered in a particular and
convenient way.
(iii) Particular Specifications
The Ivory Coast model contains three particular specifications which
have been designed to take into account important aspects of the Ivorian
economy. These are: the existence of fixed prices in the agricultural sector
and the Stabilization Fund mechanism; the presence of quantitative
restrictions on the imports of some goods; the large share of public
investment in total investment. We describe in this subsection how these
characteristics have been taken into account in the model.
(a) Fixed Prices in the Agricultural Sector and the Stabilization Fund
The Stabilization Fund is essentially an institution designed to
shield domestic producers of certain agricultural products from the world
market fluctuations. It is taken into account in the model by allowing for
the possibility of exogenously setting the nominal price received by
producers. The positive (or negative) difference is then received (or paid)
by the Stabilization Fund account which, in turn, transfers its surplulses to
(or has its deficit financed by) the government. This captures the essence of
the stabilization mechanisms of the country. It should be noted that the
implementation of such a mechanism has no consequence on the specification of
exDort behavior (such as arbitrage between the two markets) and is compatible
with any price determination mode on the world market of exports (such as a
downward sloping curve for exports).
It is also possible to set certain domestic prices in the model, as
- 27 -
is the case in the Ivory Coast for several agricultural products. However, it
is then also necessary to specify how the market clears for excess supply or
demand since price clearing is by definition excluded. The possible solutions
range from adjustment of capacity utilization to adjustment through
competitive imports or changes in exports. Since exports crops are the goods
whose domestic prices are fixed in this model, we have assumed that excess
supply (demand) in the domestic marke.t of these goods was just balanced by an
additional (smaller) volume of exports. In such a case, the ex-ante arbitrage
decision which may have been made (see Section 2 above) will be superseded.
Export as well as domestic prices have been assumed constant for
coffee, cocoa and "other agricultural products," which account for products
mainly with fixed prices (palm oil, rubber),
(b) Import Quotas
The limitation in the number of import licenses became a common
practice for a growing number of imported goods in the Ivory Coast as a way of
protecting the domestic industry (see Chapter 5 below). Although this has not
necessarily led to binding quotas because the license ceiling has sometimes
been larger than requested, the volume of imports is effectively limited in
some key sectors, such as textiles.
Quantitative import restrictions amount to a fixed supply of imports
in the economy and reverse the logic of the treatment of imports in the
model. Indeed, if the availability of imported goods is limited and binding
and if there is no mechanism of direct allocation of imports (i.e., quantity
rationing with a rationing scheme), thi. only possibility of clearing the
demand for imports is to increase their domestic price. Since world prices
and tariffs are supposed to be fixed and exogenous, this results in a pure
rent for the importers, at a given exchange rate. Therefore, whereas in the
- 28 -
usual case (small country assumption), the domestic price of imports is
exogenous and its volume is endogenous, world supply being infinite, the
volume of imports is exogenous when quotas are binding and their domestic
price is endogenous. The resulting rents are separately accounted for in the
model and distributed to "urban high incorAe" households, which are assumed to
include all license holders.
(c) Treatment of the Investment-Savings Problem
The balance between investments and savings, which is an ex-post
necessary condition for equilibrium, is not ex-ante warranted given the
specifications usually retained in CGE models. This is the so-called
"closure" problem, which requires an ad hoc choice based on the way the
modeler thinks the economy works to eliminate this dilemma ("closure rule"). 1 /
In the particular case of the Ivory Coast, public investment as a
whole (i.e. central government plus public enterprises) represented more than
three-quarters of total investment in 1980 (see Chapter 1). This suggests a
specific treatment for the investment savings problem. The government savings
rate and overall public investment can be realistically regarded as policy
variables, whereas private investment and private savings rates can be safely
considered fixed and exogenous in the short run. This means that the problem
of matching savings to investment is in fact an implicit policy choice in the
Ivory Coast. This choice is integrated explicitly in the model. In this
context, an investment-driven model should be interpreted as accounting for a
policy whereby the government decides to implement a given public investment
program 2/ and accepts the consequent adjustment of its savings rate.
1/ See Lysy [1982], Dewatripont and Michel [1983].
2/ Investment levels can be set either in nominal or real terms.
- 29 -
Conversely, a savings-driven model must be regarded as a model in which the
government decides to adapt the level of public investment to the available
savings of the economy.
Accordingly, we distinguish in the model between public and private
investment. Public investment is split into central government and public
enterprises, with different structures for origin and destination, 1/ and is
scaled in order to make overall investment match available savings in a
savings-driven model (with proportional adjustment on the two components).
Private investment has another structure of origin and destination and a.s
broken down for accounting purposes into households, oil and non-oil
investment.
(iv) Effective Tariff Protection and Nominal Tariff Structure
In the framework of its program of incentive reforms in the
industrial sector, the Government is preparing a comprehensive revision of the
Customs Code, with the objective of equalizing effective tariff protection
rates across subsectors and, within each subsector, between the various
degrees of processing. Given the importance of such a reform for the economy,
it is fundamental to concentrate on the treatment of the concept of effective
protection in the context of the CGE model before turning to a discussion of
the corresponding policy simulations. In this section, we first recall the
definition of the effective rate of protection in a partial equilibrium
framework, and briefly discuss the problems associated with the treatment of
non-tradeables in that context. We then turn to the definition of the
effective rate of protection in the framework of the CGE model, and discuss
I/ The structure of origin of investment concerns its capital goodscomposition. Its structure of destination indicates the allocation ofthese goods to sectoral capital stocks.
- 30 -
the relationships between the partial and general equilibrium approaches to
the estimation of effective protection. Finally, we discuss the treatment of
the equalization of effective tariff protection rates across subsectors in the
context of the CGE model. In particular, we emphasize the impact of the
aggregation problem arising from the estimation of ERPs in the framework of
the CGE model, and we present the approach retained in the Ivory Coast model.
By definition, the effective rate of protection (ERP) for a given
sector or product measures the excess of value added per unit of output for
that sector or product over its reference value added per unit of output under
free trade, expressed as a percentage of the latter value. The main
difficulty in estimating this indicator arises from the need to estimate of
value added tnder free trade, short of a full general equilibrium model which
seldom exists at the desired level of disaggregation.
In a partial equilibrium context, it is possible to obtain a simple
expression of ERPs under the following restrictive conditions: (i) all goods
are tradeables and are perfect substitutes for imports; (ii) no substitution
is allowed between primary factors and intermediate inputs, nor among the
latter; (iii) there are constant returns to scale in production; and (iv) the
elasticity of supply of imports is infinite.-1/ The existence of non-
tradeables in the economy complicates the matter since, as long as their
elasticity of supply is non-zero, the imposition of nominal protection on a
traded good will yield an indirect protection on some non-traded goods
1/ The ERP for a given sector or product i then writes
p. - Ea,. p.ERP = J
1+t. - ji 1+t
where a. are the domestic input-output coefficients; p the lomestic prices and tthe tar ffs.
- 31 -
through the set of input-output relationships. It then becomes difficult, in
this partial equilibrium setting, to separate the direct from the indirect
effects of protection. Three methods have been proposed to deal with this
problem. The first method is due to Corden [1971], who proposes to measure
jointly the direct and indirect effects of protection. This is done by
applying a decomposition procedure, in which non-traded intermediate inputs
are decomposed into their traded intermediate inputs and value added
components through the input-output chain. The traded intermediate inputs
used in the production of non-traded inputs are then combined with
intermediate traded inputs used directly in the activity under study. Value
added generated in the production of non-traded inputs is combined with direct
value added in the same activity.!' Conversely, Balassa [19711 assumes that
the elasticity of supply of non-traded goods is zero, and therefore that they
do not benefit from any indirect protection. The Balassa ERP measure
therefore takes into account only the direct effect of protection on traded
goods. The third method is that of Little, Scitovsky and Scott [1970].
Assuming a single non-traded good in the economy, these authors propose to
assign to this good a fictive tariff equal to the degree of overvaluation
introduced by the structure of protection, and to treat the non-traded good as
traded in subsequent calculations.
As shown by Ray [1973], however, these three methods are limited
because they assume that non-traded goods are "pure" intermediates, i.e. that
they are not directly consumed. Once this restriction is removed, none of the
three methods holds in a general equilibrium sense and the only solution left
is to solve a general equilibrium model to obtain the reference free trade
value-added prices of non-traded goods.
1/ The ERP for a given sector i then writes exactly the same way as beforewith, however different input-output coefficients (aji), reflecting theeffects of the decomposition.
- 32 -
The problem is still more complex in the CGE framework since we
assume imperfect substitutability between domestic and imported goods. In
this context, the assumption that the domestic price of tradeables is entirely
determined by their world prices plus the impact of tariffs and other
protective measures no longer holds. Therefore, the estimation of the
effective rate of protection must be carried out in two steps. First, the
model is run with all tariff or non-tariff barriers removed to yield the
reference value-added prices. Second, the model is solved with the existing
tariff and non-tariff barriers in order to yield value-added prices under
protection. The general equilibrium ERP (ERPG) is then deduced by comparing
these two sets of prices.
The ERPG indicator is not equivalent to the rate of net effective
protection derived under the partial equilibrium methodology. This is
because, following the imperfect substitutability hypothesis, ERPG is no
longer computed with respect to the import price of the perfect import
substitute, but with respect to the reference price of the composite good
actually consumed, which is a bundle of domestic goods and actual imports.
The imperfect substitutability hypothesis has therefore a strong
implication for the link between effective protection and nominal tariff
structure at the sectoral level. In sectors where the composition of imports
and domestic goods differ substantially and where substitution elasticities
between the two types of goods are very low, a given tariff on actual imports
will have relatively less impact on the net price of the domestic good and
therefore less protective effect on domestic production, by contrast with the
protective effect obtained in a sector where the composition of imports and
domestic goods is similar and where substitution elasticities between the two
types of goods are high. For example, imagine an automotive sector where
imports are dominated by luxury cars and domestic production consists of
- 33 -
assembly of low-price cars. In such a situation, the Armington specification
will entail a very high tariff on imports of luxury cars to attain a given
level of protection for the local production of low-price cars. By contrast,
the partial equilibrium methodology computes the level of protection by
estimating the impact of tariffs and other protective measures on the price of
the local product, taking the border price of the perfect substitute as a
reference. At the level of aggregation usually retained in CGE models, the
level of effective protection resulting from the Armington specification will
therefore be different from the one estimated through the partial equilibrium
methodology. Furthermore, within the latter approach, different results will
be obtained depending on the treatment of non-tradeables, Accordingly, the
structure of nominal sectoral protection generated as a result of the
equalization of effective protection rates across sectors will vary with the
concept of effective protection used as a benchmark in the calculations.
The ERPG indicator is clearly the adequate measure of effective
protection from the point of view of consistency with the general equilibrium
framework of the CGE model. However, it suffers from an aggregation bias,
which is essentially due to differences in composition, and therefore to the
presence of complementarities, between the bundles of domestic and imported
goods that comprise the composite good at the sez_toral level. In a fully
disaggregated CGE model, this bias would disappear, as the ERPG would be
estimated with respect to close import substitutes only. However, this
property does not hold in the context ot the 15 sector Ivory Coast model, and
the ERPG indicator will in general differ substantially from the standard ERP
that would result from the averaging of ERPs estimated on a product by product
basis.
For these reasons, and despite its known weaknesses in a general
equilibrium context, we decided to retain the Corden ERP masure as an indicator
- 34 -
of effective protection in the following experiments (see Chapter 4).
(v) Trade Substitution and Export Supply Elasticities
We discuss in this section the determination of the estimates
retained for the trade substitution elasticities and for the elasticities of
the export supply functions.
A plausible range of trade substitution elasticities was first
determined from cross-sectional evidence based on CGE modelling experience in
other developing countries. The protected sectors in the model were then
grouped into three different categories corresponding to high, medium and low
trade substitution elasticities, on the basis of our knowledge of the product
composition within each individual sector in the Ivory Coast, Under the
central set of estimates, which has been retained for all base experiments,
the medium estimate for trade substitution elasticities is 0.8, indicating
that a 1.0% change in the relative price of imported to domestic goods induces
a 0.8% change in the ratio of imported goods to domestic goods in the
composite commodity demanded by domestic agents. Low and high estimates were
set at 0.6 and 1.1, respectively. Two alternative sets of estimates were
retained for the purposes of the sensitivity analyses, corresponding to the
high end and the low end of the range of realistic values.
A similar approach was followed in order to determine the
elasticities of the export supply functions. A central estimate of 0.5 was
applied to the base experiments across all sectors where export arbitrage
occurs, corresponding to the middle range of plausible values. This
elasticity indicates that a 1.0% change in the relative price of exports to
domestic goods induces a 0.5% change in the ratio of exports to sales on the
domestic market by exporters. Two alternative estimates were used for the
purposes of sensitivity analyses, corresponding to the high end (1.0) and the
low end (0.25) of realistic values.
- 35 -
II. POLICY EXPERIMENTS
CHAPTER 3: EXCHANGE RATE ADJUSTMENTS
In the first chapter devoted to policy experiments, the short-run
effects of exchange rate adjustments are considered. In Section 1, we discuss
the significance of the exchange rate issue in the current economic situation
of the Ivory Coast. We describe in Section 2 the economic mechanisms involved
in the experiments where tke exchange rate is adjusted. Finally, in Section
3, we present the analysis of the experiments.
1. The Exchange Rate Issue
As a member of the Franc Zone, the Ivory Coast has had a fixed
nominal exchange rate vis-a-vis the French Franc since independence. In
purchasing-power-parity (PPP) terms, the exchange rate of the CFA Franc (CFAF)
as against the currencies of the Ivory Coast's tradling partners remained
relatively stable until the mid-1970s. Taking 1973 as a base, the index of
the PPP exchange rate averaged 97.6% from 1960-1974, fluctuating within a
range of about 6.0%. However, it appreciated sharply after 1975, as a result
of the acceleration in the rate of domestic inflation, especially following
the coffee and cocoa boom in 1974. In comparison to 1973, the rate of
appreciation reached 28.7% in 1977 and remained at about 25% until 1980. A
depreciation in PPP terms with respect to the 1977-1980 situation then started
in 1980. This was mainly the result of the slowdown in the rate of domestic
inflation after 1980, and of currency movements within the European Monetary
System and between those currencies and the US dollar. Accordingly, in the
first quarter of 1983, the degree of overvaluation of the CFAF was estimated
at only 17.5% as opposed to its 1960-1974 value.
Nonetheless, the PPP index, which estimates the degree of
appreciation of the exchange rate resulting from differences in inflation
- 36
rates at home and abroad, is not an adequate indicator of the overvaluation of
the domestic currency as it does not take into account the effects of changes
in terms of trade and transfer payments on the country's foreign exchange
position.
The adequate measure is the equilibrium exchange rate, defined as
the exchange rate that equals the supply and demand of foreign exchange during
a certain period for a given set of trade taxes and subsidies. Changes in the
equilibrium exchange rate can be decomposed into several factors. Among the
most important are differential inflation, changes in terms of trade, and
changes in transfer movements with the rest of the world. 1/
Several factors suggest that the CFA Franc has in fact remained
largely overvalued from the point of view of the Ivory Coast, in spite of the
apparent improvement shown by the PPP index. The reduction in inflation
differentials with the country's trading partners, which led to the
depreciation of the PPP index starting in 1980, was accompanied by a sharp
deterioration in the terms of trade, estimated at 48.6% between 1977 and 1982,
of which 16.9% during the 1980-82 period. Between 1977 and 1982, the current
account balance deteriorated rapidly, as a result of both rising interest
payments on external public debt and continued increases in salary remittances
abroad. The former increased from 4.1% of exports of goods and services in
1977 to 21.0% in 1982, while the latter grew from US$ 344.2 million in 1977
(or 14.3% of exports of goods and services) to US$ 436.1 million in 1982 (or
19.2% of exports of goods and services). These factors also led to a
deterioration of the overall balance, which turned into deficit starting in
1979. By the end of 1982, continued deficit of the overall balance of
1/ See DMR, Chapter 6.3 and 10.3.
- 37 -
payments resulted in a negative net foreign assets position of US$ 1.2
billion.
During the rest of the decade, current price projections indicate no
further deterioration of the Ivory Coast's terms of trade. Moreover,
reductions in imports following the increase in domestic oil production, and
the possibility of oil export surpluses of 500,000 tons a year after 1987, are
likely to help the current account situation. However, it is not clear
whether this improvement will result in a corresponding reduction of the
degree of overvaluation of the CFA Franc. The availability of oil surpluses
could presumably lead to an increase in the inflation differential with
respect to the country's trading partners. Furthermore, despite these
increases in domestic oil production, continued deficits of the overall
balance are projected over the rest of the decade. The debt burden in
comparison to exports of goods and services will continue to increase until at
least 1985, and lower inflows of external public capital resulting from sharp
cuts in the public investment program until 1985 will not be matched by
corresponding reductions in the current account deficits, at least under the
present set of trade policies.
Given the position of the country within the Franc Zone, many
difficulties arise in addressing the exchange rate issue. The exchange rate
policy of the Ivory Coast must be understood within the framework of the
Western Africa Monetary Union, and any modification of the parity of the CFA
Franc with respect to the French Franc should be discussed in that context.
However, alternative arrangements are possible within the existing
institutional framework. In particular, it should be recognized that there is
no conceptual incompatibility between the continuation of the convertibility
agreements and the introduction of periodical parity modifications within the
Franc zone.
- 38 -
Ultimately, the analysis of flexible exchange rate policies should
be carried out from a medium to long-term perspective in a dynamic
framework. However, in our opinion, comparative statics experiments carried
out with a general equilibrium model can provide a useful first contribution
toward a better understanding of this issue from several points of view.
First, there is a need to address the issue of overvaluation beyond simple
estimates of the PPP index. Second, there is a need to quantify the impact of
flexible exchange rate policies on the economy as a whole. Third, it may be
useful to concentrate on the analysis of the impact of such policies in the
context of a single period model, before expanding the analysis to take into
account dynamic effects.
2. Economic Mechanisms Involved
The analysis of flexible exchange rate policies presented in the
next section consists of simulating the response of the economy to a tighten-
ing of the foreign exchange constraint. This is done under alternative
hypotheses concerning key behavioral parameters of the model, such as the
response of exporters to changes in relative prices at home and abroad, or
under alternative foreign trade and incentive policies, particularly
concerning quantitative import restrictions in key sectors.
Starting from a position of an overall balance of payments deficit,
a tightening of the foreign exchange constraint calls for a devaluation, which
primarily results in a change in the relative price of imported to domestic
goods, and in a reduction in the available savings to the economy. The
overall net effects will depend on "sectoral tradeablility" characteristics
and on the pattern of demand adjustment following the reduction in the inflow
of foreign savings.
A devaluation raises the relative domestic price of close import
- 39
substitutes and exportables, and lowers the relative domestic price of less
tradeable commodities or commodities that behave as import complements. On
the production side, this relative price change induces an expansion in the
production of exports and import substitutes, and a contraction in the
production of less tradeable commodities and import complements. On the
demand side, an expenditure switching effect takes place, followed by a
reduction of domestic demand for exportables and import substitutes, and an
increase in domestic demand for non-tradeables and import complements.
Overall, the effects of the devaluation on the sectoral net prices structure
will depend on a number of "sectoral tradeability" characteristics, namely:
the share of exports in total production; the share of imports in total
domestic demand; the ratio of imports to intermediate inputs; and trade
substitution elasticities. A devaluation raises the relative net price of
sectors with high export shares; has a larger impact on sectoral net prices,
the higher the share of imports in total demand; lowers the relative net price
of sectors with a high ratio of imports to intermediate inputs; and tends to
raise (lower) the net price in sectors with high (low) trade substitution
elasticities, or import substitutes (complements). Sectoral tradeability
indicators for each sector are given in Annex 3. The extent to which these
effects mutually reinforce or counterbalance each other can be determined only
in a general equilibrium framework.
The pattern of demand adjustment following the contraction of the
inflow of foreign savings is the other key determinant of the structure of
relative net prices under a flexible exchange rate regime. When the model is
supposed to be savings-driven (see Chapter 2.3), investment adjusts to match
available total savings (i.e., domestic and foreign). Although the
expenditure-reducing effect of the devaluation may also induce a contraction
- 40 -
in real private and public consumption, the burden of adjustment falls
primarily on investment demand, resulting in a downward pressure in the
relative price of capital goods as opposed to consumer goods. On the other
hand, when the investment level is to be maintained, savings ad just to bring
the domestic gap in line with the foreign exchange gap. In this case, the
burden of adjustment falls on consumption, both public and private, and the
expenditure-reducing effect of the devaluation is relatively weaker on
investment. This results in downward pressure on the relative price of
consumer goods and capital goods.
Finally, the impact of the devaluation will depend on quantitative
import restrictions. The adoption of an import quota will tend to reduce the
impact of the devaluation on the net price in the sectors, in cases where
quantitative import restrictions are binding. The devaluation will result in
this case in a reduction of the import premium accruing to license holders.
Correspondingly, in contrast to a scenario where quotas remain binding, the
removal of the quota in conjunction with a move to a flexible exchange rate
regime will result in stronger sectoral net price changes, as a larger
devaluation will be required to reach balance of payments equilibrium, and as
its effects will be directly transmitted to import prices.
Just as the prices of outputs in all sectors are relative prices,
the exchange rate is treated as a relative price in the CGE model. In this
sense, changes in the exchange rate refer to changes above the differential
between domestic and world inflation. A change in the nominal exchange rate
from period to period just offsetting differential world and domestic
inflation rates would correspond to a constant real (or price level deflated)
exchange rate. Only if the change in the exchange rate exceeds (falls skort
of) this differential will there be a depreciation (appreciation) in the real
exchange rate.
-4 1-
3. Analysis of the Experiments
In this section, we analyze the impact on the economy of a
tightening of the foreign exchange constraint in a situation where the
exchange rate is allowed to adjust. First, we present the results of a base
experiment carried out under a central set of estimates for trade substitution
and export supply elasticities. We then turn to a series of sensitivity
experiments realized under different assumptions on these elasticities. Next,
we discuss an experiment carried out under an alternative assumption
concerning the adjustment of the investment savings gap. Finally, we present
the results of an experiment where balance of payments equilibrium is imposed
as a constraint on the economy.
These experiments have been carried out under the assumption that
produicer prices in the agricultural sector are kept constant in real terms in
the short run. This assumption resulted in only marginal variations
(generally less than one percent across experiments) in the corresponding
value added prices following the adjustments in the exchange rate. Also,
import quotas have been assumed to remain in affect throughout the
experiments. In the interpretation of this section's results, it must however
be kept in mind that the effects of the removal of quotas may be significant,
as shown in Chapter 5.
The objective of all but the last experiments of this section is a
reduction by a half of balance of payment deficit. Such a reduction of CFAF
70 billion out of an overall deficit of CFAF 145 billion in the reference year
corresponds to an ex-ante decrease of foreign savings by 3.5% of GDP. This
undoubtedly represents a drastic stabilization effort which, nonetheless,
remains in line with the targets set under the original IMF program (see
chapter 1.2). In the last experiment, the balance of payment objective is a
-42-
zero deficit. The objective of this experiment is not to simulate the
adjustment of the economy to an operational balance of payments target in the
short-run, but rather to estimate the theoretical equilibrium exchange rate as
defined above.
(i) Base Experiment
The base experiment has been carried out with the central set of
estimates for the trade substitution and export supply elasticities. It shows
that the balance of payment target can be achieved with a real devaluation
estimated at 9.5%, accompanied by a decrease in GDP at market prices of
2.0%. The most important elements of the adjustment of the structure of the
economy called for in the experiment are: a substantial improvement in public
finance; a sharp decrease of household income and consumption; and dramatic
shifts in the structure of relative prices and external trade. Detailed
results are presented in table 3.1 below.
The decrease in GDP and the dramatic change in its structure can be
seen as essentially the result of the decline in investment (-6.6%) following
the reduction of the inflow of foreign savings in the economy induced by the
reduction in the balance of payments deficit. Construction value-added
declines by a sharp 6.0% and services value-added drops by 1.9%, while
agriculture remains practically constant and industry declines by 0.9%.
Similar changes occur in the structure of output. Illustrative of the impact
of investment demand, for instance, is the fact that the output of the
engineering industry sector declines (-2.6%), because the increase in its
exports (+1.0%) and the decrease in competing imports (-6.9%) which are
induced by the devaluation cannot offset the decline in demand for equipment
resulting from the lower investment level. By contrast, output remains
practically constant in food processing and textiles (+0.1% and 0.5%,
respectively).
-43-
Table 3.1
Summary of Base Experiment(percentage deviation from reference year)
Real Devaluation +9.5
Aggregate Figures (volumes)
GDP of Agriculture -0.1 Industrial Exports (in $) +5.0Industry -0.9 Total Exports (in $) +1.3Construction -6.0 Total Imports (in $) -6.9Services -1.9
GDP at Factor Prices -1.6 Composite Goods Prices +2.1GDP at Market Prices -2.0 Net Prices -0.9
Capital Goods Prices +3.3Investment -6.6 Import prices +8.4Government Consumption -2.6Private Consumption -4.8 Import/Domestic Supply -7e2
Exports/Domestic Output +3.4Industrial Output -0.8Total Output -1.8
Sectoral data for some selected sectors
Composite Value-added
prices prices 1/ Output Exports(in $) Imports(in $)
Subsistence crops -2.3 -5.0 -0.1 ---- -10.4Mining petroleum +8.5 +9.2 0.0 +1.4 -3.3Food processing +1.0 +1.5 +0.1 +6.4 -9.4Textiles -2.9 +0.3 +0.5 +5.4 -0.3Chemicals +5.7 -0.3 -1.2 +2.6 -8.0Const. materials +3.9 +1.7 +0.4 +4.7 -10.1Engineering +7.5 -1.2 -2.6 +1.0 -6.9Utilities +0.1 -1.8 -2.1 ---- ----Construction +1.4 -3.2 -6.0 ---- ----Services +0.8 -0.8 -1.9 +0.8 -8.0
1/ Value-added per unit of output.
-44-
The public finance effect is quite significant, as government
revenue increases by 4.8%, resulting in a substantial increase in public
savings (+25.8%). This is the result of the combination of two important
factors.
The first factor is the increase in the Stabilization Fund surplus
by 32.4%, bringing its share in government revenue from 16.1% to 20.3%. This
results directly from the increased differential between export and domestic
prices of agricultural products following the devaluation, as export prices in
domestic currency terms increase more than proportionately by comparison with
domestic producer prices. This effect demonstrates the importance of the
Stabilization Fund mechanism, not only because of its obvious role as a source
of revenue for the public budget, but also because of its impact on the
overall level of investment through the public savings effect. In particular,
if the additional revenue generated by the exchange rate adjustment had been
completely passed on to producers, the pattern of demand would have been quite
different, and the evolution of the economy would have been substantially
affected through the impact on investment and capital formation.
The second factor is the 2.5% increase in tariff receipts
originating from the fact that the decline in the volume of imports is more
than offset by the increase in their domestic price due to the devaluation.
The result is an overall increase in government revenue despite a
slight fall in direct tax receipts (-4.5%). Since current public expenditures
(i.e. consumption and transfers) are assumed to remain constant in nominal
terms in the short-run, this translates into a substantial increase in
govermnent savings. However, this increase is smaller than that of public
income since, on the expenditure side, the domestic currency value of
-45-
transfers abroad rises as a consequence of the devaluation. -
This increase in government savings raises the share of public
savings in total savings from 14.4% to 18.8% and nearly offsets the decrease
in foreign and domestic savings (-10.0% and -4.5% respectively) which occurs
as a result of the reduction in the balance of payments deficit and of the
decrease in household income. Overall, nominal savings decline only by 3.6%,
and the drop in real investment results mostly from the increase in capital
goods prices.
As a direct consequence of the decrease in GDP, nominal household
income drops by 5.1%. Since households remittances abroad are also fixed in
foreign currency terms, -/ disposable income is further deteriorated and
domestic savings and consumption by households are reduced by 4.5% and 4.4%
respectively in nominal terms.
Relative sectoral value-added pries are substantially modified as a
result of the exchange rate adjustment, following the marked shifts in demand
and supply patterns, and also following the structure of the sectoral
tradeability indicators (see 3.2 above). Investment goods (engineering goods
and construction) as well as less tradeable sectors (such as utilities or
services) see their relative prices drop sharply, whereas the prices of more
tradeable sectors increase significantly.
Finally, the pattern of foreign trade is significantly modified, as
the economy becomes more export oriented and less import dependent.
Industrial exports increase by 5.0%, inreasing the ratio of export to
domestic output by 3.4% with respect to its reference year value, while the
1/ To the extent that those transfers represent interest payments, thisrepresents a reasonable assumption.
2/ Realistic in the short-run, this assumption will have to be modified in alonger-run analysis.
-4 6-
ratio of imports to domestic supply decreases by 7.2%, as a direct result of
the changes in relative prices induced by the adjustment.
(ii) Sensitivity Analysis
The role of trade elasticities in the adjustment has been emphasized
in section 2 of this chapter. As these elasticities determine the extent of
export and import movements following changes in relative prices, it is
important to assess the sensitivity of the preceding results to the value of
these elasticities. Whereas the base experiment has been carried out under a
medium set of values for trade and export elasticities (see the numerical
values in chapter 2.2), experiments 1 and 2 presented in this subsection have
been carried out assuming, respectively, a high and a low export response,
keeping trade elasticities at their medium values. Experiments 3 and 4 have
been carried out with high and low trade elasticities, keeping export
elasticities constant. The results are presented in the first five columns of
Table 3.2 below.
The experiments show the expected effects of different assumptions
on the elasticities as to the size of exchange rate adjustments, increase in
exports and reduction in imports. However, all experiments result in a
similar contraction of GDP. Moreover, they confirm the importance of the
public finance effect, which prevents a sharp drop in real investment
following the increase in public savings.
The size of the exchange rate adjustments is consistent with the
assumptions on elasticities, increasing as export and trade elasticities
decrease. The required devaluation varies between 7.6% and 11.2%, indicating
a reasonable estimate for the exchange rate adjustment in the 8 to 10% range.
The shifts in the trade structure vary accordingly. The ratio of imports
Table 3-2
Summary of Sensitivity Analysis Experiments(Percentage deviation from reference year)
Base High Export Low Export High Trade Low Trade Real EquilibriumExperiment Response Response Elasticity Elasticity Investment Exchange
Experiment 1 Experiment 2 Experiment 3 Experiment 4 Maintained Rate
Real Devaluation +9.5 +7.8 +10.5 +7.6 +11.2 +9.5 +31.1
Real GDP Agriculture -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.4Industry -0.9 -0.4 -1.2 -1.0 -1.0 -0.4 -2.5Construction -6.0 -7.0 -5.4 -7.4 -4.8 -0.3 -19.8Services -1.9 -1.8 -1.9 -1.7 -2.2 -2.6 -6.0
Real GDP at Market Prices -2.0 -1.9 -2.0 -2.1 -2.0 -1.5 -6.6Investment -6.6 -7.3 -5.8 -7.7 -5.8 0.0 -20.5Government Consumption -2.6 -2,1 -2.9 -2.i -3.0 -24.4 -7.3Private Consumption -4.8 -4.4 -5.1 -4.5 -5.3 -4.0 -14.1Total Output -1.8 -1.8 -1.8 -2.0 -1.7 -1.0 -5.7
Industrial Exports (in $) +5.0 +8,9 +2.1 +3.9 +6.0 +5.7 +14.5Total Exports (in $) +1.3 +2.0 +0.8 +1.0 +1.5 +1.3 +3.9Total Imports (in $) -6.9 -6.1 -7.2 -7,0 -6.8 -6.6 -19.4
Composite Goods Prices +2.1 +1.7 +2.4 +1.7 +2.5 +2.2 +6.8Value-Added Prices -0.9 -0.7 -1,0 -0.6 -1.1 -1.0 -1.6Capital Goods Prices +3.3 +2.5 +3.8 +2,5 +4.1 +3.5 +10.5Import Prices +8.4 +6.9 +9.3 +6.7 +10.0 +8.5 +28.3
Imports/Domestic Supply -7.2 -6.2 -7.6 -7.1 -7.3 -7.8 -11.6Exports/Domestic Output +3.4 +4.1 +2.8 +3.2 +3.6 +2.5 +10.3
-48-
to domestic supply varies between -7.2% and -6.1%, and the ratio of export to
domestic output ranges from +0.8% to +2.0%.
The change in investment varies significantly across experiments,
ranging from -7.7% to -5.8%. This is a direct consequence of the public
finance effet previously described: the larger the devaluation, the larger the
surplus of the Stabilization Fund (between +25.8% and +38.3% the larger the
increase in public savings (between +16.7% and +33.3% and therefore the larger
real investment.
Finally, it is interesting to note that the level of real GDP
obtained in the different experiments is of similar magnitude. This is
because the various effects of exchange rate adjustments on GDP tend to
compensate one another. For instance, the experiment with the lowest exchange
rate adjustment is also the one which is done under the assumption of a high
export response (explaining why a lower exchange rate adjustment is needed),
involving a relatively higher value-added in the industrial sector, which
compensates for the relatively lower value added in construction anld services
following the decrease in investment demand. Overall, this experiment results
in a GDP level comparable to the one obtained under the experiment with the
highest investment rate.
(iii) Exchange Rate Adjustment with Constant Real Investment
While we assumed in the previous analysis that the level of
investment adjusts to available savings, in the following equipment government
adjusts its savings rate in order to sustain a given level of overall real
investment (See Table 3-2; column 6). This policy is preferable to the other
ones presented in this chapter as it results in a higher GDP level and an
increase in households' real income with an exchange rate adjustment of the
same order of magnitude. However, this result is achieved only through a
-4 9-
severe reduiction in current public expenditure, which would undoubtedly be
difficult to implement in the short run. A maintained real investment level
and a fall in current public expenditure are the two elements which explain
the central results of this experiment, namely an increase in construction
value-added which drives overall GDP, a drop in utilities and services sectors
activities and prices, and an increase in household real income.
The much larger demand for investment goods sectors, as compared
with the base experiment, explains why the structure of GDP is distorted in
favor of construction, which declines only by 0.3% by comparison with a drop
of 6.0% in the base experiment. It also explains the slightly better
performance of the industrial sector which, as a result of the substantial
increase in engineering industries and construction materials value added,
increases slightly above its reference year value. As a consequence, overall
GDP is higher than in the base experiment, yielding a higher nominal household
income.
The reduction in government expenditure is a direct consequence of
the assumption made in the model concerning the savings-investment adjustment
under an investment-driven regime, i.e. that public savings adjust in order to
match the desired level of investment (see chapter 2.3). Thus, in this
experiment, public savings increase by 74.0% above their reference year value,
whereas the corresponding figure was 25.8% under the base experiment. Since
the increase in public revenue due to the devaluation (Stabilization Fund and
tariff effects) is not sufficient to meet the additional savings required,
government expenditure make up for the difference, resulting in a drop of
22.8%. As government expenditure represents about 16% of the demand for the
utilities sector and 9% of the demand for the services sector, this explains
the drop in output, prices and value-added of these two sectors.
-50-
Overall, these two types of effects (boost of investment goods
sectors and drop of utilities and services) compensate each other in terms of
import and price levels. Compared with the base experiment, the increase in
imports required by the larger investment is almost offset by the lower
services imports. Consequently, the exchange rate adjustment is of the same
order of magnitude (+9.5%) in both cases. A comparable price level is also
obtained under both experiments, as the increase in investment goods prices is
compensated by a decrease in prices for utilities and services, while the
exchange rate is devalued by a similar amount. This, in turn, explains why
the increase in nominal household income can be translated into an increase in
real income, leaving households better off in this experiment.
(iv) Equilibrium Exchange Rate
This last experiment simulates the response of the economy to a
hypothetical situation where balance of payments equilibrium would need to be
reestablished in the short run. The objective of the experiment is not to
represent an adjustment to an "operational" balance of payment target, but co
obtain an estimate of the real equilibrium exchange rate at a given point in
time under a central set of estimates concerning trade substitution and export
supply elasticities. The results of the experiment are presented in Table
3.2, column 7.
The required equilibrium of the balance of payments is achieved
through a 31.1% of devaluation, which is accompanied by a 6.6% drop in real
GDP at market prices and by a 20.5% drop in real investment. The adjustment
of the trade balance is achieved essentially through a substantial decrease in
imports (-19.4%), while total exports grow only by 3.9%. The growth in
industrial exports (+14.5%) is significantly higher compared to the result
obtained under the base experiment. As expected, the higher devaluation
-51-
results in a sharp increase in import prices and in capital goods prices,
while the decline in value added net prices is more pronounced than under the
base experiment.
The estimate of the equilibrium exchange rate should not be
interpreted as the rate of devaluation which would be needed in order to
achieve balance of payment equilibrium within a given year. First, as shown
in the previous analysis, this estimate is sensitive to the values assigned to
trade substitution elasticities and export supply elasticities. Second, the
estimate refers only to the real devaluation needed to yield the required
adjustment. Any estimation of the rate of nominal devaluation needed to
achieve the balance of payment target would require to take into account the
impact of the inflation differential with the rest of the world, which would
in turn require to incorporate monetary policy, credit mechanisms, and the
process of financial intermediation in the model. However, as an estimate of
the marginal value of foreign exchange for the Ivory Coast under the existing
system of incentives, it provides a second best shadow price of foreign
exchange in that reference year.
-52-
CHAPTER 4: TARIFFS AND EXPORT SUBSIDIES REFORMS IN THE INDUSTRIAL SECTOR
In this chapter, we analyze the short term general equilibrium
effects of changes in the tariff and export incentive structure in the
industrial sector. In section 1, we discuss the relevance of these policy
reforms in the context of the structural adjustment program in the Ivory
Coast. We analyze in section 2 the economic mechanisms involved. Finally, in
section 3, we present the experiments.
1. Policy Issues
Up to the mid-seventies, the development of the industrial sector
took place in the context of a relatively simple system of incentives. This
system was based on moderate tariffs that applied fairly uniform protection
between the different branches of activity, without reliance on quantitative
import restrictions.
This situation was modified by the 1973 tariff reform,which resulted
in a more escalated tariff scale according to the degree of processing, and in
substantial distortions in the degree of effective protection given to
particular industrial branches. Average effective tariff protection
coefficients (ETP) have been estimated on the basis of the average nominal
tariff protection coefficients derived both under the pre-1973 and the post-
1973 tariff schedules.1 Between 1971 and 1978, the average effective tariff
protection coefficient for the industrial sector as a whole increased from
1.39 to 1.76. The subsectoral ETP varied, in 1971, between 1.19 and 2.06
whereas the interal widened between 0.92 to 2.18 in 197 , with, for instance,
increases of the order of 30% in canning and food processing and in grain
products.
1/ See M. Noel [1982]
-5 3-
Starting in 1975, the proliferation of quantitative import
restrictions induced increasing distortions in the structure of effective
protection across subsectors. Empirical studies conducted at the firm level
showed a high degree of correlation between the pattern of effective
protection and domestic resource cost estimates, revealing considerable
distortions in the allocation of resources toward activities that earn (or
save) foreign exchange at a high cost in terms of domestic resources, and away
from activities which could have developed at a comparative advantage for the
country.
Increasing protection for sales on the domestic market resulted in a
growing bias against exports. Estimates based on 1978 firm-level data showed,
for instance, a bias against exports of 54% in spinning, weaving and dyeing,
122% in other textile products, and 101% in canned and processed food.
In this context, the Government is undertaking a comprehensive
reform of the system of industrial incentives, based on three main elements:
(i) a complete revision of the customs tariff, with the objective to equalize
effective tariff protection coefficient across industrial subsectors and,
within each subsector, between the various stages of processing; (ii) the
implementation of an across-the-board subsidy on export value added for
manufactured goods, designed to compensate for the degree of effective tariff
protection on domestic sales; and (iii) the removal of quantitative import
restrictions and their replacement by temporary import surcharges that will
decline over time.
The analysis of these reforms in a general equilibrium framework is
of particular relevance for policy makers, who have to take into account their
impact on internal and external equilibria. Ultimately, this analysis should
be carried out in an intertemporal context using a dynamic general equilibrium
-54-
model. However, at this stage, the estimation of the main macroeconomic
adjustments triggered by the reforms in a static general equilibrium framework
is of considerable interest as a first step toward improving on analyses
carried out in a partial equilibrium context.
2. Economic Mechanisms
The analysis carried out in the following experiments consists in
simulating the response of the economy to a tightening of the foreign exchange
constraint under a fixed exchange rate regime. The adjustment is achieved
through a change in the average level and in the structure of tariffs and
through an across-the-board subsidy on export value added in the industrial
sector, together with the removal of binding quotas. In line with the policy
reform, the change in tariffs is constrained to yield equal effective tariff
protection across industrial sectors. At the same time, the across-the-board
subsidy on export value added is constrained to equal the effective tariff
protection rate, in order to neutralize the bias against exports inherent in
the system of tariff protection.
As a result of the reduction in the inflow of savings from the rest
of the world, the economy must achieve a corresponding reduction in its trade
balance deficit through a decrease in imports anid an increase in exports. The
decrease in imports results (i) from an expenditure-reducing effect, due to
the impact on domestic demand of the reduction of foreign savings, and (ii)
from an expenditure- and output-switching effect which results, under a fixed
exchange rate regime, from the change in the level of tariffs. This switching
effect could be achieved through an across-the-board increase in nominal
tariffs for industrial products. In s ch an experiment, the structure of
effective tariff protection across sectors would be modified only slightly
after the adjustment, and the switching effect would result primarily in a
-55-
modification in the structure of output and demand between tradeables and non-
tradeables, and to a lesser extent between tradeables themselves. On the
other hand, the expenditure reducing effect can have a substantial impact on
the structure of output and demand both between tradeables and non-tradeables
and between tradeables themselves, depending on the type of adjustment
assumed. In a savings driven model, the level of investment is reduced in
line with available savings, and the burden of adjustment falls on investment
goods. In an investment driven model, domestic savings must increase in line
with the level of investment at the expense of consumption, and the burden of
adjustment falls on consumption goods.
In the following experiments, the switching effect is achieved
through an overall increase in the average nominal tariff level in the
industrial sector and through substantial changes in the structure of nominal
tariffs to satisfy the constraint of equalization cf effective tariff
protection across subsectors. As a result, the switching effect by itself
will entail larger changes in the structure of output than in the previous
case, in addition to the change induced by the expenditure reducing effect.
The change in the structure of tradeables depends, as under ' 5
flexible exchange rate adjustment, on the tradeability characteristics of
individual sectors. In the case of an import substitute, an increase in the
tariff rate will decrease the demand for imports of that good and increase the
demand for its domestic substitute. In the extreme case of a complementary
good, (not present in the model), the demand for this good would not decrease
and the expenditure devoted to this good would be higher, at the expense of
other goods.
Changes in the level of tariffs will induce changes in tariff
revenue for the government, the direction of the change depending on the
5 6-
relative volume and price effects. In turn, this change will induce a
proportionate adjustment in another iten of the govermnent budget, with the
net impact on the economy depending on the type of adjustment retained
(consumption, transfer, savings).
Contrary to a change in the level of tariffs, the introduction of an
across-the-board subsidy on export value added does not modify directly the
structure of domestic prices. The effects of the subsidy work through the
possibilities of arbitrage between domestic and export markets for producers
of manufactured goods. The value added subsidies make exports more profitable
and will therefore generate a shift of production towards export markets, at
the expense of domestic sales. This will be accompanied by a change in the
level of production since the net price for exporters increases. As production
increases, households' income and demand increase. The combined effects of
this change in production and demand will affect the domestic price structure.
The introduction of export subsidies also will induce a change in
government expenditures. As in the case of tariffs, this change induces a
proportionate adjustment in another item of the govermnent budget.
3. Analysis of the Experiments
In this section, we discuss the effects on the structure of the
economy of a tightening of the foreign exchange constraint under a fixed
exchange rate of regime, with the adjustment made through an across-the-board
tariff-cum-subsidy scheme in the industrial sector. First, we discuss the
results of the base experiment, in which the model is run under the assumption
that investment adjusts to available savings in the economy, with a central
set of estimates for the trade substitution and export supply elasticities.
We then turn to a discussioni of the sensitivity analysis experiments carried
out on these trade parameters. Finally, we present an alternative version of
-5 7-
the base experiment where real investment is maintained at its original level
in the reference year. As in the previous chapter, the experiments carried
out in this section pertain to a reduction in the overall balance of payments
deficit by one-half.
(i) Base Experiment
Under the central set of estimates for trade substitution and export
supply elasticities, the balance of payments objective is achieved through an
increase in the average tariff level of 77.9% (corresponding to an average
nominal tariff rate of 33.8% compared to 19.1% before the adjustment), and
through the introduction of an across-the-board subsidy of 57.8% on export
value added which exactly offsets the effective protection rate obtained in
the industrial sector, At the same time, the equalization of the Corden
measure of effective tariff protection rates across industrial subsectors
results in substantial changes in the nominal tariff structure. Tariff rates
increase by more than 80% in sectors producing mainly intermediate goods, such
as chemicals (+117.2%), construction materials (88.2%), and engineering
industries (+158.8%), compared with relatively smaller increases in
consumption goods sectors, such as food processing (+7.4%) and textiles
(+31.6%).
The adjustment to the balance of payments target is acccmpanied by
an overall decrease of 2.1% of GDP, a substantial improvement in the public
finance situation, a decrease in household inccme and consumption, and
dramatic shifts in the structure of relative prices and external trade. Table
4-1 presents the main results of the experiment.
-5 8-
Table 4-1
Summary of Base Experiment
(Percentage Deviation from Reference Year 1)
Average Tariff Level 33.8%
Average Tariff Increase +77.9%
Average Effective Protection Level: 57.8%
Average Export Subsidy Level: 57.8%
Aggregate Figures (Volumes)
GDP of Agriculture +0.1 Industrial Exports (in $) +11.4Industry +1.1 TotalExports (in $) +1.6Construction -7.5 Total Imports (in $) -6.6Services -3.6
GDP at Factor Prices -1.8 Composite Goods Prices +2.5GDP at Market Prices -2.1 Net Prices -2.4
Capital Goods Prices +8.2
Investment -8.4 Import Prices +10.2Government Consumption -3.4Private Consumption -4.1 Imports/Domestic Supply -5.6
Export/Domestic Output +4.0Industrial Output +1.4Total Output -2.1
Sectoral Data for Selected Sectors
Composite Value Added Output Exports ImportsPrices Prices _ ($) ($)
Subsistence Crops -4. -5.2 -0.1 - -3.8
Mining & Petroleum -0.5 -6.7 +0.0 +0.9 -2.0
Food Processing -2.6 +2.4 +2.0 +10.9 -5.4Textiles -14.5 +3.8 +1.9 +16.0 +25.7
Chemicals +13.8 +2.0 +1.4 +5.9 -13.2
Construction Materials +4.8 +8.9 +7.3 +19.1 -15.3
Engineering +22.2 -2.3 -2.8 -0.7 -12.7Utilities -0.5 -3.3 -2.8 - -
Construction +2.6 -5.3 -7.5 - -
Services -1.1 -3.5 -3.6 -3.3 -4,4
1/ Unless otherwise noted.7/ Value-added per unit output.
-5 9-
On the supply side, the decrease in GDP results from the sharp
decline in construction sector value added (-7.5%) and in services value added
(-3.6%), which contrast with the quasi-stagnation of agriculture (+0.1%) and
of the industrial sector (+1.1%). This change in the structure of GDP results
from the sharp decline of investment (-8.4%) that follows from the reduction
in the inflow of savings from the rest of the world. The combination of the
reduction in investment demand and of the sharp changes in the structure of
trade incentives results in substantial modifications in the structure of
industrial output. Output and exports expand significantly in food
processing, textiles, and construction materials. In textiles, the expansion
of exports and of output is accompanied by a marked increase in imports
following the removal of quantitative import restrictions. This suggests the
need for a drastic change in the composition of output inside this sector,
toward production lines that can compete on export markets with the subsidy
and away from those that were previously protected by the quotas. By
contrast, output declines in chemicals and in engineering products, following
the decline in domestic investment demand, despite the relatively higher
increase in effective tariff protection in these two sectors.
The public finance effect of the tariff-cum-subsidy schemes much
stronger than the effect obtained through the adjustment of the exchange rate,
and the resulting structure of public finances is also markedly different,
Government revenue increases by 19.7% as against 4.7% under the experiment
with exchange rate adjustment, as tariffs receipts increase by 67.8% from
CFAF 158 billion to CFAF 266 billion. On the expend ture side, total utlays
for the export subsidy amount to CFAF 27 billion. As the other components of
public expenditure remain unchanged, this tznslates into a marked increase in
government savings, which amount to CFAF 161 billion after the tariff-cum-
-6 0-
subsidy adjustment, compared to CFAF 115 billion under the exchange rate
adjustment.
This sharp increase in government savings practically offsets the
decline in foreign savings, resulting in stable level of overall nominal
savings and investment after the adjustment. Interestingly, a similar result
was also obtained when the adjustment was made through a change in the
exchange rate, although the relative weight of the public savings and of the
foreign savings adjustments was different in the latter case. Under the
exchange rage adjustment, the relatively smaller increase in public savings
was compensated by a relatively smaller decline in foreign savings, as the
reduction of foreign savings in dollar terms was partly offset by the
devaluation. Under both types of adjustment, the decline in real investment
therefore results mostly from the increase in capital goods prices. Real
investment declines more sharply under the second type of adjustment, however,
(-8.4% as compared to -6.6% under the exchange rate adjustment), as the
introduction of the tariff-cum-subsidy scheme results in a larger increase in
capital goods prices (+8.2% as compar,ed to +3.3% under the previous case).
This is because the nominal tariff on capital goods rises more than
proportionately with respect to the overall tariff increase in the industrial
sector as a result of the equalization of effective tariff protection across
subsectors.
The structure of sectoral net prices is substantially modified as a
result of the tariff-cum-subsidy adjustment. These modifications arise from
the demand and supply effects generated by the adjustment, as well as from the
change in the nominal tariff structure imposed by the equalization of
effective tariff protection rates across sectors. By comparison with the
results obtained under the exchange rate adjustment, changes in sectoral net
-61-
prices ace generally more pronounced, with larger increases obtained for
textiles (+3.8% vs. +0.3%) and construction materials (+8.9% vs. +1.7%) and
larger declines obtained in the case of non-tradeable sectors. This is
because the non-tradeable sectors are negatively affected both by a relatively
sharper drop in domestic demand and by a relatively higher increase in the
price of their intermediate inputs, following the change in the structure of
tariffs, by comparison with the situation resulting from the exchange rate
adjustment.
Finally, the trade orientation of the economy is substantially
affected as a result of the tariff-cum-subsidy adjustment. Industrial exports
grow by 11.4%, by comparison with a 5.0% increase under the exchange rate
adjustment.
(ii) Sensitivity Analysis
This section presents a series of alternative experiments carried
out under different sets of trade and export supply elasticities. Experiments
1 and 2 have been realized assuming a high and a low export response,
respectively. Experiments 3 and 4 have been done with high and low trade
elasticities, keeping export elasticities constant. The results are presented
in Table 4.2 below.
As in the case of the experiments carried out with exchange rate
adjustment, the present sensitivity analysis shows the expected effects of the
assumptions on trade and export supply elasticities on the level of effective
protection and of expo't-' subsidy across sectors, on the increase in exports,
and on the decrease in imports. On the other hand, the contraction of GDP
following the ad ! istment to lower inflows of foreigni savings is remarkably
similar across experiments.
Table 4-2
Summary of Sensitivity Analysis Experiments(Percentage deviation from reference year)
Base Experiment Experiment I Experiment 2 Experiment 3 Exeriment 4 Experiment 5High Export Low Export High Trade Low Trade Real InvestmentResponse Response Elasticity Elasticity Maintained
Average Tariff Level 33.8 30.1 35.7 32.5 33.9 34.6
Average Tariff Increase +77.9 +58.6 +88.0 +70.8 +78.2 +82.3
Average Effective ProtectionLevel 57.8 50.0 61.8 54.9 57.8 58.9
Average Export Subsidy Level 57.8 50.0 61.8 54.9 57.8 58.9 g
0'Real GDP Agriculture +0.1 +0.2 +0.1 +0.1 +0.1 +0.1 f
Industry +1.1 +2.7 +0.1 +1.7 +1.1 .+1.6Construction -7.5 -8.5 -6.3 -7.7 -5.8 +0.3Services -3.6 -2.8 -309 -2.9 -3.5 -4.8
Real GDP at Market Prices -2.1 -1.5 -2.4 -1.7 -1.9 -1.7
Investment -8.4 -9..2 -7.8 -8.5 -7.9 0.0Government Consumption -3.4 -2.6 -3.8 -3.2 -3.6 -33.7Private Consumption -4.1 -2.8 -4.7 -3.4 -3.8 -3.1Total Output -2.1 -1.6 -2.3 -1.8 -1.8 -1.1Industrial Exports +11.4 +20.7 +5.7 +11.7 +11.9 +12.3Total Exports (in $) +1.6 +3.4 +0.5 +1.8 +1.8 +1.6Total Imports (in $) -6.6 -4.9 -7.5 -6.3 -6.1 -6.6
Composite Good Prices +2.5 +1.7 +3.0 +2.2 +2.6 +2.7Value Added Prices -2.4 -1.5 -3.0 -2.3 -2.4 -2.8Capital Goods Prices +8.2 6.2 +9.4 +7.6 +8.4 +8.8Import Prices +10.2 +7.1 +11.7 +9.1 +10.2 +10.6
Imports/Domestic Supply -5.6 -3.5 -6.8 -5.3 -5.6 -6.9Exports/Domestic Output +4.0 +5.5 +3.0 +3.8 +4.0 +2.9
-63-
The balance of payments objective is achieved by an increase in the
average tariff level ranging from +56.6% to +88.0%, wiich results in an
average effective protection level and in a corresponding export subsidy
varying between 50.0% and 61.8%. The structure of foreign trade shifts in
accordance with the variations in the tariff-cum-subsidy scheme, with the
ratio of imports to domestic output varying between -3.5% and -6.8%, and the
ratio of exports to domestic output ranging from +3.0% to +5.5%.
The contraction of GDP following the adjustment to lower inflows of
foreign savings varies only slightly across experiments (from -1.5% to -2.4%),
and the corresponding reduction in investment, government consumption and
private consumption is also remarkably similar, leaving the structure of
expenditure relatively unchanged across experiments.
(iii) Tariff-cum-Subsidy Scheme with Constant Real Investment
The base experiment was carried out under the hypothesis that the
level of investment adjustments to available savings. In the following
experiment, we investigate the impact on the economy of a policy in which the
adjustment to the new balance of payments target is realized through changes
in tariffs and the i-ntroduction of an export subsidy while mainitaining real
investment constant,
By comparison with the base equipment, the adjustment to the new
balance of payment target is realized through similar changes in tariffs and a
similar import subsidy level. The average effective protection level, and the
corresponding export subsidy level, is estimated at 58.9% compared to 57.8%
under the base experiment. By contrast, the contraction of GDP is slightly
less pronounced under this experiment (-1,7%) compared to the base run
(-2.1%). This is the direct result of the policy option retained in this
experiment, as maintaining real investment permits to avoid the drop in the
-6 4-
construction sector obtained under the base experiment (+0.3% vs. -7.5%). In
turn, the contraction of the services sector is more pronounced under the
present experiment (-4.8% vs. -3.6%), as a direct result of the very sharp
decline in government consumption (-33.7%) required to generate the public
savings needed to sustain the level of public investment.
The increase in overall government revenue under the present
experiment is similar to the one obtained in the base run (+21.2% vs. +
19.7%), and the composition of government revenue remains practically
unchanged. By contrast, the structure of government expenditure is
fundamentally changed. Government investment, which represented 27.3% of
overall government expenditure under the base run, now increases its share to
37.9%. This implies a sharp increase in government savings, from CFAF 161
billion to CFAF 226 billion, which is obtained at the expense of a very sharp
cut in goverrnment consumption, who.se share in overall government expenditure
declines from 37.1% to 20.9% by comparison with 31.0% under the base run.
The trade orientation of the econcmy is also quite similar to the
one obtained under the base run, with the same expansion of exports and the
same contraction of imports obtained in both cases, while exports of
industrial products expand slightly more under the present experiment (+12.3%
vs. 11.4%)e
-6 5-
CHAPTER 5: QUANTITATIVE IMPORT RESTRICTIONS
In this chapter, we describe in section 1 the evolution of the
system of quantitative import restrictions in the Ivory Coast over the last
decade. In section 2, we briefly discuss the economic mechanisms involved.
Finally, we preserit in section 3 two experiments designed to estimate the
impact of the removal of quantitative import restrictions and of their
replacement by tariffs in a situation allowing for adjustments in the exchange
rate.
1. Background I!
Since the beginning of the sixties, Ivorian authorities have had
increasing recourse to various non-tariff protection measures, including
import licensing, import prohibition, and prior import agreements.
Import licensing and import prohibition were introduced on an ad-hoc
basis in the course of the sixties. In 1973, there were 86 industrial
product.s! under import licensing, and 8 others under import prohibition. The
first comprehensive list (established by Decree in 1975.) contained 310
industrial products, of which 23 were subject to import prohibition. The
principal sectors affected were food products, adhesives, textiles and
clothing, footwear, and certain products of the mechanical and electrical
industries. Products under import prohibition included coffee beans (except
arabia), roasted coffee, jute bags and electrical batteries. By January 1982,
the number of industrial products under import licensing had grown to 426.
Using 1981 data as a reference, imports of industrial products under licensing
1/ See Noel [1982].
2/ Industrial products have been defined as the 6-digit customs code itemsunder the 1973 Customs Nomenclature belonging to branches 6 through 21under the National Accounts Nomenclature.
-66-
represented CFAF 233.6 billion, or 38.4% of total imports in that same year.
Products under import licensing are in principle subject to a quota
by product and a subquota by importer, and the licenses issued until such time
as the quota is filled. In practice, product quotas are sometimes fixed at a
level higher than actual import requirements. Also, once an individual
importer uses up his subquota, an agreement can be reached in some cases with
the Ministry of Commerce to revise the subquota upward and provide new
licenses beyond the initial subquota.
Parallel to the import licensing system, the Ministry of Commerce
issues a list of products whose importation is subject to prior import
agreement. For the products belonging to that list, "import intentions" are
submitted to special import control commissions whose decisions have executive
force, but may be opposed by the Ministry of Commerce. In January 1982, the
number of industrial products subject to prior import agreement amounted to
140. Taking 1981 data as a reference, imports of industrial products under
prior agreement amounted to CFAF 53.2 billion, or 8.8% of total imports in
that same year.
The impact of quantitative import restrictions on nominal protection
to local manufacturing operations has been studied through the estimation of
nominal Protection coefficients (NPC) calculated on the basis of firm-level
data for coffee and cocoa pro;essing, textiles and clothing, and chemicals and
plastics subsectors in 1980 1/ Among the subsectors under study, the impact
of the restrictions was by far the highest in textiles and clothing, while an
average NPC on domestic sales of 1.72, or 60 percentage points higher than the
corresponding nominal tariff protection coefficient. In the food processing
1/ See Noel [1982].
-67-
subsector, a high distortion between the NPC e,timate and nominal tariff
protection was found in the case of coffee processing. By contrast, processed
cocoa products remained unprotected. However, these findings were not
sufficient to infer an estimate of the wedge due to quantitative import
restrictions in this subsector. Finally, distortions remained quite low in
the chemicals and plastics sub3ector.
2. Economic Mechanisms
The imposition of quantitative import restrictions generates two
types of effects. First, it raises protection for local manufacturing
operations beyond the protection granted by tariffs. Second, it may result in
substantial modifications in the distribution of income.
The first effect generally reflects the objective pursued by
governments faced with pressures for rapid action to safeguard domestic
manufacturing operations from foreign competition. However, goveranents do
not always recognize the costs involved in protecting local industry through
quantitative import restrictions. First, quotas are generally imposed on an
ad-hoc basis, resulting in substantial distortions in incentives and therefore
in the allocation of resources in the econony. Second, the administration of
the quotas system is itself costly. Third, parallel markets for import
licenses may develop, generating costs for private finns obliged to divert
real resources in order to obtain the licenses. Fourth, although the
imposition of quotas is generally presented as temporary, it generally becomes
very difficult to phase-out such a system, in particular due to the resulting
rents of situation.
The imposition of a quota system generally results in the private
appropriation of the revenue that would have been generated for the government
by its tariff equivalent. This is the incane distribution effect of
-6 8 -
quantitative import restrictions. In the case of the Ivory Coast, available
evidence shows that this effect was quite substantial in the case of textile
products. The wedge between domestic prices and world prices plus tariffs
resulting from the imposition of quotas in the textiles sector generated a
rent was estimated at CFAF 24 billion in 1980, or about 5% of government
revenue in that same year.
3. Analysis of the Experiments
In this section, we analyze the impact of the removal of quotas in a
situation where the exchange rate is allowed to adjust in response to a
tightening of the flow of foreign savings. Two alternative experiments have
been carried out in this framework. The first experiment simulates the impact
on the economy of a reduction in the balance of payments deficit by one-half
when quotas in the textiles sector are replaced by import surcharges so as to
yield the same level of imports as in the situation with quotas. The second
experiment simulates this impact when quotas are removed in the textiles
sector without compensating import surcharges.
Under the first experiment, the real devaluation required to achieve
the balance of payments target is estimated at 10.9%, slightly above the level
obtained under the base experiment. The tariff surcharge needed to obtain the
same protective effect as the quota in the textiles sector is estimated at
34.6%, yielding an increase in the overall tariff rate from 35.6% to 70.2% in
that sector. This results in a 6.0% increase in overall tariff revenues for
the government, from CFAF 158.6 billion to CFAF 167.9 billion. This effect
combines with the increase in stabilization fund revenues induced by the
devaluation to yield a 7.0% increase in government revenue. As a result, the
contraction in overall investment is significantly less pronounced than under
the base case (-4.6% vs. -6.6%), and construction sector output declines only
-69-
Table 5. 1
Summary of the Experiments
(Percentage deviation from reference year)
Replacement ofBase Quotas by Removal of
Experiment Import Surcharges Quotas
Real Devaluation +9.5 +10.9 +10.7
Real GDP Agriculture -0.1 -0.1 -0.1Industry -0.9 -0.3 0.0Construction -6.0 -3e9 -3.5Services -1.9 -1.3 -0.8
Real GDP at Market Prices -2.0 -1.4 -0.9
Investment -6.6 -4.6 -4.2Government Consumption -2.6 -2.7 -2.6Private Consumption -4.8 -4.8 -4.0Total Output -1.8 -1.1 -0.8
Industrial Exports (in $) +5.0 +6.4 +6.8Total Exports (in $) +1.3 +1.8 +2.0Total Imports (in $) -6.9 -6.3 -5.8
Composite Goods Prices +2.1 +2.2 +2.0Value-Added Prices -0.9 -0.6 -1.0Capital Goods Prices +3.3 +3.9 +3.8Import Prices +8.4 +8.6 +8.2
Imports/Domestic Supply -7.2 -7.2 -6.1Exports/Domestic Output +3.4 +3.2 +3.1
-70-
by 3.9% in this experiment compared to a decline of 6.0% under the base
experiment. This leads to a relatively lower decline in GDP (-1.4% against
-2.0% under the base run).
Under the second experiment, the real devaluation required to
achieve the balance of payments target is estimated at 10.7%, which is
practically identical to the result obtained in the previous case. However,
the resulting contraction of GDPs significantly less pronounced by comparison
with the base experiment (-0.9% vs. -2.0%), as real investment is reduced by
4.2% as compared to 6.6% under the base case. This results in a slightly
lower reduction in the volume of private consumption (-4.0% vs. -4.8%).
At the same time, industrial exports expand more rapidly by
comparison with the base experiment (+6.8% vs. + 5.0%), while the decline in
imports is less pronounced (-5.8% vs. -6.9%). This results directly from the
removal of quotas in the textile sector, which triggers a sharp increase in
the ratio of imports to domestic output in the sector (+26.7%), or about 24
percentage points higher than under the base experiment. At the same time,
exports of textiles expand more rapidly than under the base case (+8.0% vs.
+ 5.4%).
The two experiments reveal the impact of the quotas on the
distribution of income in the economy. Under the first experiment, tariff
receipts by the government increase by 5.9%, from CFAF 159 billion to CFAF 168
billion, by comparison with an increase of only 2.5% under the base
experiment. At the same time, urban high incomes are reduced by 8.5%, from
CFAF 304 billion to CFAF 278 billion, compared to CFAF 288 billion under the
base experiment. A similar pattern of adjustment is observed under the second
experiment. In particular, the increase in tariff receipts is of similar
magnitude, as the absence of import surcharges is offset by the increase in
-71-
imports following the removal of quotas in the textiles sector.
The removal of quotas in conjunction with the exchange rate
adjustment therefore appears to be beneficial for the economy as a whole,
although it would imply dramatic shifts in the structure of production in the
sector where quotas are removed, away from production lines which are not
competitive with imports towards production for exports. An important result
of this experiment is the significantly lower contraction of GDP and of
investment following the removal of quotas. This is explained by the higher
real devaluation required to achieve the balance of payments target. This, in
turn, is a direct consequence of the removal of quantitative restrictions, as
this generates in the first round a surge in the imports of the previously
rationed goods and therefore a larger balance of payments deficit which calls
for a larger adjustment of the exchange rate. This results in an increase in
stabilization fund revenues (+36.6% against +32.4% in the base experiment) and
in tariff revenues (+6.0% against +2.5%). Government savings increase by
38.3%, so that overall investment remains practically constant in nominal
terms. The drop in real investment (-4.2%) therefore results almost entirely
from the increase in capital goods prices (+3.8%), in sharp contrast with the
base experiment where overall investment contracted by an estimated 6% in real
terms after the exchange rate adjustment.
-72-
Conclusion
After presenting an overview of the Ivorian economy, we have
examined the recent economic developments that have led to the present
financial difficulties and to two consecutive years of recession, and we have
discussed the main constraints bearing on the future growth of the Ivorian
economy. Among those constraints, the distortions in the system of incentives
have progressively hampered the growth potential of the country and have
reduced its capacity to adjust to rapidly changing external circumstances.
The acceleration in the rate of domestic inflation after 1975, and the sharp
deterioration in the terms of trade between 1978 and 1982 led to a substantial
overvaluation of the CFA Franc vis-a-vis the currencies of Ivory Coast's main
trading partners. Although major agricultural products withstood the
overvaluation, thanks to the margins provided by their considerable
comparative advantage, this was not the case in the industrial sector, where
these margins are much narrower. In particular, the potential of the
industrial sector has been affected by the strong discrimination of the system
of industrial incentives against exports, and by widespread distortions in the
system of tariff and non-tariff protection between the different branches of
activity and, within them, between the various stages of product processing.
This situation is particularly preoccupying, as the most obvious opportunities
for exports within the protected CEAO markets have already been exploited, and
as the Ivory Coast has to turn to non-regional markets to restore the growth
of its industrial base and to generate the foreign exchange earnings required
to stabilize its current account situation.
In this context, the policy simulations conducted in the framework
of the Ivory Coast CGE model take on a particular significance, as they
provide a strong basis for assessing the macroeconomic and sectoral impact of
-73-
major reforms envisioned by the Government in the framework of its structural
adjustment program.
Although the arrangements presently in force within the Franc Zone
prohibit the implementation of an independent exchange rate policy in the
Ivory Coast, the experiments carried out under conditions where the exchange
rate is allowed to adjust provide key insights into the magnitude of the
adjustments required in the economy following a tightening of its foreign
exchange constraint. In the short run, the devaluation does not induce too
large a decline in overall GDP, as the impact of the reduction in the net
inflow of foreign savings is compensated to a large extent by the sharp
increase in Stabilization Fund revenues and, to a lesser extent, by the
increase in tariff revenues. By contrast, the devaluation has a strong impact
on the structure of the economy. Driven by a spur of exports, output expands
in sectors like food processing, textiles and construction materials, xhile it
contracts sharply in sectors linked with investment (engineering industries,
construction) and in less tradeable sectors (utilities, services). Overall,
the devaluation induces a sharp change in the trade orientation of the
economy, with substantial increase in exports, especially of industrial goods,
and reductions in imports that permit to attain the required adjustment of the
overall balance.
The second set of experiments provide useful guidelines for the
design of a tariff-cum-export subsidy scheme as a second best measure to
achieve the required adjustment of the overall balance. As in the case of the
flexible exchange rate experiments, the CGE model permits to trace the effects
of the proposed measures throughout the economy. The experiments show that
the structure of net prices is substantially modified as a result of the
change in the nominal tariff structure imposed by the equalization of
-74-
effective tariff protection rates across sectors. Another interesting finding
is that the implementation of the tariff-cum-subsidy scheme results in a
positive fiscal impact in the short-run.
The third set of experiments show that the contractionary impact of
a policy of adjustment with an exchange rate change can be reduced to a
certain extent by implementing this policy in conjunction with the removal of
quotas. By contrast, the replacement of quotas by import surcharges does not
substantially affect the overall growth performance of the econamy. It does,
however, affect the adjustment required in the corresponding sector. In
particular, a policy of complete removal of quotas without corresponding
import surcharges involves dramatic compositional changes in the textile
sector, with sharp increases in both exports and imports.
Ultimately, the analysis of the policies envisaged in the above
experiments should be carried out from a medium to long-term perspective in
the framework of a dynamic general equilibrium model. Indeed, the timing of
the supply and demand responses in the economy, as well as the impact of the
various policies on investment, are rich in dynamic implications. However,
the investigation of the impact of these policies in a static general
equilibrium framework presents new and important insights for the policy
makers faced with the need to design far-reaching reforms in a complex system
of interdependent economic relationships.
-75-
ANNEX 1
Equations of the Model
1. Price Equations (for a given sector i). I'
Import price
- if the quota for the sector is not binding:
PM = PW (1 + tm) ER (1)
- if the quota for the sector is biLding:
PM = g 1 (M) (2)
where g is the import demand functUon (see below) and M the quota amount,
and:
t r = -M - t d tmPW.ER
where tr is the "trade rent rate".
Export price
- if the export price for producers is not set by the governiment
through the Stabilization Fund:
PE = NE (1 + te) ER (4)
1/ Subscripts will be omitted throughout the Annex wherever no confusion ispossible.
-76-
where PWE is the exogenous world price and the subsidy on f.o.b. price (if
any).
- if the export price for producers is set by the government through
the Stabilization Fund:
PE = PE (5)
where PE is the fixed price, and:
twe PE - 1 - te (6)
PWE.ER
where twe is the margin accruing to (paid by) the Stabilization Fund.
Composite price
p = PD + PM. M/D (7)h (M/IjT, 1)
where PD is the domestic price and h (.,.) is the CES trade aggregation
function for aggregating domestic and imported goods M and D (see chapter
2.2).
Value added prices
define value-added prices on domestic production and exports, as,
respectively:
PND = PDi (1 - tdi) E- aii P (8)
PNEi = PEi (1 - tdi) - aj Pi
-77-
where tdi the indirect tax rate on sector i.
- the value added price is then
PN = (1 - ED/XD).PND + (ED/XD).PNE.(l + te') (9)
where te' is the subsidy rate on exported value-added.
Normalization rule
LQ PD. = 1 (10)ii
where Qi are predetermined weights for the price index.
2. Production (for a given sector i)
- the production level is given by
X = f (K,L) (11)
where f is a Cobb-Douglas production function. K is the fixed sectoral
capital stocks and L is sectoral employment.
- sectoral employment stems from the series of first order optimality
conditions, which are solved to give the labor demand by sector i for
each labor category k (Lki), and from the labor aggregation function:
PN x Wk (12)jk i
-78-
L = h (L.i c...eLmi) (13)
where wk is the wage rate of labor category k and h the CES labor
aggregation function.
- intermediate inputs are in fixed proportion of output
Vj = aji Xi (14)
where V.i is the demand for intermediate consumption of good j by sector i
and aji the correspondent coefficient.
3. International Trade (for a given sector i)
Export supply
E = X. PE) (15)
where p is a logistic function 1/
Import demand
M = (T- P).D (16)
where 6 and a are, respectively, the share parameter and the elasticity of
substitution of the trade aggregation function, and D the total domestic
demand for the good i.
1/ The general form of p is p(x) - a + c.1 + exp [b(x - x)]
-79-
4. Income
Household income
- overall labor income is given by:
RE i. i Wk Lki (17)
and is distributed among household categories according to employment
structure and to the mapping between labor and household categories
- overall, non-labor income is
R i (PN..X. - wkLki) + Sf F.ER + TR (19)
where F is net capital inflow, sF the share of F accruing to households
and TR government transfers. Nonlabor factor income is distributed among
household categories according to the exogenous structure of capital
ownership. Capital inlL,'!,ow is allocated following given fixed shares.
Government income
RG itmiAiER Mi + EitdiPDiX
ikthk«c + ( sF) F.ER
+ ETtwe1 [PWE.(l + tei)ER-PEiI.EDi
t - EVE ER E - te PNE E - TR (20)ie i i i 'i i
-80-
where Rk is the income tax rate for the household category k, and Rk the
total income of that category.
The eight elements account for, respectively, tariff, indirect tax and
income tax revenue, direct capital inflows, Stabilization Fund surplus,
L.o.b. and value-added export subsidies and, finally transfers to
households.
5. Final Demand
Corsumption
- hQusehold consumption demand of good i is, for household category k:
Cik = aik (1 k k P (21)
where aik is a constant expenditure share and sk the savings rate of
household category k.
- government consumption is derived in a similar way:
cGig =jg (1 - Rg) R (22)
Investment and inventories
- investment by sector of destination is:
I =Pb IPb + 4Pv IPv (23)i i i
-81-
where .Pb and 0Pv are respectively the exogenous sectoral shares for1 i
public (central government plus public enterprises) and private
investment, and IPb and IPv the amounts of public and private investment
investment volume by sector of origin is then:
I.
Z. Z, Z.jP (24)1 1 1] P.
where Zi; are the capital composition coefficients
- inventories are merely a constant share of output:
I I
Z Z i X (25)
6. Equilibrum Conditions
Product markets
The equilibrium condition for a given sector i is:
i id i kik ' Cig + 'j Vij + Zi + Z + E (26)
where di is the "domestic use" ratio:
d1 1/h(Mi/Di,1) (27)
where h is the CES trade aggregation function.
- the equilibrating variable can be either the price or the export
volume whenever domestic prices are fixed (see chapter 2.3).
-82-
Investment savings adequation
The equilibrium condition writes:
Pb -=Pv (8I + I = ESk k + sgRg (28)
The equilibrating variable is either the public investment level or
government savings according to the chosen closure rule (see chapter 2.3),
reflecting the fact that private investment and savings rates have been
assumed constant.
Labor markets
- equilibrium on a given labor market k requires:
Lk - k i (29)
k
where Lk is the employed amount of labor of category k. In a full
employment situatiorn Lk = Lk
Since nominal wages are supposed constant, Lk becomes endogenous, making
unemployment (Lk - L ) the equilibrating variable.
Balance of payments
- the equilibrium equation on the foreign exchange market is:
.PWiMi - E PWEi Ei - F = 0 (30)
where, according to the exchange rate iegime, either capital inflows F are
exogenous and the exchange rate adjusts in order to realize the
equilibrium or the exchange rate is exogenous and F is endogenous.
-83-
7. Equalization of Effective Rates of Protection
We use in this model a partial equilibrium concept of effective rate
of protection (see Chap. 3.3). In the absence of non-tariff barriers and
price control, the effective rate of protection in a given sector i is defined
as
cP. ~a..pe = - c (31)i P. c p
i 7jl+tm J J l+tm
where ti = nominal tariff rate
ca.. = technical coefficient expressing direct plus indirect use
of traded intermediate input j (Corden method)!/
Given a certain set of values for the sectoral effective
protections, it is always possible to compute the implied set of nominal
tariffs by inverting the linear system defined by equation (31).2/ It is
therefore always possible to compute the set of tariffs which would equalize
effective protection at a given level.
The level at i.Jhich the effective rates of protection are equalized
derives from balance of trade considerations. Since, other things being
equal, imports are decreasing as effective protection increases, there is a
direct relationship between the level of protection and the balance of trade
1/ The Corden method assumes that the elasticity of supply of non-tradedgoods is non-infinite, and includes indirect protection granted to non-traded goods as a result of protecting a traded sector in the measure ofprotection of this traded sector. The passage from the observed input-output matrix to the adjusted input-output matrix used in (31) resultsfrom these two assumptions.
2/ Note that the coefficients of the equation are fixed for a given input-output matrix and that the solution is unique.
-84-
deficit. Therefore, in this version of the model, the (uniform) level of
effective protection is adjusted to realize equilibrium on the foreign
exchange market, defined by (30). In turn, this level of protection is
implemented by a set of tariffs computed as described above.
Value added export subsidies are introduced and made equal to
effective protection. This additional condition does not change the nature of
the problem. Since exports are increasing in function of the rate of export
subsidy, the combination of the tariff and of the subsidy scheme tends to
reduce the trade deficit further.
SOCIAL ACCOUNTING MATRIX
ACTIVITI COMMODIT LABOR CAPITAL SUM (3- FARMERS RURAL UN URBAN LO URBAN MI URBAN HIEXPENDITURES ES IES 4) SKILLED W INCOME D. INCOM GH INCOM
I 2 3 4 5 6 7 8 9 10RECEIPTS
ACTIVITIESI ACTIVITIES 0.00 2564.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
COMMODITIES2 COMMODITIES 1450.21 0.00 0.00 0.00 0.00 353.21 37.00 179.98 531.38 249.77
FACTORS3 LABOR 524.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.004 CAPITAL 993.61 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.005 SUM (3-4) 1518.41 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
HOUSEHOLDS6 FARMERS 0.00 0.00 0.02 463.61 463.63 0.00 0.00 0.00 0.00 0.007RRLUSILD0.00 0.00 43.59 0.00 43.59 0.00 0.00 0.00 0.00 0.00 n8 URBAN LOW INCOME 0.00 0.00 168.41 0.00 168.41 0.00 0.00 0.00 0.00 0.009 URBAN MID. INCOME 0.00 0.00 222.52 322.29 544.81 0.00 0.00 0.00 0.00 0.0010 URBAN HIGH INCOME 0.00 0.00 90.26 207.71 297.97 0.00 0.00 0.00 0.00 0.00
11 TRADE RENTS 0.00 23.75 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0012 STAB FUND 79.38 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0013 TREASURY 249.39 158.55 0.00 0.00 0.00 32.26 3.03 14.76 48.54 23.9114 DEBT MANAGEMENT BOAR 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0015 PUB. ENT. CURRENT Fl 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0016 SUM (6-15) 328.77 182.30 524.80 993.61 1518.41 32.26 3.03 14.76 48.54 23.91
17 HOUSEHOLDS CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0018 CENT. GOVT. CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0019 PUB. ENT. CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0020 NON-OIL PRIV. ENT. C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0021 OIL PRI. ENT. CAPITA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0022 SAVINGS 0.00 0.00 0.00 0.00 0.00 40.32. 0.00 0.00 60.66 41.8323 REST WORLD CURRENT 0.00 870.28 0.00 0.00 0.00 63.84 6.00 29.20 96.05 47.3124 REST WORLD CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0025 TOTAL 3297.39 3616.90 524.80 993.61 1518.41 489.65 46.03 223.93 736.63 362.82
SOCIAL ACCOUNTING MATRIX(CONTINUED)
--------------------- --------------------------------------------------------------------------------------------------------------
TRADE RE STAB FUN TREASURY DEBT MAN PUB. ENT SUM (6-1 HOUSEHOL CENT. GO PUB. ENT NON-OIL
EXPENDITURES NTS D AGEMENT . CURREN 5) DS CAPIT VT. CAPI . CAPITA PRIV. EN
lt 12 13 14 15 16 17 18 19 20
RECEIPTS
ACTIVITIESI ACTIVITIES 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
COMMODITIES2 COMMODITIES 0.00 0.00 182.67 0.00 0.00 1534.01 30.00 257.40 177.40 .155.78
FACTORS3 LABOR 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
4 CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
5 SUM (3-4) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
HOUSEHOLDS6 FARMERS 0.00 0.00 17.07 0.00 0.00 17.07 0.00 000 000 0.00
7 RURAL UNSKILLED 0.00 0.00 1.60 0.00 0.00 1.60 0.00 0.00 0.00 0.00
8 URBAN LOW INCOME 0.00 0.00 51.43 0.00 0.00 51.43 0.00 0.00 0.00 0.00
9 URBAN MID. INCOME 0.00 0.00 178.35 0.00 0.00 178.35 0.00 0.00 0.00 0.00
10 URBAN HIGH INCOME 23.75 0.00 34.46 0.00 0.00 58.21 0.00 0.00 0.00 0.00
11 TRADE RENTS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
12 STAB FUND 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
13 TREASURY 0.00 79.38 8.00 0.00 0.00 209.88 0.00 0.00 0.00 0.00
14 DEBT MANAGEMENT BOAR 0.00 0.00 48.80 0.00 0.00 48.80 0.00 0.00 0.00 0.00
15 PUB. ENT. CURRENT Fl 0.00 0.00 38.10 0.00 0.00 38.10 0.00 0.00 0.00 0.00
16 SUM (6-15) 23.75 79.38 377.80 0.00 0.00 603.43 0.00 0.00 O.O0 0.00
17 HOUSEHOLDS CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
18 CENT. GOVT. CAPITAL 0.00 0.00 70.35 0.00 0.00 70.35 0.00 0.00 0.00 0.00
19 PUB. ENT. CAPITAL 0.00 0.00 0.00 0.00 20.70 20.70 0.00 0.00 0.00 0.00
20 NON-OIL PRIV. ENT. C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
21 OIL PRI. ENT. CAPITA 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
22 SAVINGS 0.00 0.00 0.00 0.00 0.00 142.82 0.00 0.00 0.00 0.00
23 REST WORLD CURRENT 0.00 0.00 32.00 48.80 17.40 340.60 0.00 0.00 0.00 0.00
24 REST WORLD CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
25 TOTAL 23.75 79.38 662.82 48.80 38.10 2711.92 30.00 257.40 177.40 155.78-------------------- ~----------------------------------------------------------------------------------------------------------------
SOCIAL ACCOUNTING MATRIX(CONTINUED)
OIL PRI. SAVINGS REST WOR REST WOR TOTALEXPENDITURES ENT. CA LD CURRE LD CAPIT
21 22 23 24 25RECEIPTS
ACTIVITIESI ACTIVITIES 0.00 0.00 733.07 0.00 3297.39
COMMODITIES2 COMMODITIES 12.10 0.00 0.00 0.00 3616.90
FACTORS3 LABOR 0.00 0.00 0.00 0.00 524.804 CAPITAL 0.00 0.00 0.00 0.00 993.615 SUM (3-4) 0.00 0.00 0.00 0.00 1518.41
HOUSEHOLDSb FARMERS 0.00 0.00 8.96 0.00 489.657 RURAL UNSKILLED 0.00 0.00 0.84 0.00 46.03
X8 URBAN LOW INCOME 0.00 0.00 4.10 0.00 223.939 URBAN MID. INCOME 0.00 0.00 13.47 0.00 736.6310 URBAN HIGH INCOME 0.00 0.00 6.64 0.00 362.82
II TRADE RENTS 0.00 0.00 0.00 0.00 23.7512 STAB FUND 0.0¢ 0.00 0.00 0.00 79.3813 TREASURY 0.00 0.00 45.00 0.00 662.8214 DEBT MANAGEMENT BOAR 0.00 0.00 0.00 0.00 48.8015 PUB. ENT. CURRENT Fl 0.00 0.00 0.00 0.00 38.1016 SUM (6-15) 0.00 0.00 79.00 0.30 2711.92
17 HOUSEHOLDS CAPITAL 0.00 30.00 0.00 0.00 30.0018 CENT. GOVT. CAPITAL 0.00 29.95 0.00 157.10 257.4019 PUB, ENT. CAPITAL 0.00 109.10 0.00 47.60 177.4020 NON-OIL PRIV. ENT. C 0.00 115.28 0.00 40.50 155.7821 OIL PRI. ENT. CAPITA 0.00 3.00 0.00 9.10 12.1022 SAVINGS 0.00 0.00 0.00 144.50 287.3223 REST WORLD CURRENT 0.00 0.00 0.00 0.00 1210.8824 REST WORLD CAPITAL 0.00 0.00 398.80 0.00 398.80
25 TOTAL 12.10 287.32 1210.88 398.80 13674.30
PERCENTAGE COMPOSITION OF BASE DATA - 1980------------------------------------------
GROSS DOMESTIC VALUE
SECTOR OUTPUT EXPORTS IMPORTS DEMAND ADDED LABOR
I SUBSISTENCE CROP 10.37 0.12 6.06 15.53 15.84 28.28
2 COFFEE 2.23 8.82 0.00 0.57 3.60 17.24
3 COCOA 3.71 14.72 0.00 0.20 6.02 28.73
4 COTTON 0.36 0.00 0.00 0.00 0.58 2.75
5 OTHER AG 3.23 5.18 '0.08 1.59 3.54 14.04
6 FORESTRY 3.39 14.58 0.00 0.00 3.55 0.21
7 MINING PETROL 4.75 9.56 16.06 0.95 2.16 0.29
8 FOOD FPROCESSING 7.38 10.14 8.00 9.37 3.90 0.78
9 TEXTIL ES 4.12 3.98 6.89 5.42 3.48 0.60
10 CHEMICALS 2.06 1.42 8.42 1.50 1.28 0.18
11 CONSTRUCTION MATERIA 2.40 3.72 2.71 0.13 2.14 0.49
12 ENGINEERING INDUSTRY 4.86 2.75 34.37 4.79 2.99 0.53
13 UTILITIES 1.68 0.12 0.00 1.46 2.22 0.24
14 CONSTRUCTION 15.90 0.11 0.00 26.93 10.92 1.63
15 SERVICES 33.57 24.78 17.41 31.56 37.78 4.02
ALL SECTORS 100.00 100.00 100.00 100.00 10O.00 100.00
---------------------------------------------------------------------------------------
TRADE AND PRODUCTION PARAMETERS - 1980
SECTOR SKAP SEX RMD AMPT TM RHOC RHOD
I SUBSISTENCE CROP 0.31 0.24 19.50 22.51 15.31 0.80 0.80
2 COFFEE 3.08 82.92 0.00 43.64 0.00 0.90 0.80
3 COCOA 3.06 83.12 0.00 59.66 0.00 0.90 0.80
4 COTTON 3.09 0.00 0.00 60.78 0.00 0.90 0.80
5 OTHER AG 7.31 33.59 1.30 22.88 0.00 0.90 0.80
6 FORESTRY 23.30 90.04 0.00 34.29 0.00 0.90 0.20
7 MINING PETROL 70.07 42.13 194.65 60.99 21.90 0.90 0.20
8 FOOD PROCESSING 36.76" 28.73 50.67 21,74 28.20 0.60 0.80
9 TEXTILES 20.55 20.22 69.88 32.92 35.56 1.10 0.80
10 CHEMICALS 26.41. 14.47 159.35 46.73 22.19 1.10 0.80
11 CONSTRUCTION MATERIA 39.71 * 32.46 55.81 26.76 23.16 1.10 0.80
12 ENGINEERING INDUSTRY 25.85 11.82 267.10 51.51 21.41 0.60 0.80
13 UTILITIES 59.29 1.55 0.00 43.43 0.00 0.90 0.80
14 CONSTRUCTION "2.42 0.14 0.00 35.81 0.00 0.90 0.80
15 SERVICES .. 10 15.45 20.45 30.28 0.00 0.60 0.80
----------------------------------------- ~--------.--------- ------,-----------.-----------------
EXPLANATION OF COLUMNS------- ~---------------
SKAP = CAPITAL SHARE IN VALUE ADDED (%)SEX = EXPORTS/GROSS OUTPUT (%)RMD * IMPORT/DOMESTIC SUPPLY (%)AMPT * IMPORTED/TOTAL INTERMEDIATES (Y)TM TARIFF RATE (%)RHOC * TRADE SUBSTITUTION ELASTICITYRHOD = CAPITAL-LABOR SUBSTITUTION ELASTICITY
1980 INPUT OUTPUT COEFFICIENTS------------------------------
SUBSISTE COFFEE COCOA COTTON OTHER AG FORESTRY MINING P FOOD PRO TE,XTILES CHEMICALCOLUMN 1 2 3 4 5 6 7 8 9 10ROWi SUBSISTENCE CROP 0.1220 0.0000 0.0000 0.0000 0.0041 0.0000 0.0000 0.2451 0.0082 0.00002 COFFEE 0.0000 0.0000 0.0000 0.0000 0.0002 0.0000 0.0000 0.0127 0.0000 0.00003 COCOA 0.0000 0.0000 0.0000 0.0000 0.0002 0.0000 0.0000 0.0713 0.0000 0.00004 COTTON 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0862 0.00005 OTHER AG 0.0011 0.0000 0.0000 0.0000 0.1815 0.0000 0.0000 0.0893 0.0000 0.05156 FORESTRY 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.00127 MINING PETROL 0.0048 0.0069 0.0352 0.0061 0.0318 0.0519 0.6503 0.0209 0.0186 0.07068 FOOD PROCESSING 0.0099 0.0000 0.0000 0.0000 0.0012 0.0000 0.0000 0.0699 0.0028 0.00789 TEXTILES 0.0025 0.0004 0.0002 0.0005 0.0004 0.0000 0.0000 0.0051 0.1954 0.004410 CHEMICALS 0.0031 0.0480 0.0220 0.0949 0.0436 0.0207 0.0103 0.0138 0.0733 0.297711 CONSTRUCTION MATERIA 0.0000 0.0000 0.0000 0.0000 0.0023 0.0004 0.0000 0.0017 0.0005 0.004012 ENGINEERING INDUSTRY 0.0071 0.0152 0.0347 0.0042 0.0306 0.0701 0.0123 0.0657 0.0258 0.065213 UTILITIES 0.0001 0.0053 0.0022 0.0000 0.0035 0.0012 0.0012 0.0136 0.0211 0.013214 CONSTRUCTION 0.0002 0.0158 0.0000 0.0000 0.0014 0.0004 0.0012 0.0026 0.0011 0.001915 SERVICES 0.0104 0.0199 O.O37 0.0031 0.0970 0.2805 0.0751 0.0983 0.1029 0.1401
16 SUM 0.1612 0.1115 0.1080 0.1088 0.3977 0.4252 0.7505 0.7100 0.5359 0.6577
'0
CONSTRUC ENGINEER UTILITIE CONSTRUC SERVICESCOLUMN 11 12 13 14 15ROWI SUBSISTENCE CROP 0.0000 0.0000 0.0000 0.0002 0.00002 COFFEE 0.0000 0.0000 0.0000 0.0000 0.00003 COCOA 0.0000 0.0000 0.0000 0.0000 0.00004 COTTON 0.0000 0.0000 0.0000 0.0000 0.00005 OTHER AG 0.0000 0.0000 0.0000 0.0004 0.00006 FORESTRY 0.1397 0.0000 0.0000 0.0000 0.00007 MINING PETROL 0.0465 0.0191 0.0711 0.0469 0.05048 FOOD PROCESSING 0.0000 0.0000 0.0000 0.0000 0.00749 TEXTILES 0.0013 0.0023 0.0000 0.0001 0.003210 CHEMICALS 0.0114 0.0317 0.0163 0.0385 0.008511 CONSTRUCTION MATERIA 0.1655 0.0360 0.0012 0.1140 0.000312 ENGINEERING INDUSTRY 0.0330 0.3580 0.0627 0.1362 0.044913 UTILITIES 0.0223 0.0095 0.0114 0.0047 0.014314 CONSTRUCTION 0.0024 0.0033 0.0162 0.1158 0.014615 SERVICES 0.0883 0.2019 0.0958 0.1657 0.2381
16 SUM 0.5102 0.6618 0.2746 0.6226 0.3816
-90-
CONSUMPTION SHARES BY HOUSEHOLD GROUPS (PERCENT)
SECTOR 1 2 3 4 51 SUBSISTENCE CROP 32.28 35.51 8.89 17.54 22.932 COFFEE 0.00 0.00 0.00 0.00 0.003 COCOA 0.00 0.00 0.00 0.00 0.004 COTTON 0.00 0.00 0.00 0.00 0.005 OTHER AG 2.07 2.17 1.23 1.64 1.746 FORESTRY 0.00 0.00 0.00 0.00 0.007 MINING PETROL 0.83 0.43 3.25 2.70 1.368 FOOD PROCESSING 26.93 30.54 5.10 12.23 17.279 TEXTILES 10.44 9.52 21.39 7.78 8.1710 CHEMICALS 1.41 1.23 6.16 4.48 5.9011 CONSTRUCTION MATERIA 0.25 0.23 0.35 0.35 0.2812 ENGINEERING INDUSTRY 4.35 2.82 5.35 9.03 3.6013 UTILITIES 0.03 0.06 0.93 1.69 1.8514 CONSTRUCTION 0.05 0.07 0.16 0.07 0.0315 SERVICES 21.37 17.43 47.19 42.49 36.87
ALL SECTORS 100.00 100.00 10O.00 100.00 100.00------------------------
HOUSEHOLD GROUPS (COLUMNS)
1 FARMERS2 RURAL UNSKILLED3 URBAN LOW INCOME4 URBAN MID. INCOME5 URBAN HlGH INCOME
-91-
ANNEX 3
Sectoral Tradeability Indicators
Ratio ofShare of Imports to Ratio of
Exports in Domestic imports to Trade substi-Domestic Production intermediate tution Classif{
Sector Production minus Exports inputs elasticities cation-(in %) (in% )
1. Food crops 0.24 16.91 21.96 .6 - M1s
2. Coffee 82.92 0.00 44.03 - EX ils
3. Cocoa 83.11 0.00 60.21 - EX 1
4. Cotton 0.00 0.00 61.26 - - hiS
5. Other agric. 33.59 1.30 20.67 .6 EX NS
6. Forestry 90.04 0.0U 34.62 - EX MS
7. Mining &
petroleum 42.14 199.98 61.9U .8 LX US
8. Food process. 28.74 54.42 22.12 .6 LX MS
9. Textiles 20.19 67.03 29.31 .8 EX MS
10. Chemicals 14.47 238.87 47.61 .8 EX SX
11. Construction
materials 32.45 54.12 26.73 .8 EX MS
12. Engineering
industries 11.82 269.76 51.75 .4 EX kc
13. Utilities 1.55 0.00 43.93 - - NT
14. Construction 0.14 U.00 35.98 - - NT
15. Services 15.45 20.45 30.52 .4 EX MIC
Source: Michel and Noel L1983J.I/ EX = exportable
MS = import substituteMC = import complementNT - non-tradeable
-92-
References
Adelman, I., S. Robinson [1978]: "Income Distribution Policies in DevelopingCountries." Stanford: Stanford University Press.
Amaranand, P., W. Grais [1983]: Macroeconomic and Distribution Implfcationsof Sectoral Policy Interventions: An Application to Thailand. World BankStaff Working Paper No. 627.
Armington, P. [1969]: "A Theory of Demand for Products Distinguished by Placeof Production." IMF Staff Papers, Vol. 16, pp 159-178.
Bhattacharya, A., W. Grais, B. Pleskovic [1983]: "Macroeconomic Implicationsof Price Reforms in Egypt." World Bank, mimeo.
Balassa, B. and Associates [1971]: The Structure of Protection in DevelopirigCountries. Baltimore: The Johns Hopkins University Press.
Bell, C.; T.N. Srinivasan [1983]: "On the Uses and Abuses of Economy-WideModels in Development Policy Analysis." World Bank, Development ResearchDepartment Discussion Paper No. 55.
Caisse Centrale de Cooperation Economique and World Bank [1982]: "Rapport surles Entreprises Publiques en Cote d'Ivoire." World Bank, mimeo.
Corden, M. [1971]: The Theory of Effective Protection. London: OxfordUniversity Press.
Dervis, K., J. de Melo, S. Robinson [1982]: "A General Equilibrium Analysis ofthe Causes of a Foreign Exchange Crisis: The Case of Turkey."Weltwirtschaftliches Archiv, Vol. 118(2), pp. 259-280.
Dewatripont, M., G. Michel [1983]: "On Closure Rules and MicroeconomicFoundations in Applied General Equilibrium Models." World Bank, mimeo.
Fargues, Ph. [1981]: "Les Migrations en Cote d'Ivoire." Cahiers du CIRES".Dec. 1981-March 1982 (No. 31-32).
Johansen, L. [1960]: A Multi-Sectoral Study of Economic Growth. Amsterdam:North-Holland.
Lewis, J., S. Urata [1983]: Turkey: Recent Economic Performances and Medium-Term Prospects, 1978-1990. World Bank Staff Working Paper No. 602.
Little, I., T. Scitorsky and M. Scott [1970]: Industry and Trade in SomeDeveloping Countries. London: Oxford University Press.
Lysy, F. [1982]: "The Character of General Equilibrium Model' underAlternative Closure Rules." World Bank, mimeo.
?4ichel, G., M. Noel [1983]: "A Social Accounting Matrix for the IvoryCoast: A Technical Note." World Bank, mimeo.
-93-
Ministere de l'Agriculture [1981]: Recensement National de i'Agriculture.Adidjan.
Ministere des Finances [1982]: Budgets Economiques. Abidjan.
Noel, M. [1982]: "The Evolution of the System of Industrial Incentives in theIvory Coast from 1970 to Present." World Baik, mimeo.
Ray, A. [1973]: "Non-Traded Inputs and Effective Protection: A GeneralEquilibrium Analysis." Journal of International Economics, Vol. 3, pp.245-258.
Taylor, L. et al [19801: Models of Growth and Distribution for Brazil.London: Oxford University Press;.
den Tuinder, B.A. [1978]: Ivory Coast: The Challenge of Success. Baltimore:The Johns Hopkins University Press.
World Bank [1979]: "Ivory Coast: Country Economic Memorandum." Washington,D.C. Report No. 2655-IVC. (an internal document Twith restrictedcirculation).
World Bank [1983]: World Development Repaort 1983. New York: OxfordUniversity Press.
World Bank [1982]: Yugoslavia: Adjustment Policies and DevelopmentPerspectives. Washington, D.C.
World BankPublicationsof RelatedInterest
Adjustment to Extemal Shocks Adjustment Policies and IVEWin Developing Economies Problems in Developed CountriesBela Balassa Martin Wolf Bureaucracies and the PoliticalStaff Working Paper No. 472. 1981. 31 Staff Working Paper No. 349. 1979. 236 Economy of Protection:pages (including appendix). pages (including references). Refle-ctions of a ContinentalStock No. WP 0472, $3. Stock No. WP 0349. $10. European
Patrick MesserlinAnalyzes three factors that influence
Britain's Pattern of the "bureaus" (bureaucrats) in theirSpecialization in ManufacturedGoods with DevelopingCountries and Trade ProtectionVincent Cable and Ivonia RebeloStaff Working Paper No. 425. 1980. 61pages (including 3 appendixes).Stock No. WP 0425. $3.
decisions affecting protectionism in European Community No. OX 520211, $22.50 hardcover. (AFrance. Protection against specially priced edition is available in IndiaStaff Working Paper No. 568. 1983. 64 Manufactured Imports from from Oxford University Press branches.)pages. Developing Countries: A Case Industrial Country Policy andISBN 0-8213-0198-5. Stock No. WP 0568. Study in the Political Economy Adjustment to Imports from$3. of Protection Developing CountriesCapital-Importing Oil E. Verreydt and J. Waelbroeck J. M. FingerExporters; Adjustment Issues Staff Working Paper No. 432. 1980. 25 Staff Working Paper No. 470. 1981. 22and Policy Choices pages. pages (including references),Alan H. Gebi Stock No. WP 0432. $3. Stock No. WP 0470. $3.Staff Working Paper No. 475. 1981. 38pages (including 9 tables). Export Promotion Policiess inStock No. WP 0475. $3. Barend A. de Vries Italian Commercial Policies iThe Developing Countries and Staff Working Paper No. 313. 1979. 80 Eno R. Grill
pages.International Shipping Stock No. WP 0313. $3. Staff Working Paper No. 428. 1980. 47Harald Hansen pages.Staff Working Paper No. 502. 1981. 151 NEW Stock No. WP 0428. $3.pages (including 12 annexes, 38 tables,bibliography). Exports of Capital Goods andStock No. WP 0502. $5. Related Services from the NEW
Republic of Korea '
NEW . Larry E. Westphal, Yung W. Rhee, Korea's Competitive Edge:Linsu Kim, Alice Amsden Managing Entry into World
Economics and the Politics of Examines Korea's spectacular export MarketsProtection: Some Case Studies growth-from $50 million of goods in Yung Whee Rhee, Bruce Ross-1962 to $25 billion in 1982. Five kinds LasnadGryPuelof Industies of project-related exports are character- Larson, and Garry PursellVincent Cable ized (overseas construction, plant ex- How did Korea manage to expand itsLooks at factors which effect an indus- ports, direct investments, consulting' exports from less than $100 million atry's attitude toward protection by services, licensing and technical agree- year in the early 1960s to more thananalyzing four of Great Britain's indus- ments). Discusses the role of these ex- $20 billion a year in the early 1980s?tries: footwear, knitwear, cutlery, and ports in Korea's strategy for develop- To find out about the underpinningsconsumer electronics. Case studies ex- ment. Shows how these strategies of Korea's competitive edge, the au-amine import competition from devel- conform to the country's dynamic thors asked more than 100 major Ko-oping countries and adjustment op- comparative advantage by enlarging its rean exporters what had been impor-tions exercised within each industry. industrial base. tant for them in institutional support,Study includes some explanations for Staff Working Paper No. 629. 1983. 80 in technological development, and inprotectionist behavior among indus- pages. markethng overseas. The findings
triesiahndadisculssion of th politics of ISBN 0-82Z3-0310-4.Stock No. WP 0629. between exporting and the effective-decisionmaking in regard to tr-ade pol- eso onr' cnmcisiuicy. OE. ness of a countryb s economic institu-
Staff Working Paper No. 569. 1983. 80 On Exports and Economic effective institutions, a country mtay
pages. G ro dt not be able to implement effective pol-ISBN 0-8213-0199-3.Stock No. WP 0569. Gerson Feder icies for export promotion. Conversely,$3. Staff Working Paper No. 508. 1982. 24 successful exporting appears to give
pages (including appendix, references). economic institutions more vitality andEffects of Non Tanff Barrier Stock No. WP 0508. $3. effectiveness. The findings also showto Trade on Prices, how Korea's selectivity-in the acqui-Employment, and Imports: The India's Exports sition of technology and in the market-Case of the Swedish Textile Martin Wolf ing of products overseas-has been anand Cloing Industry Despite improved performance, the important part of Korea's success inCarl Hamilton growth of India's exports continues to the world marketplace.Staff Working Paper No 429 1980 63 lag behind need, potential, and the The Johns Hopkins University Press. Juneg P . 4 achievements of several of its competi- 1984. About 204 pages.pages (including appendix, bibliography). tors. This study examines India's over- ISBN 0-8018-3266-7. $19.95.
Stock No. WP 0429. $3. all export performance in the 1960s
Energy, International Trade, and 1970sr f with ncenptv The major prob- On the Political Eccnomy ofand1 Econaomic Growth lems and policies are discussed, as Protection in GermanyAlan S. Manne and Sehun Kim well as current strategic options. H. H. Glismann and F. D. WeissStaff Working Paper No. 474. 1981. 30 Oxford University Press. 1982. 224 pages Staff Working Paper No. 427, 1980. 30pages (including 2 appendixes, references). (including index), pages (including bibliography).Stock No. WP 0474. $3. LC 82-6309: ISBN 0-19-520211-2, Stock Stock No. WP 0427. $3.
through which trade police is deter- developing countries grows, the fasterNEW mined. Focuses on the evolution of th-se countries will become competi-
The Political Economy of France's international commerce in the tive in an even wider range of goods.1970s and assesses probable trends for Innovation, though a key factor, can-Protection in Italy: Some the future. not determine comparative advantage,Empnrical Evidence Staff Working Paper No. 570. 1983. 64 because innovations spread rapidlyEnzo Grilli and Mauro La Noce pages. through the world economy.Thispecif sies the basedon a model that ISBN 0-8213-0200-0. Stock No. WP 0570. Staff Working Paper No. 571. 1983. 84specifes the demand side of the mnar- 3.pages.ket. Examines 35 industrial subsectors S3. p g .in terms of EEC tariff protection and -NEW $3IItaly's domestic subsidy assistance. _____$3
Finds that tariffs protect Italian exports Real Wages and Exchange The Structure of Protection inin the EEC markets but have less effect Rates in the Philippines, 1956- Developing Countriesin keeping out non-EEC imports.Staff Working Paper No. 567. 1983. 48 78: An Application of thie Bela Balassa and otherspages. Stolper-Samuelson-Rybczynski The Johns Hopkins University Press, 1971,ISBN 0-8213-0197-7. Stock No. WP 0567 Model of Trade 394 pages (including 5 appendixes, index).$3. Deepak Lal LC 77-147366. ISBN 0-8018-1257-7, StockOutput and Employment Explains the movements of real wages No. JH 1257. $25 hardcover.Changes in a "Trade Sensitive" in the Philippines in terms of a simple Testing for Direction ofSector. Adjustment in the U.S. regression model. Examines the coun- Eixports: India's Exports ofFootwear Industry try's postwar economic performnance Manufactures in the 1970sJohn H. Mutti and Malcolm D. and draws some tentative conclusions Ashok KhannaBale for economic policy.Staff Working Paper No. 430. 1980. 21 Staff Working Paper No. 604. 1983. 60 Tests the hypothesis that the exportsp (Icd. fotntes, ) pages. of a developing country with an ad,Stock No. WP 0430. $3. ISBN 0-8213-0213-2.Storc No. WP 0604. vanced dstinactuinsg the capital inten-Patters of Barriers to Trade in sity of exports will be greater to the
'; veden: A Study in the Shadow Prices for Trade more labor abundant destinations, andX heory of Protection Strategy and Investment greater to the more capital abundant
Lars Lundberg Planning in Egypt destinations. India's exports of manu-Staff Working Paper No. 494. 1981. 35 John Page, Jr. factures for 1973 and 1978 are used forpages (including 3 aN4 endixes). Staff Working Paper No. 521. 1982. 212 the analysis.Stock No. WP 0494. $3. pages. Staff Working Paper No. 538, 1983. 41The Political Economy of ISBN 0-8213-0009-1. Stock No. WP 0521. pages.Protection in Belgium $10. ISBN 0-8213-0132-2.Stock No. WP 0538.P.K.M. Tharakan $3,Staff Working Paper No. 431. 1980. 22 Structural Change i Trade inpages (including statistical appendix, refer- Manufactured Goods beibween The Tokyo Round: Results andences). . Industrial and Developirig Implications for DevelopingStock No. WP 0431. $3, Countries CountriesThe Political Market for Bela Balassa Ria KemperProtection in Industrial Staff Working Paper No. 396. 1980. 46 Staff Working Paper No. 372. 1980. 38Countries: Empirical Evidence pages. pages (including annex).Kym Anderson and Robert E. Stock No. WP 0396. $3. Stock No. WP 0372. $3.Baldwin. Trd-dutetPlce nStaff Working Paper No. 492. 1981. 28 NEW Trade Adjustment Policies andpages (including references). Th Income Distribution in ThreeStock No. WP 0492. $3. The Stmcture of Intemational Archetype DevelopingOn Protectionism in the Competitiveness in the Federal EconomiesNetherlands Republic of Germany: An Jaime de Melo and ShermanK.A. Koekkoek, J. Kol, and L.B.M. Appraisal RobinsonMennes Frank D. Weiss Staff Working Paper No. 442. 1980. 91Staff Wcr?king Paper No. 493. 1981. 70 Probes the comparative trade advan- pages (including appendixes, references).pages (including 3 annexes, references). tage of the Federal Republic of Ger- Stock No, WP 0442. $3.Stock No, WP 0493. $3, many in the 1980s with surprising con-
clusions: developing countries are Trade among DevelopingNEW competitive with the Federal Republic Countries: Theory. Policy
Public Assistance to Industries of Germany in a far wider range of Issues, and Principal Trendsproducts than had been previously SafWrigPprN.49 91 1and Trade Policy in France thought. Suggests probable trends, es- Staff Working Paper No. 479. 1981. 116Bernard Babe pecially toward developing countries. pages (including 2 appendixes, references).Descibes the instdtutional structure Concludes that the faster income in Stock No. WP 0479. $5.
Trade and Employment Trends in International Trade Worker Adjustment to
Policies for Industrial in ManumfAured Goods and Liberalized Trade: Costs and
Development Structural Change in the Assistance PoliciesKeith Marsden Industrial Countries Graham Glenday, Glenn P.
In the last decade, the developing Bela Balassa with the assistance of Jenkins, and John C. Evanscountries have proved that they can Kenneth Meyers Staff Working Paper No. 426. 1980. 87
compete internationally in exporting Exarirnes recent trends in trade in pages (including 2 appendixes, bibliog-
manufactured goods, as well as pn- manufactured goods between the in- raphy).mary products and services. This pa- dustrial and the develop:-.rg countries. Stock No. WP 0426. S3.per examines three sets of issues: (a) Analyzes (a) the implications of these World Trade and Output ofwhether good export perforinance is trends for structural change in the in- Manufactures: Structualattributable to special characteristics of dustrial countries and (b) changes over TrnsadDvlpgthe most successful countries or time in the current dollar value and Trends and Developingwhether their success can be readily the commodity composition of trade in Countries' Exportsreplicated in other countries; (b) manufactured goods. Recommends Donald B. Keesingwhether the penetration of the mar- policy changes aimed at promoting in- Staff Working Paper No. 316. 1979.
kets of indutstrial countries has ternational trade and structural 74 pages (including statistical annex).
reached, or will soon reach, a limit; change.and (c) whether trade in manufactures Staff Working Paper No. 611. 1983. $3.among the developing countries can pages.expand further. Concludes with a dis- pages.cussion of the contribution of small ISBN 0-8213-0251-5. Stock No. WP 0611.enterprises to the creation of employ- $3.ment and the alleviation of poverty. Why the Emperor's New
1982. 70 pages (including. annex). Clothes Are Not Made inISBN 0-8213-0017-2. Stock No. BK 0017. Colombia: A Case Study in$5. Latin American and East AsianTrade in Non-Factor Services: Manufactured ExportsPast Trends and Current Issues David MorawetzAndre Sapir and Ernst Lutz Focuses on the exports of a particularStaff Working Paper No. 410. 1980. 140 commoity (clothing) from a particulaEr
pages (including 4 annexes). Latin American country (Colombia) inStock No. WP 0410. $5. an attempt to understand why LatinTrade in Services: Economic America has been so much less suc-
Determinants and cessful at exporting manufacturedDevelopment-Related Issues goods to date than East Asia. It is theAndre Sapir and Ernst Lutz first study to go into great detail in ex-Staff Working Paper No. 480. 1981. 38 amining the plice, and especially thepages (including appendix, refrences). nonprice, determinants of export suc-
Stock No. WP 0480 53. cess.Oxford University Press, 1981. 208 pages
Trade Policy for Developing (including appendixes, bibliography).
Countries . LC 81-9547. ISBN 0-19-520283-X, StockDonald B. Keesing No. OX 520283, $22 hlardcover.
World Bank Staff Wo?-,'ing Paper No. 353,August 1979, vii + 264 pages (includingreferences).Stock No. WP-0353. $10.
Trade Policy Issues for theDeveloping Countries in the1980sIsaiah FrankWorld Bank Staff Working Paper No. 478.August 1981. 52 pages.
Stock No. WP-0478. $3.
The World BankPublications Order Form
SEND TO: YOlJR LOCAL DISTRIBUTOR OR TO WORLD BANK PUBLICATIONS(See the other side of this form.) P.O. BOX 37525
WASHINGTON, D.C. 20013 U.S.A.Date
Name Ship to: (Enter if different from purchaser)
Title Name -_-
Firm 'r_ ,tle
Address_ Firm
City State_ _ Postal Code Address
Country Telephone c ) City State_ Postal Code_
Purchaser Reference No. Country 'TeIephone (Check your method of payment.Enclosed is my L Check L International Money Order O Unesco Coupons O Internaticnal Postal Coupon.Make payable to World Bank Publications for U. S. dollars unless you are ordering from your local distributor.Charge my L VISA L MasterCard L American Express L Choice. (Credit cards accepted only for orders addressedto World Bank Publications.)
Credit Card Account Number Expiration Date SignatureL Invoice me and please reference my Purchase Order No,
Please ship me the items listed below.
Customer InlernalStock Number Author/ Tite Routing Code Quantity Unit Price Total Amount I
All prices subject to change. Prices may vary by country, Allow 6-8 weeks for delivery.
Subtotal Cost $___'Ibtal copies .Air mail surcharge if desired ($2.00 each) $____
Postage and handling for more than two complimentary items ($2.00 each) $___
Tobtal $____IBtD-006 Thank you for your order.
DISTRIBUTORS OF WORLD BANK PUBLICATONS
Distributors of World INDONESIA Attn: Mr. J.M. HernandezPt. Indira Linmited Castello 37
Bank Publications Attn: Mr. Bambang Wahyudi MadridJI, Dr. Sam Ratulangi No. 37 SRI LANKA AND THE MALDIVESJakarta Pusat Lake House Bookshop
ARGENTINA IRELAND Attn: Mr. Victor WalataraCarlos Hirsch, SRL, TDC Publishers 41 Wad Ramanayake MawathaAttn: Ms. Monica Bustos Attn: Mr. James Booth Colombo 2Florida 165 4° piso 12 North Frederick Street SWEDENGaleria Guemes Dublin 1 ABCE Fritzes Kungl, Hovbokhandel
Buno Aie 130 JAPAN Attn: Mr. Eide SegerbackAUSTRALIA, PAPUA NEW GUINEA, Eastem Book Service Re%eninpsgatan 1, Box 16356FIJI, SOLOMON ISLANDS, Attn: Mr. Terumasa Hirano . StockholmWESTERN SAMOA, AND 37-3, Hongo 3-Chome, Bunkyo-ku 113 SWITZERLANDVANUATUTokyo Libraie PaotThe Australian Financial Review Tokyo L rair e Pa yotInformation Service (AFRIS) KENYAAttn: Mr. David Jamieson Africa Book Services (E.A.) Ltd. 6, rue Grenus235-243 Jones Street Attn: Mr. M.B. Dar 1211 GenevaBroadway P.O. Box 45245 TANZANIASydney, fSW 20001 Nairobi Oxford University PressBELGIUM KOREA, REPUBLIC OF Attn: Mr. Anthony Theobold
Publications des Nations Unies Pan Korea Book Corporation MaktabaamAttn: Mr. Jean de Lannoy Attn: Mr. Yoon-Sun Kim. Dar es Salaamav. du Roi 202 P.O. Box 101, Kwanghwamun THAILAND1060 Brussels Seoul Central Department Store, Head Office
MALAYSIA Attn: Mrs. atanaLANADA University of Malaya Cooperative 306 Silom RoadLe A)iffuseur SBookshop Ltd. Bangkok
CAP. 8, isoucherville J4B 5E6 Attn: Mr. Mohammed Fahim Htj Thailand Management AssociationQue 5,bec hrvleJ4 E Yacob Attn: Mrs. SunanQuebec P.O. Box 1127, Jalan Pantai Baru 308 Silom RoadCOSTA RICA Kuala Lumpur BangkokLibreria TreNos MEXICO UNITED KINGDOM ANDAttn: Mr. Hugo Chamberlain INFOTEC NORTHERN IRELANDCalle 11-13, Av. Fernandez Guell Attn: Mr. Jorge Cepeda Microinfo Ltd.San Jose San Lorenzo 153-1f, Col. del Valle, Attn: Mr. Roy SelwynDENMARK Deleg. Benito Juarez Newman Lane, P.O. Box 3Sanfundslitteratur 03100 Mexico, D.F. Alton, Hampshire GU34 2PGAttn: Mr. Wilfried Roloff NETHERLANDS EnglandRosenderns Alle 11 MBE BV UNITED STATESDK-1970 Copenhagen V. Attn: Mr. Gerhard van Bussell The World Bank Book StoreEGYPT, Arab Republic of Noorderwal 38, 600 19th Street, N.W.Al Ahram 7241 BL Lochem W, 'hington, D.C. 20433Attn: Mr. Sayed El-Gabri NORWAY (Postal address: P.O. Box 37525Al Galaa Street Johan Grundt Tanum A.S. Washington, D.C. 20013, U.S.A.)Cairo Attn: Ms. Randi Mikkelborg Baker and Taylor CompanyFINLAND P.O. Box 1177 Sentrum 501 South Gladiola AvenueAkateeminen Kirjakauppa Oslo 1 Momence, Illinois, 60954Attn: Mr. Kari Litmanen PANAMA 380 Edison WayKeskuskatu 1, SF-00100 Ediciones Libreria Cultural Panamena Reno, Nevada, 89564Helsinki 10 Attn: Mr. Luis Fernandez Fraguela R. 50 Kirby AvenueFRANCE Av. 7, Espana 16 Somerville, New Jersey, 08876World Bank Publications Panama Zone 1 Commerce, Georgia 3059966, avenue d'Iena PHILIPPINES75116 Paris National Book Store Bernan AssociatesGERMANY, Federal Republic of Attn: Mrs. Socorro C. Ramos 9730-E George Palmer H2fhwayUNO-Verlag 701 Rizal Avenue Lna,Mrln,27Attn: Mr. Joachim Krause Manila Blackwell North America, Inc.Simrockstrasse 23 SAUDI ARABIA 1001 Fries Mill RoadD-5300 Bonn 1 Jarir Book Store Blackwood, New Jersey 08012HONG KONG, MACAU Attn: Mr. Akram Al-Agil Sidney Kramer BooksAsia 2000 Ltd. P.O. Box 3196 1722 H Street, N.W.Attn: Ms. Gretchen Wearing Smith Riyadh Washington, D.C. 200066 Fl., 146 Prince Edward Road SINGAPORE, TAIWAN, BURMA United Nations BookshopKowloon Information Publications Private, Ltd. United Nations PlazaINDIA Attn: Ms. Janet David New York, N.Y. 10017UBS Publishers' Distributors Ltd. 02-06 1st Floor, Pei-Fu Industrial VENEZUELAAttn: Mr. D.P. Veer Building Libreria del Este5 Ansari Road, Post Box 7015 24 New Industrial Road Attn. Mr. Juan PericasNew Delhi 110002 Singapore Avda Francisco de Miranda, no. 52(Branch offices in Bombay, Bangalore, SPAIN Edificio Galipan, Aptdo. 60.337Kanpur, Calcutta, and Madras) Mundi-Prensa Libros, S.A. Caracas 1060-A