Currency devaluation and resource mobilization in the agricultural sector: Welfare and trade balance implications in Cameroon
Amegbeto, Koffi Nenonene
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https://hdl.handle.net/2142/23202
Description
Title
Currency devaluation and resource mobilization in the agricultural sector: Welfare and trade balance implications in Cameroon
Author(s)
Amegbeto, Koffi Nenonene
Issue Date
1996
Doctoral Committee Chair(s)
Nelson, Charles H.
Department of Study
Agricultural and Consumer Economics
Discipline
Agricultural and Consumer Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Economics, Finance
Language
eng
Abstract
On January 12, 1994, Cameroon and 12 other members of the Communaute Financiere Africaine (CFA) zone collectively devalued the CFA franc by 50%. In addition, Cameroon reduced civil service wages, and initiated a set of liberalizing trade reforms. This research has analyzed the impact of the 50% nominal devaluation and trade liberalization on resource mobilization, economic growth, the trade and current accounts, as well as income and welfare distribution in Cameroon. The CGE model of Cameroon used in the current study has been formulated not only to emphasize the relative price changes that take place across sectors in the economy, but also to capture two complementary issues. First a disaggregation of the traditional food and export agriculture sectors allows a distinction between tradeable and nontradeable agricultural commodities and an exploration of how different commodity systems are affected by alternative policies. Second, the formulation provides a framework to examine how micro-level markets in the agricultural sector respond to macro-level changes such as exchange rate and trade policies.
The empirical results show that currency devaluation achieves resource mobilization away from sectors that produce nontradeables toward those that produce tradeable goods with selective effects on sectoral outputs, and moderate contraction at the aggregate level. Contrary to expectations, production of rice and maize which are domestic import substitutes, did not expand as the increase in their prices shifts demand toward domestic nontradeables such as millet and yams. Among the export crops only banana expands considerably. Exports from most sectors increase while imports contract up to 20% of their base year levels resulting in a positive effect on the trade and current accounts. Income and welfare distributions are in favor of agricultural households and urban rich at the expense of rural non-farm and urban poor households. Under the package of combined devaluation and liberalized trade, resource mobilization is less intense, the contractionary effect on aggregate output increases, food production further declines, and import reduction is compromised. While not substantial, the income and welfare from liberalization to farm households are lessened.
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