Making Debt Relief Conditionality Pro-Poor

Aid conditionality, HIPC, Debt relief, East Africa

Are Imports in Africa Responsive to Tariff Reductions?

In the 1980’s and 1990’s many African countries liberalised their trade policy, although since the mid 1990s there are countries that did not alter tariffs. This allows us to analyse the effects of trade liberalisation on the change in imports using Difference-in-Differences techniques that allow us to evaluate the impact on imports of trade liberalisation at the general and sector-specific level. During the period of study (1996-2004), Algeria (in 1997), Ethiopia (2001), Egypt (1998), Tanzania (2000) and Uganda (2000) all liberalised their tariffs. These countries act as a ‘treatment’ group. In comparison, Cameroon, Gabon and Madagascar all left their tariffs unchanged. These countries act as our ‘control’ group or counterfactual. We compare the effects on imports for liberalising countries relative to non-liberalising countries, controlling for the timing of liberalisation, trends in import capacity (country effects) and in sector imports across countries (product market effects). Overall, using three methods of measuring imports, there is little evidence that suggests imports increased for the treatment group countries relative to the control group countries. This is true at the general and sector-specific levels.Tariffs, Difference-in-Difference, liberalisation, Africa

Trade Liberalisation is Good for You if You are Rich

This paper investigates the relationship between trade policy and growth using a dynamic panel regression model with GMM estimates for data on 44 developing countries over 1980-1999. Trade policy is captured by measures of tariffs, import and export taxes. Typically, the average effects of changes in such policy variables have been investigated. However, from a policy perspective, the differential effects on high-or low-income countries may be of more interest. Our preferred specification for growth thus includes as an explanatory variable an interaction term between trade barriers and initial income levels to capture the non-linearity in the relationship. This specification reveals a significant interaction effect under which the marginal impactof tariffs on growth is declining in initial income. In particular, for low-income countries tariffs appear to be associated with higher growth, whereas only for middle-income and richer countries is there a negative impact of tariffs on growth. The impact of a marginal change in protection on growth changes from positive to negative as income increases beyond a threshold level of GDP per capita (below which, in rough terms, a country would be classed as low-income). Put differently, trade liberalisation seems to offer the possibility of achieving faster growth only in relatively richer countries.Growth; Openness; Trade barriers; Cross-country analysis

Distortions to Agricultural Incentives in Tanzania

Distorted incentives, agricultural and trade policy reforms, national agricultural development, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18,

The Long-Run Effect of Foreign Aid on Domestic Output

This paper makes two main contributions. First, we examine the long-run effect of foreign aid on domestic output for 59 developing countries using heterogeneous panel cointegration techniques to control for omitted variable and endogeneity bias and to detect possible cross-country differences in the output effect of aid. The main result is that aid has, on average, a negative long-run effect on output, but there are large differences across countries (in about a third of cases the effect is positive). Second, we use a general-to-specific variable selection approach to systematically search for country-specific factors explaining the cross-country differences in the estimated long-run effect of aid. In contrast to previous studies, we find that aid effectiveness does not depend primarily on factors such as the quality of economic policy, the share of a country's area that is in the tropics, the level of democracy or political stability. The results suggest that the cross-country heterogeneity in the output effect of aid can be explained mainly by cross-country differences in law and order, religious tensions and government size. --Foreign aid,Domestic output,Heterogeneous panel cointegration techniques,General-to-specific approach

Political Regime, Private Investment, and Foreign Direct Investment in Developing Countries

This paper uses annual aggregate data for 36 low or middle income countries covering the period 1995-2001 to investigate the effect of FDI on private investment. It also explores if the relationship between FDI and private investment is influenced by the nature of the political regime, using four governance measures (voice and accountability, regulatory quality, political stability, and control of corruption) to distinguish between ?market-friendly? (high or good governance values) and ?market-unfriendly? (low governance) regimes. The results, which hold for all of the governance measures, show that private investment is more important than FDI in terms of the contribution to total investment, and that FDI inflows and private investment are higher in countries with good governance. Interestingly, the findings demonstrate that FDI tends to displace domestic private investment, and this ?crowding out? effect is greater in countries with good governance.FDI, investment sources, finance

Fiscal Effects of Aid

Fiscal policy, Aid, Sub-Saharan Africa

The Impact of Economic Partnership Agreements on African, Caribbean and Pacific Countries Imports and Welfare

This paper estimates the impact on a sample of 34 African, Caribbean and Pacific (ACP) countries of eliminating tariffs on imports from the EU under Economic Partnership Agreements (EPAs), considering trade, welfare and revenue effects. Even assuming ‘immediate’ complete elimination of all tariffs on imports from the EU, some two-thirds of ACP countries are likely to experience welfare gains; the ACP overall and the average ACP country gain. The overall welfare effect relative to GDP tends to be very small, whether positive or negative. While potential tariff revenue losses are non-negligible, given that countries have at least ten years in which to implement the tariff reductions, there is scope for tax substitution. An important issue is identifying the sensitive products (SPs) to be excluded from tariff reduction. We exclude products where ACP imports compete with the EU (as SPs have to be agreed at the regional ACP level). In general, excluding SPs on these criteria reduced the welfare gain (or increased the welfare loss) compared to estimates where no products are excluded. It remains the case that the ACP overall and on average gains, although only 13 countries (38%) experience a net gain in this scenario (but for another nine the net effect is zero or almost zero). This is to be expected as if ACP products are excluded as SPs the potential trade creation gains are reduced. However, as the exclusion criterion was products that are traded between ACP countries, these import losses would be offset by gains to ACP exporting countries. Perhaps the most surprising result is that even where EPAs imply a welfare loss (on imports), the losses are likely to be very small.EU-ACP, Economic Partnership Agreement, ACP Imports, International Relations/Trade,

The Fiscal Effects of Aid in Ghana

aid, fungibility, fiscal response, impulse response

Are Inequality and Trade Liberalization Influences on Growth and Poverty?

Trade, Inequality, Growth, Poverty, Developing countries