Lofgren Robinson Ss A

8/12/2019 Lofgren Robinson Ss A

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3/10/14

PUBLIC SPENDING, GROWTH, AND

POVERTY ALLEVIATION IN SUB-SAHARAN AFRICA:

A DYNAMIC GENERAL EQUILIBRIUM ANALYSIS

Hans Lof!"n

S#"!$an Ro%&nson

In'"!na'&ona( Foo) Po(&*+ R"s"a!*# Ins'&''"

Ma+ ., //0

DRAFT

Paper prepared for presentation at the Seventh Annual Conference on Global Economic

Analysis !"rade Poverty and the Environment# or$ani%ed by the &orld 'an( and the


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Center for Global "rade Analysis and held at "he &orld 'an( head)uarters in

&ashin$ton *+C+ ,une 1-.1 004+


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Ta%(" of Con'"n's

.1 In'!o)*'&on11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111110

1 G!o2'#, Po3"!'+, an) P%(&* Po(&*+111111111111111111111111111111111111111111111111111111111111111111111111111111111111111110

41 D+na$&* Po3"!'+ Ana(+s&s: Mo)"( S'!*'!" an) Da'a%as"111111111111111111111111111111111111111111111111115

'ac($round++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++odel Structure+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++1

&ithin.period module++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++13'et2een.period module+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++1

*atabase Structural features of an archetype country in SSA++++++++++++++++++++++++++++++++++++++1-

01 S&$(a'&ons1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111110

'ase Simulation+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++4

Public Spendin$ Simulations 5eallocation to "ar$et Areas+++++++++++++++++++++++++++++++++++++++++6

Public Spendin$ Simulations E7pansion in "ar$et Areas++++++++++++++++++++++++++++++++++++++++++++Sensitivity Analysis+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++3

61 Con*(s&on1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111 46R"f"!"n*"s11111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111145

A77"n)&8: S77("$"n'a!+ Ta%("s1111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111110/

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111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111110.

A%s'!a*'

"his study e7plores the impact of $overnment policy on lon$.run $ro2th and poverty in

Sub.Saharan Africa 8SSA9 dra2in$ on insi$hts from cross.country research on the direct

and indirect lin(s bet2een public spendin$ and total factor productivity 8":P9 $ro2th+ethodolo$ically 2e use a dynamic computable $eneral e)uilibrium 8CGE9 model that

is solved for the period 1;.016+ "he model (eeps trac( of the accumulation of ma


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.1 In'!o)*'&on.

"he purpose of this paper is to e7plore the impact of $overnment policies on lon$.

run $ro2th and poverty in Sub.Saharan Africa 8SSA9+ ethodolo$ically 2e analy%e

$ro2th in an archetype SSA country usin$ a dynamic computable $eneral e)uilibrium

8CGE9 model that is an e7tension of the static standard CGE model in =of$ren et al+

8009+ >n addition to incorporatin$ time the model e7tends the earlier static model by

incorporatin$ the influence of economic openness and $overnment spendin$ on factor

productivity+ "he model is applied to a styli%ed database that captures structural

characteristics of the economies of SSA and dra2s on insi$hts from research on the

effects of different public spendin$ policies on economic performance+ "he

economy2ide approach supports analysis of trade.offs and syner$ies bet2een different

public investment strate$ies+

Section provides a brief revie2 of the literature on the determinants of $ro2th

and poverty reduction 2ith an emphasis on the role of public policy 2hich informs the

subse)uent sections of this study+ "he synthesis dra2s on a lar$e body of econometrically

based cross.country analysis+ >n Section 3 the model structure is e7plained and situated

in the conte7t of the literature on dynamic economy2ide policy models+ &e also present

the styli%ed model database and the ability of the model to replicate styli%ed facts fromthe $ro2th and development literature+ >n Section 4 2e present and analy%e a set of

simulations that e7plore the lin(s bet2een $ro2th poverty and $overnment policies+ >n

Section 6 2e summari%e our findin$s and identify hi$h.priority areas for future

research+

1 G!o2'#, Po3"!'+, an) P%(&* Po(&*+4

>n recent decades a considerable research effort has been made to untan$le the

determinants of $ro2th and poverty includin$ public policy+ Althou$h there is a lac( of

consensus on many of its findin$s this body of research nevertheless provides a valuable

1"he authors than( oata% El.Said for professional research assistance+Supplementary information on the database is available on re)uest from the authors+3"his section is a synopsis of =of$ren and 5obinson 80049 available on re)uest from the authors+ "his

documents includes a full set of references+ "he ma


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source for styli%ed facts and parameter estimates that are useful in the construction of a

CGE model and its database+

?ne strand of this literature uses $ro2th accountin$ to disa$$re$ate G*P $ro2th

into factor accumulation and ":P $ro2th+ "he picture that emer$es from this 2or( is that

in SSA avera$e ":P $ro2th has been ne$ative in recent decades+ Across all developin$

countries the ":P share in G*P $ro2th varies but may typically be 33.60 percent+

5ecent research su$$ests that ":P $ro2th may be of increasin$ importance and no2

accounts for the bul( of cross.country $ro2th $aps+ At a more disa$$re$ated level ":P

$ro2th has in recent decades been faster for a$riculture than manufacturin$ in countries

in all re$ions includin$ SSA+

"he econometric literature on $ro2th determinants constitutes a second strand+

"his literature has tried to unravel the determinants of $ro2th typically relyin$ on sin$le.

e)uation cross.country re$ressions of a measure of G*P on a set of potential

determinants selected in li$ht of modern $ro2th theory+ >n recent years this literature

has in some cases been e7tended to time.series analysis analysis at the sin$le.country

level and estimation of simultaneous.e)uation systems+ "he man $eneral the

results indicate that accumulation of labor and physical capital has a robust positive

impact on $ro2th+ &hen physical capital has been disa$$re$ated into private and public

the $ro2th effect has been more consistently positive for private capital+ "his may reflect

that due to corruption and other factors a lar$e share of public investment has not

$enerated public capital as 2ell as the fact that in addition to $ro2th.enhancin$

investments that complement private sector production public investment also has

included $ro2th.retardin$ investments that compete 2ith more efficient private sector

investments+

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:or human capital the evidence is less clear and differs 2idely across studies+

"heoretical $ro2th models 2ith human capital permit increases in human capital per

2or(er to raise labor productivity+ ?n balance the empirical evidence su$$ests that

education 8typically pro7ied by an avera$e level of schoolin$ measure9 has a positive

$ro2th effect 2hereas the macro.level lin(s bet2een health indicators and $ro2th are

less clear+

:rom a policy perspective it 2ould be useful if the analysis could be more

disa$$re$ated and if the analysis of human capital could be e7tended to consider the

impact of public spendin$ as opposed to indicators of education and health status+ "he

analysis in :an and 5ao 80049 2hich 2e 2ill dra2 on in the model.based analysis in

this study responds to these demands+ "hey estimate Cobb.*ou$las production functions

for Africa Asia and =atin America 2ith national G*P as the dependent variable and as

independent variables labor private capital and public capital stoc(s+ "he latter are

disa$$re$ated into a$riculture education health transportation and telecommunication

social security and defense+ "hese $overnment capital stoc( variables 2ere constructed

from past $overnment spendin$ 8both current and capital9 in each functional area+ :or the

most part the coefficient of these determinants 82hich may be interpreted as representin$

elasticities9 had the e7pected si$ns 8positive e7cept for defense9 and most 2ere

si$nificant at the 10 percent level+ "he only coefficients 2ith the !2ron$# si$n 2ere

those for education spendin$ in Africa and =atin America 2hich both had ne$ative si$ns+

Bo2ever for both re$ions the combined mar$inal impact of human capital 8education

and health9 spendin$ 2as positive+ :or Africa the stron$est positive effect 2as for health

spendin$ follo2ed by a$riculture 2hile defense spendin$ has a stron$ ne$ative effect

8:an and 5ao 004 pp+ 14.169+4>n other studies that have used a disa$$re$ated approach

very stron$ $ro2th effects have been identified for investments in transportation and

communications infrastructure+ :or a$riculture the impact of infrastructure investments

may be particularly stron$ $iven that transportation costs often represent a lar$e share of

output prices+

"he $ro2th literature has also addressed aspects of policy and economic

performance that are not readily summari%ed on the basis of $overnment bud$et data+

4"he estimated elasticities of G*P 2ith respect to health and defense are 0+1.0+ and D0+1-.0+1;

respectively+ :or a$riculture the elasticity is around 0+06+


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"here is considerable a$reement that macroeconomic stability often pro7ied by lo2

inflation or a lo2 bud$et deficit relative to G*P has a positive impact on $ro2th+

Althou$h the role of trade has become contentious it seems that on balance an open

trade policy and a stron$ involvement in forei$n trade promote $ro2th+ "his does not

mean that the specific mechanisms are 2ell understood or that openness invariably is

$ro2th promotin$+ ?n the contrary economic structure and domestic policies are li(ely

to have a stron$ conditionin$ impact on the effects of trade liberali%ation and economic

openness+6

"he fact that many cross.country analyses found a ne$ative and si$nificant SSA

dummy has stimulated a search for additional $ro2th determinants 2ith special relevance

for this re$ion+ "he addition of variables indicative of $eo$raphy 8!landloc(edness#9

demo$raphics 8a$e dependency and the $ap bet2een $ro2th in labor force and

population9 and e7ternal factors 8terms.of.trade shoc(s and tradin$ partner $ro2th9 has

eliminated the ne$ative dummy+ :indin$s also su$$est that once these additional $ro2th

determinants are accounted for the mar$inal responses of countries in SSA to chan$es in

their economic environment are no different from those of countries in other re$ions+

"he cross.country re$ression literature stron$ly su$$ests that on avera$e more

rapid G*P $ro2th is associated 2ith more rapid poverty reduction !$ro2th is $ood for

the poor+# "he elasticity of the headcount poverty rate 2ith respect to mean per.capita

consumption is commonly estimated to be bet2een D and D3 2hereas the estimates for

the poverty $ap and s)uared poverty $ap measures are sli$htly hi$her+ Empirical findin$s

su$$est that the effectiveness of $ro2th in reducin$ poverty often is hi$her if $ro2th is

biased in favor of rural areas if initial ine)uality is lo2er and/or if the initial state of rural

development and human resource development is more favorable+ Pro.poor public

e7penditures and land tenure reform can play a role in s(e2in$ the $ro2th benefits in

favor of the poor+ >n $eneral these findin$s confirm the notion that there may be

syner$ies bet2een different policies and structural characteristics the conse)uences of

any $iven policy on economic indicators depend on the nature of other policies and

structural characteristics+

6:or e7ample see case studies of "an%ania 8&obst 0019 Fimbab2e 8'autista et al.0039 and

o%ambi)ue 8"arp et al.009+

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>n sum the literature on $ro2th in developin$ countries su$$ests a number of

desiderata for simulation models of developin$ countries+ Such models should be able to

capture a set of styli%ed facts concernin$ the relationships bet2een poverty reduction and

G*P includin$ the roles of labor force $ro2th accumulation of private capital

economic openness and productivity.enhancin$ public spendin$ 8both on a$riculture

human development 8education and health9 and physical infrastructure 8especially

transportation and communications9+ >n addition simulation models should permit the

$overnment to influence economic performance via policies that contribute to economic

openness and enhance private capital accumulation 8for e7ample by raisin$ the incomes

of a$ents 2ith hi$h savin$s9+ odels should also be able to address the trade.offs that are

involved in economic development amon$ other thin$s bet2een private capital

accumulation and $overnment spendin$+

:inally the literature includes a 2ide ran$e of estimates of the impact of different

$overnment interventions and economic openness on $ro2th and poverty+ Given that it

primarily is based on reduced.form models underlyin$ structural mechanisms are

typically left out+ "hus builders of simulation models face the challen$e of e7plorin$ the

conse)uences of alternative estimates of and channels for the lin(s that have been

identified in the econometric literature+

41 D+na$&* Po3"!'+ Ana(+s&s: Mo)"( S'!*'!" an) Da'a%as"

>n this section 2e present a dynamic CGE model and a database that is

representative of an archetype SSA country+ "he model is an e7tension of the static

standard CGE model in =of$ren et al+ 8009+ >ts formulation incorporates insi$hts from

the literature on the potential channels throu$h 2hich different (inds of $overnment

spendin$ influence productivity and economic performance+

&e first situate our model in the literature on dynamic economy2ide policy

models and then describe the model structure and its database+ "he Appendi7 presents

additional information on the database+

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Ba*9!on)

"here have been t2o bursts of 2or( on dynamic models in the post.2ar period+

"he first 2or( pro$ram concerned neoclassical $ro2th models startin$ from the

!Solo2.S2an# model and ran from the mid.160s until the late.10s+

"his literaturefocused on the mathematical properties of a variety of optimal $ro2th models 2ith little

empirical 2or(+ "his pro$ram died out in the 1-0s lar$ely as 'arro and Sala.i.artin

816 p+ 19 ar$ue because of its !lac( of empirical relevance+#

"he second burst of 2or( 2hich started in the mid 1;0s 2as based on

!endo$enous $ro2th# models+ Considerable pro$ress has been made in developin$

analytic dynamic models that see( to incorporate the styli%ed facts of lon$.run $ro2th as

it has occurred in the past in the currently developed countries and as it is unfoldin$ in

the less developed countries in the post.2ar period+->n particular the ne2 approach has

sou$ht to !endo$eni%e# the process of technical chan$e in the models lin(in$

productivity $ro2th to factors such as 5* investment capital $ro2th 8human and

physical9 and international lin(a$es throu$h trade+;"he standard approach is to assume

that the economy ma7imi%es some (ind of intertemporal utility function and ma(es

choices re$ardin$ variables li(e the rate of savin$s investment in various (inds of

physical or human capital and investment in !research# or !(no2led$e creation# that

affect !technical chan$e# or !":P $ro2th# 2here research or (no2led$e have

elements of bein$ public $oods+ "hese theoretical models and their empirical

counterparts rely heavily on the mathematics of dynamic optimi%ation and the analysis

of alternative steady.state $ro2th paths 2ith limited discussion of !adn these models a$ents are assumed to optimi%e 2ith perfect foresi$ht and correct

(no2led$e about the forces at 2or( these models all implicitly or e7plicitly embody a

!rational e7pectations# notion of dynamic e)uilibrium+ A$ents $enerally operate in

perfectly competitive mar(ets+ Bo2ever the models are also characteri%ed by (no2led$e

diffusion spillovers and e7ternalities 2hich leads to the failure of competitive mar(ets

:or an e7tensive survey of the neoclassical $ro2th literature in this see 'urmeister and *obell 81-09+-A ma


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to achieve optimality+ "hese mar(et failures affect the behavior of a$ents and hence

$overnment policy can play a si$nificant role in determinin$ lon$.run $ro2th+

&hile the 2or( pro$ram on endo$enous $ro2th models has paid appropriate

attention to the lin(in$ of theory and empirical cross.country analysis the mathematics of

dynamic optimi%ation models constrains the !domain of applicability# of the analytic

$ro2th models+ "hese models must of necessity focus on a very fe2 drivin$ forces and

ma(e very stron$ assumptions about a$ent behavior and the 2or(in$ of mar(ets in order

to remain mathematically tractable+ *evelopin$ countries on the other hand are

characteri%ed by $reat hetero$eneity in initial conditions mar(et structures de$ree of

mar(et inte$ration nature of constraints on a$ent behavior and role of $overnment+

Since the emer$ence of the $ro2th literature there has been a considerable

althou$h narro2in$ $ap bet2een $ro2th theorists and development economists+ >n the

2ords of 'arro and Sala.i.artin !development economists H retained an applied

perspective and tended to use models that 2ere technically unsophisticated but

empirically useful+# >n development economics CGE models have become a commonly

used economy2ide approach+ "hey build on and $enerali%e earlier $enerations of

pro$rammin$ and input.output models most importantly by incorporatin$ endo$enous

prices and usin$ formulations that permit a detailed treatment of households and income

distribution+ "he CGE literature has incorporated features from and contributed to the

$ro2th literature+

"he dynamic CGE literature includes t2o strands dynamic recursive models and

optimal $ro2th models+10>n recursive models all a$ents 8private and public9 ma(e their

decisions on the basis of past and current conditions 2ith no role for for2ard.loo(in$

e7pectations about the future+ A$ents are either myopic so they do not care about the

future or i$norant nobody can or does (no2 anythin$ about the future so all behavior

must be based on information from the past+ Alternatively one can assume that the

economy is on a stable 8balanced9 $ro2th path and hence a$ents can simply assume that

the future 2ill be !li(e# the present and need no other information to behave rationally+

A recursive dynamic model can be divided into a !2ithin.period# module 8in

essence a static CGE model9 and a !bet2een.period# module that lin(s the 2ithin.period

10*ervis et al.81; pp+ 1.1;19 and *iao et al+ 81;9 e7plain the structure of recursive and

intertemporal dynamic models respectively+

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modules by updatin$ selected parameters 8typically includin$ factor supplies population

and factor productivity9 on the basis of e7o$enous trends and past endo$enous variables+

>nformation from past solution can also be used in the bet2een.period modules to

$enerate e7pectations about the future 2hich mi$ht be used to affect a$ent behavior in

later 2ithin.period modules+ *ynamic.recursive models can be and often are solved

recursively the 2ithin.period modules are solved separately in se)uence and the

bet2een.period modules are solved to provide parameters needed for the 2ithin.period

model in the succeedin$ period+

"he second strand of empirical dynamic analysis is 2ith optimal $ro2th models+

"hese may be vie2ed as an applied counterpart to the theoretical neoclassical optimal

$ro2th models used in the endo$enous $ro2th literature+ All a$ents have !rational

e7pectations# and ma(e intertemporally optimal decisions everybody (no2s

everythin$ about the future and they use that information in ma(in$ decisions+ Empirical

models in this tradition solve simultaneously for all variables in all time periods often

loo(in$ for infinite.hori%on steady.state balanced $ro2th paths+

5ecursive models are used e7tensively in empirical policy analysis 2hile

intertemporal optimal $ro2th models that can be solved analytically are more important

in the theoretical literature+ 'oth modelin$ traditions 8as 2ell as many static models9 have

incorporated features hi$hli$hted by the $ro2th literature includin$ endo$enous

determinants of productivity $ro2th+ Since they are to comple7 to solve analytically

CGE models in both traditions have to be solved empirically and are used in simulation

analysis+

>n its current formulation our model belon$s to the class of dynamic.recursive

models a$ents have no (no2led$e about the future+ >n the absence of empirical support

for the assumption that private a$ents act on the basis of perfect foresi$ht a dynamic

recursive formulation is certainly plausible for simulation analysis+ &e do not e7plicitly

specify the factors that prevent private a$ents from reali%in$ intertemporally optimal

patterns of savin$s and investment 8e+$+ mar(et imperfections credit constraints and/or

the belief that any (no2led$e about the future is too uncertain to act on9 but 2e do

e7plore the potential $ains from different policy strate$ies $iven that a$ents do not have

perfect foresi$ht+ "he model is solved for a finite hori%on and is used to e7plore the

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properties of a !$ro2th episode# characteri%ed by initial conditions particular dynamic

forces at 2or( $ro2th lin(a$es a$ent behavior institutional constraints and the len$th

of the time period+11

&e inte$rate the 2ithin.period and bet2een.period modules in one set of

simultaneous e)uations ma(in$ it possible to solve the full model in a sin$le pass for the

plannin$ hori%on+ Apart from bein$ efficient computationally this approach support

implementation non.recursive dynamic models either by addin$ an obf no policy choices are endo$eni%ed the model is !s)uare# and there is only one feasible solution+ >n this

case the addition of the ob


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defines the decisions in each time period and a bet2een.period module 2hich updates

the stoc(s of different endo2ments over time+

>n any $iven time period the e)uations capture the full circular flo2 of payments

includin$ production 8activities producin$ outputs usin$ factors and intermediate inputs9

consumption 8by households and the $overnment9 investment 8private and public9 trade

8both domestic and forei$n9 other $overnment revenue and spendin$ activities as 2ell as

the mar(et e)uilibrium conditions macro balances and dynamic updatin$ e)uations

under 2hich the a$ents operate+

Within-period module

>n essence the 2ithin.period module defines a one.period static CGE model+13>t

includes the first.order conditions for optimal production and consumption decisions

$iven available technolo$y and preferences+ "he technolo$y is defined by a nested t2o.

level structure 2ith at the top a =eontief a$$re$ation of value.added and an a$$re$ate

intermediate and at the bottom a CES a$$re$ation of primary factors and a =eontief

a$$re$ation of intermediate inputs+ Consumer demand is $iven by the linear e7penditure

system 8=ES9 derived from a ma7imi%ation of a Stone.Geary utility function sub


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"he $overnment earns most of its incomes from direct and indirect ta7es and

spends it on consumption investment and interest payments 8on its forei$n and domestic

debt9+ 5eal $overnment demand 8consumption and investment9 is e7o$enous

disa$$re$ated by function+ Accordin$ to the a$$re$ate investment function of the model

private investment is a fi7ed share of nominal absorption+

All commodities 8domestic output and imports9 enter mar(ets+ :or mar(eted

output the ratio bet2een the )uantities of e7ports and domestic sales is positively related

to the ratio bet2een the correspondin$ supply prices+ "he price received by domestic

suppliers for e7ports depends on the 2orld price the e7chan$e rate transactions costs 8to

the border9 and e7port ta7es 8if any9+ "he supply price for domestic sales is e)ual to the

price paid by domestic demanders minus the transactions cost of domestic mar(etin$

8from the supplier to the demander9 per unit of domestic sales+ >f the commodity is not

e7ported total output $oes to the domestic mar(et+

*omestic mar(et demand is the sum of demands for household mar(et

consumption $overnment consumption private and public investment intermediate

inputs and transactions 8trade and transportation9 inputs+ "ypically domestic mar(et

demands are for a composite commodity that is made up of imports and domestic output+

"he ratio bet2een the demand )uantities for imports and domestic output is a function of

the ratio of their demand prices+ "otal mar(et demand is directed to imports for

commodities that lac( domestic production and to domestic output for non.imported

commodities+ >mport prices paid by domestic demanders are determined by 2orld prices

the e7chan$e rate import tariffs and the cost of a fi7ed )uantity of transaction services

per import unit 82hich covers the cost of movin$ the commodity from the border to the

demander9+14Prices paid by demanders for domestic output include the cost of transaction

services 8in this case reflectin$ that the commodity 2as moved from the domestic

supplier to the domestic demander9+ Prices received by domestic suppliers are net of this

transactions cost+ :le7ible prices e)uilibrate demands for and supplies of domestically

mar(eted domestic output+ >n international mar(ets the small.country assumption is

14ote that these transactions costs are not ad valoremD the rates 8the ratio bet2een the mar$in and the

price 2ithout the mar$in9 chan$e 2hen there are chan$es in the prices of transactions services and/or the

commodities that are mar(eted+

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follo2ed e7port demands and import supplies are infinitely elastic at e7o$enous 2orld

prices+

>n its balance of payments the country receives forei$n e7chan$e in the form of

e7port revenue net transfers to domestic institutions forei$n borro2in$ by the

$overnment 82hich may be ne$ative if the $overnment is repayin$ debt9 forei$n $rants

and forei$n direct investment+ "hese earnin$s are allocated to imports interest payments

on forei$n debt and repatriation of profits to forei$n investors+ Amon$ these

components e7ports imports interest payments and profit repatriation are endo$enous

2hile the rest is e7o$enous in effect imposin$ a fi7ed current account deficit+

:or the three macroeconomic balances of the model $overnment balance savin$s.

investment balance and balance of payments macro closure rules are re)uired for the

model+16"his model incorporates a simple set of assumptions about ho2 macro

ad9 is the numJraire price

inde7 so all chan$es in nominal prices and incomes in simulations are relative to a fi7ed

CP>+

:inally the 2ithin.period bloc( also includes relationships definin$ ":P by

activity and individual factor productivity by factor and activity+ :or each activity t2o

sources of endo$enous chan$e in ":P are covered 8i9 chan$es in the economy.2ide

trade.G*P ratio relative to the base year ratioK1and 8ii9 chan$es in $overnment capital

stoc(s defined by functional spendin$ area+ "hese relationships are captured by various

constant.elasticity functions lin(in$ ":P or the productivity of a specific factor to

16:or a discussion of macro closures in the conte7t of the standard CGE model see =of$ren et al+ 800

pp+ 13.1-9+1"he trade to G*P ratio is defined in real terms usin$ base.year prices on the assumption that ":P is

related to chan$es in real variables not relevant mar(et shares+

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different types of $overnment e7penditure and trade+ "he elasticity parameters are

activity. factor. and function.specific ma(in$ it possible to specify different channels

and ma$nitudes for the productivity effects of different types of $overnment spendin$+

Between-period module

"he bet2een.period module covers the lin(s bet2een time periods+ >t includes

e)uations that define the stoc(s of different assets factors 8land labor and private

capital9 $overnment capital stoc(s and forei$n debt 8held by the $overnment9+ All stoc(s

are associated 2ith specific institutions+ "his information is used to define the shares of

each institution in total income of each factor and the interest payments of the

$overnment to the rest of the 2orld+

=abor and land stoc(s are updated on the basis of e7o$enous trends+ "he

population in each time period is also e7o$enous+ "he accumulation of private and

$overnment capital stoc(s and forei$n $overnment debt is endo$enous+ :or both capital

cate$ories the stoc( in any $iven year depends on past stoc(s ne2 investment and the

depreciation rate+ >n the accumulation e)uation for $overnment capital real investment is

broadly defined to include both current and capital spendin$+ "he stoc( of forei$n debt

depends on past stoc(s and ne2 borro2in$+

"he model is solved annually for the period 1;.016+ Each model solution

$enerates an e7tensive economy2ide set of results coverin$ sectoral household and

macro data in each solution period+ >n our analysis 2e summari%e this information in a

set of indicators includin$ data on macroeconomic $ro2th chan$es in the structure of

production and trade and the evolution of disa$$re$ated household 2elfare and poverty+

"he poverty indicators are computed on the basis of a representative.household

85B9 approach in a separate poverty module+ >n this module the 2ithin.$roup household

distribution is specified by a lo$normal fre)uency function+ "he 1; poverty lines in

rural and urban areas are calibrated to e7o$enous poverty ratesK 2e use a lo$ standard

error of 0+36 for all 5Bs 8household $roups in the model9+ >n the computation of poverty

indicators for each simulation the CGE model feeds the poverty module 2ith simulated

data for mean consumption and CP> for each 5B+1-

1-:or further details and a discussion of alternative approaches to poverty and ine)uality analysis in a CGE

frame2or( see =of$ren et al+ 80039+

1


17/43

Da'a%as": S'!*'!a( f"a'!"s of an a!*#"'+7" *on'!+ &n SSA

"he model database 2hich captures the structural features of an archetype

country in SSA consists of a SA data on labor force and population and various

elasticity parameters for functions specifyin$ production import demand e7port supplyconsumer e7penditures and lin(s bet2een $overnment investment trade and sectoral

total factor productivity+

"he SA 2as constructed on the basis of a database e7tracted from the &orld

*evelopment >ndicators that covered most countries in SSA 8&orld 'an( 0019 and a

disa$$re$ated SA for Fimbab2e dra2in$ on information in other SSA SAs+ 1;As a

first step the &orld 'an( database 2as used to build a acro SA for SSA 8e7cludin$

South Africa9 see "able + "able 3 summari%es part of the information in the acro

SA in a more familiar table format includin$ some additional items and compares the

fi$ures for SSA to all developin$ countries+

>n the construction of the acro SA data for the different countries in the

re$ion 2ere 2ei$hted by G*P share+ Each entry 2as normali%ed to shares of G*P at

mar(et prices+ "ables and 3 indicate that on the spendin$ side private consumption is

the main item -6+6 percent of G*PK out of this 4+6 percent of G*P is home

consumption+ Absorption 8the sum of private and $overnment consumption and

investment9 is 10 percent of G*P 2hich implies a trade deficit of percent+ "otal

forei$n trade 8sum of e7ports and imports9 accounts for close to -0 percent of G*P+

"able 1+ odel disa$$re$ation

Account cate$ory *isa$$re$ation

Activities 8149 A$riculture 89 =ar$e.scale e7port crop small.scale e7port crop

lar$e.scale non.e7port crop small.scale non.e7port crop lar$e.

scale livestoc( small.scale livestoc(

>ndustry 849 inin$ :ood.fiber *omestic manufacturin$ >mport.substitutin$ manufacturin$

Services 849 Construction "rade and transportation Public

services ?ther services

:actors 869 =abor 89 Lns(illed S(illed

1;>:P5> research pro


18/43

Capital

=and 89 =ar$e.scale Small.scale

>nstitutions and

related accounts

819

Bouseholds 5ural upper.income 5ural lo2er.income Lrban

upper.income Lrban lo2er.income

GovernmentAu7iliary $overnment accounts interest paymentsK ta7 accounts

8direct ta7es e7port ta7es import tariffs other indirect ta7es9

5est of the 2orld

Savin$s.>nvestment account 8consolidated9

ote "he model also includes commodities one for each activity e7cept for lar$e.scale e7port crop and

small.scale e7port crop activities 2hich produce the same commodity+

>nvestment 80 percent of G*P9 is financed in rou$hly e)ual shares by private$overnment and forei$n savin$s 8the current.account deficit9+ *ue to a surplus in non.

trade items in the current account the current.account deficit is smaller than the trade

deficit+ Current $overnment operations represent 1 percent of G*P+ ?n the spendin$

side consumption is the main item 814 percent of G*P9+ "he ma


19/43


20/43

"able 3+ acro a$$re$ates for SSA and all developin$ countries 1; 8M of G*P at mar(et

prices9

>tem SSAAll developin$

countriesPrivate consumption 8C9 -4+ 1+;

>nvestment 8>9 0+1 3+6

Government consumption 8G9 13+ 14+0

E7ports 8N9 30+ -+1

>mports 89 3+1 +6

Absorption 8O C > G9 10;+ +3

G*P at mar(et prices 8G*POC>GN.9 100+0 100+0

et indirect ta7es 8"9 ;+ 0+4

G*P at factor cost 8OG*P D "9 1+1 +

Source &orld 'an( 80019 and authors@ calculations

to a sli$htly positive trade balance9+ :or the full micro SA see =of$ren 80049K

the appendi7 to the current paper includes tables that sho2 the (ey parts of the database

that are related to income distribution+ "he micro SA 2as built by disa$$re$atin$ the

information in the macro SA startin$ from information in a Fimbab2e micro SA+ >n

addition to the information in the macro SA SSA avera$es for the shares of a$riculturein value.added e7ports and imports 2ere also imposed usin$ &orld 'an( data+1

"ables 4 D summari%e the sectoral structure household income sources livin$

standards and the rural.urban dichotomy of our styli%ed SSA economy+ "able 4 indicates

that the a$ricultural sector dominates employment and accounts for rou$hly half of total

e7ports but only a small part of imports+ A lar$e part of a$ricultural output is e7ported

2hile the share of imports in its final demand is miniscule a$riculture produces a mi7

of traded and non.traded $oods+ "able 6 sho2s ho2 the different representative

household $roups ma(e their livin$ in both rural and urban re$ions upper.income

households earn incomes from s(illed labor and rely more stron$ly on capital income+

5ural households earn income from lar$e.scale and small.scale land respectively+ "he

1"he archetype SA 2as balanced usin$ a cross.entropy estimation techni)ue+ See 5obinson et al+80019+


21/43

"able 4 Economic structure in base year 8M9

Sectoralueadded

?utputEmploy.

mentE7ports

E7port/?utput

>mports>mport/

final demand

8M9

E7port crops 1;+4 11+4 16+ 4+4 + 0+1 1+

?ther crops ;+0 4+ 1+1 1+4 +- 0+3 +-

=ivestoc( 6+6 4+3 0+- 0+4 1+ D D

inin$ 4+0 3+ 1+1 +3 36+; 1+1 11+6

:ood.fiber ;+ 1+4 3+0 3+ 3+ 4+- +-

*omestic manufacturin$ 4+ +3 6+0 1+ 3+- 4+4 1-+- >mport.substitutin$ +1 1+; + 13+0 16+ 6+4 3+6

Construction +4 + + D D D D

"rade and transportation 13+; 16+ 11+3 D D D D

Public services 10+4 ;+6 6+; D D D D ?ther services 14+ 13+4 11+- 4+- 33+ 3+ 3+

"otal 100+0 100+0 100+0 100+0 1+3 100+0 +

A$riculture 3+0 0+6 6-+0 4;+ 40+4 0+4 1+3

on.a$riculture ;+0 -+6 43+0 61+; 10+ + ;+

"otal 100+0 100+0 100+0 100+0 1+3 100+0 +

Source SSA 1; SA+


22/43

"able 6+ Bousehold income sources in base year 8M9

Sources

Bouseholds

Lns(illed

labor

S(illed

laborCapital

=ar$e.

scale land

Small.

scale

land

5est of

the

&orld

et

*omestic

"ransfers

"otal

5ural

Lpper.income + 4;+ 1;+- 3+1 100+0

=o2er.income 6+1 1-+4 10+3 1+3 0+ 100+0

Lrban

Lpper.income 61+4 43+4 +6 +; 100+0

=o2er.income -;+ +0 16+ 100+0

Source =of$ren 80049+

ote et domestic transfers are net transfer receipts from other households and the $overnment+ alue is

only sho2ed in the table 8as income9 if the net is positive+

"able + Bousehold poverty and population data 8M9

Per.capita

income

Bead.count

poverty

rates

Population

shares

Poor

population

shares

5ural

Lpper.income 224.3 0.0 16.4 0.0

=o2er.income 21.9 72.5 49.3 84.4

Lrban

Lpper.income 315.3 0.0 13.7 0.0

=o2er.income 44.3 32.0 20.6 15.6

"otal100.0 42.3 100.0 100.0

5ural 72.5 54.4 65.7 84.7

Lrban 152.7 19.2 34.3 15.6

Source SSA 1; SA+

ote Per.capita income is inde7ed so that the economy2ide avera$e is 100+

income sources of urban households are less diversified especially for lo2.

income $roups 2ho earn almost all of their income from uns(illed labor+ 5ural lo2.

income households have a diversified income profile 2ith uns(illed labor dominatin$ but

also 2ith substantial shares for capital and land+ Accordin$ to "able the national head.


23/43

count poverty rate is 4+3 percent+ 5ural areas 2hich account for some t2o thirds of the

population have lo2er per capita incomes and constitute a lar$e of the poor+

"able - sho2s the empirical ":P lin(a$e elasticities on 2hich the elasticity

parameters for our productivity functions are based+ "he elasticities in the model

productivity functions have been scaled on the basis of the share of base.year economy

represented by the activities or factors to 2hich the productivity effect is directed+0

"able -+ ":P lin(a$e elasticity parametersGovernment

e7penditurecate$ory

":P lin(elasticity value

Standard error of

estimatedelasticity =in(a$e channel

A$riculture 0.052 0.024 ":P in a$riculture

Buman Capital 0.115 n.a. =abor productivity in all non.minin$ sectors

*efense -0.182 0.034 ":P in all non.minin$ sectors

"ransportation 0.021 0.021":P in trade services 8stron$ effect9K ":P in

other non.minin sectors 2ea( effect

?ther 0 n.a. one+

otes Elasticity estimates and t statistics are based on :an and 5ao 80049+ Buman capital is an

a$$re$ation of education and health 2ith the elasticity calibrated to $ive the same G*P $ro2th as 2hen thedisa$$re$ated :an.5ao elasticities are used+ =in(a$e channels are incorporated in the dynamic CGE model+

Appendi7 "ables A+1 and A+ sho2 the central.case values of the elasticities for

trade production and consumption+ >n the process of selectin$ these values econometric

and other model.based studies of SSA 2ere consulted+ &e analy%e the sensitivity of

simulated results to chan$es in trade elasticities+

"he model replicates ma


24/43

01 S&$(a'&ons

&e use the model to e7plore the impact of alternative policies on lon$.run $ro2th

and poverty in SSA+ ?ur startin$ point is a dynamic base simulation that provides a

benchmar( a$ainst 2hich the other scenarios are compared+

Bas" S&$(a'&on

>n the base simulation $overnment demand 8both consumption and investment

and across all functional areas9 $ro2s by 1+ percent per year a rate that is calibrated to

maintain the base.year absorption share for this demand cate$ory+ "he base.year shares

are also maintained throu$hout the simulation period for the other parts of absorption

private investment and household consumption for private investment $iven that this

demand cate$ory also is fi7ed as a share of absorption and for household consumption as

the residual demand type+

ost real macro a$$re$ates includin$ real household consumption $ro2 at

annual rates of bet2een 1+6 and +0 percent+ 8"ables and 10 provide a result summary+9

"his ran$e of $ro2th rates also holds for all a$$re$ate production sectors e7cept minin$

for 2hich %ero $ro2th is imposed 8an assumption that may be seen as reflectin$ a

$overnment decision on the rate of natural resource e7traction9+ "he endo$enous annual

rate of ":P $ro2th is very close to %ero+ Bousehold consumption and the rest of the

economy $ro2 at a rate that is very close to the population $ro2th rate 8 percent9

leavin$ $ro2th in total household per.capita consumption 8our a$$re$ate 2elfare

indicator9 close to %ero 2ith $ro2th rates that are sli$htly positive in rural areas and

sli$htly ne$ative in urban areas+ "he headcount poverty rate 8P09 also remains rou$hly

the same it re$isters a sli$ht increase from 4+3 percent to 4+- percent+ "he poverty

$ap and the s)uared poverty $ap 8P1 and P9 are also unchan$ed+ Given so little chan$e

in poverty measures and mean per.capita consumption the poverty elasticities for the

base simulation contain little information+

reported in this study 8treatin$ each simulation as an observation9+:or the simulations that $enerate si$nificant chan$es in mean per.capita consumption and the headcount

poverty rate the elasticity is typically bet2een D1+6 and D+0 values that are 2ell 2ithin the ran$e observed

in the literature 8Easterly 000 p+ 149+ "he elasticities for the poverty $ap and the s)uared poverty $ap arealso in line 2ith e7pectations+

4


25/43

P%(&* S7"n)&n S&$(a'&ons: R"a((o*a'&on 'o Ta!"' A!"as

"he assumptions for the non.base simulations are presented in "able ;+ "he

results for the first set are summari%ed alon$ 2ith results for the base simulation in

"ables and 10+ "hese simulations all involve reallocatin$ $overnment demand into

alternative priority areas 2hile (eepin$ the real $ro2th of total $overnment demand

constant+ Lnless other2ise noted in year 819 10 percent of total $overnment

spendin$ is moved from 2hat is classified as !other# 82hich has no productivity effects9

into one or more priority areas i+e+ a reallocation that in the base year corresponds to 1+

percent of G*P or 10 percent of $overnment demand+ After this $overnment demands in

all functional areas $ro2 at the same annual rate across all $overnment functions 81+

percent9+ >n the first e7periment AG5> $overnment spendin$ is reallocated to

a$riculture in 1 raisin$ its share of G*P 0+ to +; percent+ "his intervention has a

positive impact on overall economic performance and poverty reduction+ Annual $ro2th

in most macro a$$re$ates increases by around 0+4 percent+ As e7pected annual

a$ricultural G*P $ro2th increases more rapidly 8by 0+ percent9 2hile the terms of trade

for a$riculture relative to non.a$riculture deteriorates+ "he terminal.year poverty

headcount rate is five percenta$e points lo2er than for the base scenario+ "his scenario

reinforces the pro.rural trends of the base scenario+ >n rural areas per.capita consumptionre$isters a positive $ro2th rate and the rural poverty headcount rate declines sli$htly

compared to 1;+3

>n 1; $overnment spendin$ on transportation and communication 2as similar

in si%e to a$ricultural spendin$+ >n the second e7periment "5S spendin$ in this area in

1 increases from 0+; to + of G*P+ Given a lo2er elasticity the a$$re$ate effect of

e7pandin$ $overnment spendin$ in this area is 2ea(er inducin$ an overall $ro2th

"able ;+ Assumptions for non.base simulations

Simulation name *escription

3>n this scenario neither poverty nor per.capita consumption chan$e much compared to 1;+ As a resultthe recorded poverty elasticities are not informative+

6


26/43

AG5> shift in $overnment spendin$ from !other# to a$riculture

"5S shift in $overnment spendin$ from !other# to transportation

BCAP shift in $overnment spendin$ from !other# to human capital

*E: shift in $overnment spendin$ from !other# to defense

AG."5.BCshift in $overnment spendin$ from !other# to a$riculture transportation and human

capitalAG5> e7pansion in $overnment spendin$ on a$riculture 2ith domestic financin$

"5S e7pansion in $overnment spendin$ on transportation 2ith domestic financin$

BCAP e7pansion in $overnment spendin$ on human capital 2ith domestic financin$

AG5>: e7pansion in $overnment spendin$ on a$riculture 2ith forei$n $rant financin$

"5S: e7pansion in $overnment spendin$ on transportation 2ith forei$n $rant financin$

BCAP: e7pansion in $overnment spendin$ on human capital 2ith forei$n $rant financin$

"5S.E=shift in $overnment spendin$ from !other# to transportation 2ith a$$re$ate ":Pelasticity of a$riculture

BCAP.E=

shift in $overnment spendin$ from !other# to human capital 2ith entire productivity

$ain to uns(illed labor

*EP5.03 reduction of public capital stoc( depreciation rate from 6 percent to 3 percent

AG5>.B> same as AG5> but 2ith hi$h 8doubled9 trade elasticities

AG5>.=? same as AG5> but 2ith lo2 8halved9 trade elasticities

otes >n all public.spendin$ simulations e7pansion or reallocation refers to a chan$e in 1

correspondin$ to 10 percent of 1; $overnment demand 8or 1+ percent of G*P9+ Startin$ from 1 all$overnment demand areas $ro2 at a uniform annual real rate of 1+ percent+ Lnless other2ise noted 2e

use the elasticities in "able -

e7pansion and a decline in headcount poverty that is sli$htly less than half as

stron$ as for AG5>+ Compared to AG5> the sectoral pattern of $ains is more even

includin$ a considerably smaller $ro2th $ain for a$riculture+ Performance accordin$ to

per.capita consumption and the different poverty indicators is more positive than under

the base scenario but less positive than for AG5>+


27/43

"able + Scenarios for reallocation of public spendin$ summary results

1; 'ASE AG5> "5S BCAP *E: AG."5.BC

Annual $ro2th rates 1;.016 8M9

Absorption 4+3- 1+;3 +1- 1+ +01 0+03 +0-

Bousehold consumption 341+ 1+;; +31 +04 +1 .0+6 +1

Gov+ consumption inv@ment ;6;+0 1+1 1+1 1+1 1+1 1+1 1+1

Private investment 4+1 1+4 1+- 1+6- 1+1 0+11 1+

E7ports 13--+60 1+-3 +3 1+0 1+- .0+-- +0

>mports 1-;4+-; 1+- +13 1+- 1+;4 .0+0- 1+

5eal e7chan$e rate 100+00 0+06 .0+1 0+06 0+0 .0+1 0+0

A$ric/non.a$ric terms of trade 100+00 0+1 .0+66 0+3 0+; .0+11 0+0;

"otal G*P 8at factor cost9 416;+3 1+0 +- +04 +1 .0+14 +1-

A$riculture 13+11 1+- +;6 +13 +1; .0+34 +3

inin$ 1+64 0+00

?ther industry 3;+1; 1+ 1+1 1+;0 1+;4 .0+14 1+;-

Government services 430+4 +06 +0; +14 +1 0+3 +1

?ther services 113+11 +1- + +3- +60 .0+44 +4

":P inde7 100+00 .0+01 0+ 0+11 0+1; .1+-- 0+

"otal factor income 416;+3 1+; + +00 +06 .0+1- +1

Private capital 1;-3+- 1+-- +1 1+; +01 0+03 +0

=and 3-+;- 3+44 3+ 3+ 3+ 0+1 3+

=o2 s(illed labor 643+ 1+-1 +11 1+;- 1+;6 .0+66 1+3

Bi$h s(illed labor 13-+0 1+63 1+ 1+ 1+6 .0+4 1+

Percenta$e point deviations from 1; values

5atios to G*P 8M9

>nvestment 0+11 0+30 .0+14 0+1 0+13 +3; 0+06

Government e7penditure 3+ 0+10 .0+4 .0+01 .0+0; +4- .0+1-

Private savin$ +;; 0+66 0+6- 0+30 0+01 4+3 0+11

Government savin$ +1 .0+ .0+61 .0+41 .0+13 .6+3- .0+1;

:orei$n savin$ -+04 0+44 .0+0 0+ 0+6 +; 0+1

Poverty headcount rate 8P09 4+31 0+3 .4+0 .1+0 .+4 0+3 .3+14

otes All )uantity variables are in real terms+ >ncome variables are deflated by the consumer price inde7 8CP>9+ "he

real e7chan$e rate is price level deflatedK the price inde7 used is the CP>+

-


28/43

"able 10+ Scenarios for reallocation public spendin$ 2elfare indicators

1; 'ASE AG5> "5S BCAP *E: AG."5.BC


Bousehold consumption per capita

5ural upper income 66+30 0+14 0+64 0+3 0+46 .+6 0+60

5ural lo2er income 0+1; 0+1 0+;3 0+3- 0+4 .+06 0+6

Lrban upper income ;04+-; .0+ 0+0 .0+14 .0+11 .+66 .0+04

Lrban lo2er income 113+6- .0+31 0+11 .0+1- .0+1 .+3; .0+0

Avera$e all households 64+1 .0+0; 0+34 0+0 0+1 .+4 0+3

5ural 1;3+1 0+16 0+1 0+33 0+4 .+40 0+6

Lrban 30+0 .0+30 0+0 .0+16 .0+1 .+6 .0+06


Poverty headcount P0

"otal 4+31 0+3 .4+0 .1+0 .+4 0+3 .3+14

5ural 64+3- .1+1 .+3- .3+3- .4+60 1-+6 .6+6

Lrban 1+0 3+30 .1+0 1+;0 +10 +40 0+0

Elasticity .0+-0 .1+;0 .+6 .1+4 .1+3 .1+;;

Poverty $ap P1

"otal 11+6 .0+0; .+1 .0+3 .1+ 13+; .1+

5ural 16+ .0+6 .3+0; .1+- .+6 16+;0 .+0

Lrban 3+ 0+0 .0+ 0+4; 0+64 10+04 0+

Elasticity 0+6 .3+0 .6+4; .4+11 .3+4- .3+6-

S)uared poverty $ap P

"otal 4+- .0+0 .1+00 .0+4; .0+6 ;+01 .0+-

5ural 6+6 .0+ .1+4- .0+; .1+0 +4 .1+6

Lrban 1+06 0+31 .0+10 0+1- 0+1; 4+33 0+0

Elasticity 1+60 .3+; .-+1 .6+0 .6+43 .4+-

otes Bousehold consumption is real per capita consumption+ Elasticities for P0 P1 and P are the ratios

bet2een the percent chan$e in the poverty indicator and the percent chan$e in a$$re$ate per capitaconsumption+

>n the BCAP simulation the G*P share of $overnment e7penditure on health and

education e7pands from 3+ percent to 6+; percent 8i+e+ a much smaller relative increase

in spendin$ in the tar$eted area relative to the simulations AG5> and "5S9+ "he $ro2th

rate of G*P $oes from 1+ percent in the base run to +1 percent a moderate increase+

"he poverty headcount falls by + percenta$e points relative to the terminal.year value

for the base simulation 2ith the lar$est percenta$e point decline in rural areas+ Bo2ever

compared to the scenario AG5> poverty declines less stron$ly every2here+

Accordin$ to the empirical estimates of the ":P lin(a$e elasticities the impact of

defense spendin$ on G*P is very ne$ative+ "his relationship should be vie2ed as

capturin$ not only the opportunity cost of the resources allocated to defense but also

other factors that are associated 2ith hi$h defense spendin$ such as 2ars civil strife and

;


29/43

an unfavorable business climate+ "he scenario *E: assumes an increased allocation of

$overnment e7penditure to defense amountin$ to about 1+; percent of G*P 8from 0+

percent to +4 percent9+ "he results are very detrimental for $ro2th and poverty reduction+

"he G*P $ro2th rate turns ne$ative chan$in$ from 1+ percent in the base run to .0+1

percent and the terminal.year poverty headcount rate is 0 percenta$e points hi$her than

for the base simulation almost a 60 percent increase in poverty+ Avoidin$ civil strife and

the disruptions associated 2ith hi$her defense e7penditures is clearly very important+

"he final simulation AG."5.BC tests the impact of a simultaneous increase in

the three areas of $overnment spendin$ for 2hich positive effects 2ere reported above

a$riculture transportation and human capital+ >n each area spendin$ is set to increase by

around 1+ percent of G*P in the base year at the e7pense of the area of !other#

$overnment spendin$ for 2hich spendin$ declines drastically bet2een 1; and 1

from 10+- to 6+1 percent of G*P+ "he resultin$ $ro2th acceleration is positive but 2ea(er

than 2hen reallocated spendin$ e7clusively is channeled to a$riculture 8AG5>9+ "he

terminal.year headcount poverty rate is +- percenta$e points lo2er than under the base

simulation+ "he $ains in consumption and poverty reduction are limited to rural

households 2hereas the urban households e7perience a small loss+

P%(&* S7"n)&n S&$(a'&ons: E87ans&on &n Ta!"' A!"as

"he precedin$ set of public e7penditure simulations all assumed that the$overnment reallocated spendin$ from non.productive areas+ Alternatively the

$overnment may increase spendin$ relyin$ either on domestic or forei$n financin$+ "he

second set of simulations involves e7panded spendin$ of the same ma$nitude and in the

same three areas a$riculture transportation and human capital as in the precedin$

simulations but 2ithout accompanyin$ cuts in spendin$ on other unproductive areas+ "he

results are summari%ed in "ables 11 and 1+

>n the first three simulations 8AG5> "5S and BCAP9 this spendin$

e7pansion is financed from domestic resources re)uirin$ the allocation of additional

private resources to finance domestic private investment+ A comparison bet2een the

"able 11+ Scenarios for e7pandin$ public spendin$ summary results


30/43

'ASE AG5> "5S BCAP AG5>: "5S: BCAP:


Absorption 1+;3 +1- 1+ +01 +36 +11 +14

Bousehold consumption 1+;; +1 1+0 1+; +3 +10 +14

Gov+ consumption inv@ment 1+1 +4; +4; +4; +4; +4; +4;

Private investment 1+4 1+-; 1+6 1+6 1+- 1+- 1+-3

E7ports 1+-3 +3 1+1 1+; + 1+- 1+;>mports 1+- +13 1+;0 1+;4 +3 +00 +00

5eal e7chan$e rate 0+06 .0+1 0+06 0+0 .0+4 .0+06 .0+03

A$ric/non.a$ric terms of trade 0+1 .0+0 0+1- 0+ .0+4 0+16 0+1

"otal G*P 8at factor cost9 1+0 +- +06 +1 +33 +10 +1-

A$riculture 1+- +;1 +0; +13 +;1 +0 +16

inin$ 0+00 0+00

?ther industry 1+ 1+; 1+-6 1+- 1+ 1+;4 1+;

Government services +06 +3; +43 +60 +44 +4; +66

?ther services +1- +1 +34 +4; +30 +4 +66

":P inde7 .0+01 0+ 0+1 0+1; 0+; 0+11 0+1;

"otal factor income 1+; +- +00 +06 +34 +0- +11

Private capital 1+-- +13 1+0 +0 +0 1+ +0- =and 3+44 3+; 3+6; 3+;1 3+- 3+6 3+;

=o2 s(illed labor 1+-1 +04 1+;0 1+-; +0 1+4 1+0

Bi$h s(illed labor 1+63 +0 1+-3 1+ +1 1+;1 1+-0


5atios to G*P 8M9

>nvestment 0+30 0+3- 0+- 0+ 0+6; 0+; 0+-

Government e7penditure 0+10 0+13 0+6- 0+61 .0+0; 0+3- 0+36

Private savin$ 0+66 +3; +13 1+;1 0+6- 0+6 0+6

Government savin$ .0+ .1+;1 .1+-1 .1+40 .1+- .1+ .1+3;

:orei$n savin$ 0+44 .0+0 0+30 0+6 1+;0 +0 1+1

Poverty headcount rate 8P09 0+3 .+6- 0+64 .0+0 .6+40 .+06 .+34

otes All )uantity variables are in real terms+ >ncome variables are deflated by the consumer price inde7 8CP>9+ "hereal e7chan$e rate is price level deflatedK the price inde7 used is the CP>+

results in "ables 11 and sho2s that a$$re$ate spendin$ e7pansion leads to smaller

increases in a$$re$ate household consumption and final.year poverty headcount rates that

are around t2o percenta$e points hi$her+ >n t2o areas 8a$riculture and human capital9

the poverty rate still declines compared to the final.year base value 2hereas for the third

area 8transportation 2hich has the lo2est productivity elasticity9 poverty increases as a

result of increased $overnment spendin$+ "hese results indicate that unless it is

sufficiently productive e7panded public spendin$ has ne$ative effects on economic

performance+ At a more disa$$re$ated level the chan$es in rural and urban household

"able 1+ Scenarios for e7pandin$ public spendin$ 2elfare indicators

'ASE AG5> "5S BCAP AG5>: "5S: BCAP:


30


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5ural upper income 0+14 0+3- 0+16 0+; 0+-1 0+3 0+4;

5ural lo2er income 0+1 0+ 0+1 0+30 0+-0 1+0; 0+6;

Lrban upper income .0+ .0+0 .0+6 .0+1 0+1- .0+04 .0+06

Lrban lo2er income .0+31 0+0 .0+- .0+ 0+1 .0+- .0+10

Avera$e all households .0+0; 0+1 .0+0 0+0 0+43 0+14 0+1

5ural 0+16 0+44 0+1 0+; 0+-1 0+46 0+60

Lrban .0+30 .0+0 .0+6 .0+3 0+1 .0+16 .0+0



"otal 0+3 .+6- 0+64 .0+0 .6+;3 .0+3 .3+04

5ural .1+1 .3+-6 .0+-6 .1+;- .;+6 .4+;- .6+6

Lrban 3+30 .0+30 3+00 3+00 .1+0 -+60 1+0

Elasticity .0+-0 .1+-1 .1+3 .1+40 .1+;4 .0+0 .1+4

Poverty $ap P1

"otal .0+0; .1+4 0+03 .0+30 .+6; .0+- .1+66

5ural .0+6 .1+; .0+36 .0+; .3+-; .+ .+61

Lrban 0+0 .0+06 0+- 0+;3 .0+ +10 0+

Elasticity 0+6 .3+04 .0+31 .-+6- .+ .+-- .3+4


"otal .0+0 .0+0 .0+0 .0+1 .1+1 .0+4- .0+-

5ural .0+ .0+1 .0+1- .0+44 .1+- .1+11 .1+1

Lrban 0+31 .0+0 0+ 0+ .0+10 0+-6 0+10

Elasticity 1+60 .3+; 0+6 .1+ .3+-; .4+4; .4+;3

otes Bousehold consumption is real per capita consumption+ Elasticities for P0 P1 and P are the ratiosbet2een the percent chan$e in the poverty indicator and the percent chan$e in a$$re$ate per capita

consumption+

consumption $ro2th are similar+ Bo2ever $iven that the non.poor rural

population is relatively close to the poverty line rural poverty rates are relativelysensitive to small chan$es in household consumption $ro2th+

>n the ne7t three simulations 8AG5>: "5S: and BCAP:9 this spendin$

e7pansion is accompanied by an e7pansion in forei$n $rants that maintains total savin$s

at a level sufficient to finance an unchan$ed absorption share for private investment+4A

comparison bet2een the results across the different scenarios in "able 11 sho2s that the

availability of forei$n financin$ has a salutary impact on household consumption and

poverty reduction+ "his is e7pected since it permits the country to enn 1 the year of the spendin$

e7pansion forei$n $rants


32/43

percent9+ After this they decline $radually in the final year e7ceedin$ the base.year

value by some 1+6.+0 percent of G*P+ "his increased inflo2 of forei$n resources

$enerates a sli$ht appreciation of the real e7chan$e rate for the period as a 2hole at an

annual rate of 0+1 percent+

S"ns&'&3&'+ Ana(+s&s

"he final set of simulations e7plores the sensitivity of the results to alternative

values for model parameters that are particularly uncertain and may be important in the

conte7t of the current set of simulations productivity elasticities and lin(a$es

depreciation rates for public capital stoc(s and trade elasticities+ "he results are

summari%ed in "ables 13 and 14+

"he first t2o simulations analy%e the sensitivity of the results to chan$es in public

e7penditure elasticities+ "he estimated ":P lin(a$e elasticity for public e7penditure on

transportation is modest relative to some other empirical findin$s 8cf+ Bulten 1 and

Easterly and 5ebelo 13 pp+ and 149 + >n the simulation "5S.E= 2e set the

transportation elasticity at the level of the a$ricultural elasticity 8an increase that

corresponds to around 1+6 standard deviations9+ Apart from this the simulation is

identical to the earlier transportation scenario 8"5S9+ Compared to the base simulation

the impact is a modest acceleration in a$$re$ate G*P $ro2th 8by 0+3 percenta$e points

2ith stron$er $ains 2ithin services and a$riculture9 and a stron$ $ain in povertyreduction as the final.year rate is 6+; percenta$e points belo2 the 1; level+ Compared

to the scenario 2here spendin$ is reallocated to a$riculture 8AG5>9 a$$re$ate $ro2th is

very similar 8but sli$htly stron$er9+ As opposed to the a$ricultural scenario under this

ne2 scenario terms of trade shifts in favor of a$riculture 2hile the distribution of factor

incomes shifts in favor of land and to a lesser e7tent uns(illed labor+ Given the fact that

a disproportionate share of the rural population is near poor this distributional shift is

pro.poor reducin$ the final.year national headcount poverty rate by 1+ percenta$e

points more than for AG5>+ Since the urban poverty rate does not chan$e this decline is

entirely due to 2hat happens to rural poverty+

"able 13+ Sensitivity analysis summary results

'ASE "5S.E= BCAP.E= *EP5.03 AG5> AG5>.B> AG5>.=?


Absorption 1+;3 + 1+ +0 +1- +1 +0-

Bousehold consumption 1+;; +3 +10 +1- +31 +3 +-

3


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Gov+ consumption inv@ment 1+1 1+1 1+1 1+1 1+1 1+ 1+;

Private investment 1+4 1+-3 1+61 1+6 1+- +0 1+;

E7ports 1+-3 + 1+;4 +0- +3 +41 +

>mports 1+- +0 1+-4 1+1 +13 +1- +0

5eal e7chan$e rate 0+06 0+06 0+10 0+0 .0+1 .0+01 .0+60

A$ric/non.a$ric terms of trade 0+1 0+ .0+0 0+0 .0+66 .0+33 .1+11

"otal G*P 8at factor cost9 1+0 +34 +14 +1 +- +30 +1

A$riculture 1+- +4 +4- +36 +;6 +;4 +;4

inin$ 0+00 0+00 0+00

?ther industry 1+ +03 1+-4 1+;- 1+1 1+ 1+-;

Government services +06 +33 +11 +1 +0; +10 +00

?ther services +1- +- +3 +46 + + +13

":P inde7 .0+01 0+3- 0+ 0+1 0+ 0+ 0+

"otal factor income 1+; +30 +01 +11 + +; +4

Private capital 1+-- +1 1+ +06 +1 +0 +

=and 3+44 4+0 3+4- 3+4 3+ 4+00 3+6

=o2 s(illed labor 1+-1 +1; 1+1- 1+ +11 +1 1+1

Bi$h s(illed labor 1+63 1+3 1+1 1+; 1+ +0- 1+;4


5atios to G*P 8M9

>nvestment 0+30 .0+0 0+6 0+0 .0+14 .0+31 0+0

Government e7penditure 0+10 .0+4 0+0 .0+1 .0+4 .0+3 .0+1

Private savin$ 0+66 .0+1 0+- 0+13 0+6- 0+64 0+-

Government savin$ .0+ 0+1 .0+;- .0+0 .0+61 .0+0 .0+3

:orei$n savin$ 0+44 0+00 0+3 0+14 .0+0 .0+6 .0+0

Poverty headcount rate 8P09 0+3 .6+;3 .0+3 .3+04 .4+0 .4+6 .3+66

otes All )uantity variables are in real terms+ >ncome variables are deflated by the consumer price inde7 8CP>9+ "hereal e7chan$e rate is price level deflatedK the price inde7 used is the CP>+

"he second simulation in "ables 13 and 14 BCAP.E= repeats the reallocation of

spendin$ in favor of human capital 8as for the simulation BCAP9 2ith an ad AG5>.B> AG5>.=?



5ural upper income 0+14 0+-1 0+3 0+4; 0+64 0+66 0+6

5ural lo2er income 0+1 0+-0 1+0; 0+6; 0+;3 0+;3 0+;

33


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Lrban upper income .0+ 0+1- .0+04 .0+06 0+0 0+11 0+06

Lrban lo2er income .0+31 0+1 .0+- .0+10 0+11 0+16 0+0

Avera$e all households .0+0; 0+43 0+14 0+1 0+34 0+3 0+31

5ural 0+16 0+-1 0+46 0+60 0+1 0+ 0+6

Lrban .0+30 0+1 .0+16 .0+0 0+0 0+1 0+06



"otal 0+3 .6+;3 .0+3 .3+04 .4+0 .4+6 .3+66

5ural .1+1 .;+6 .4+;- .6+6 .+3- .+-6 .6+6

Lrban 3+30 .1+0 -+60 1+0 .1+0 .1+60 .0+30

Elasticity .0+-0 .1+;4 .0+0 .1+4 .1+;0 .1+;6 .1+66

Poverty $ap P1

"otal .0+0; .+6; .0+- .1+66 .+1 .+- .1+-1

5ural .0+6 .3+-; .+ .+61 .3+0; .3+6 .+6;

Lrban 0+0 .0+ +10 0+ .0+ .0+3; .0+06

Elasticity 0+6 .+ .+-- .3+4 .3+0 .3+11 .+-4


"otal .0+0 .1+1 .0+4- .0+- .1+00 .1+0 .0+;

5ural .0+ .1+- .1+11 .1+1 .1+4- .1+66 .1+6

Lrban 0+31 .0+10 0+-6 0+10 .0+10 .0+13 .0+0

Elasticity 1+60 .3+-; .4+4; .4+;3 .3+; .3+3 .3+6

otes Bousehold consumption is real per capita consumption+ Elasticities for P0 P1 and P are the ratios

bet2een the percent chan$e in the poverty indicator and the percent chan$e in a$$re$ate per capita

consumption+

Production e7pansion in a$riculture s2itches terms of trade a$ainst this sector+

"he final.year poverty rate is 1+ percenta$e points hi$her and the absolute value of the

poverty elasticity is D0+ as compared to D1+ for the BCAP scenario+ "hese results

reflect the role of the demand side in determinin$ the distribution of $ains from hi$her

productivity+

:inally economic performance is stron$ly influenced by the efficiency 2ith

2hich public spendin$ is mana$ed an aspect that is reflected in the rate at 2hich public

capital depreciates+ >n the literature assumptions about depreciation rates vary 2idely+6

>n the scenario *EP503 2e reduce the depreciation rate for public capital from 6 percent

to 3 percent+ Compared to the base scenario G*P $ro2th $oes up by around 0+3 percent

and final.year poverty is more than three percenta$e points lo2er+ >n orders of

ma$nitude these $ains are similar to those of the precedin$ scenarios 2here public

spendin$ 2as s2itched to different tar$et areas+

:inally 2e carried out the full set of simulations 2ith three alternative sets of

trade 8Armin$ton and CE"9 elasticities in additional to the central case 82hich 2as

6:or e7ample in the literature on developin$ countries the rates used by *essus and Berrera 81 p+ 149and Arndt et al+ 8001 pp+ 1.139 are 4 percent and -+6 percent respectively+

34


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reported above9 a hi$h and a lo2 case for 2hich every elasticity 2as doubled and halved

respectively+"o illustrate the impact of chan$in$ elasticity assumptions the last three

columns of "ables 13 and 14 sho2 the summary and 2elfare results for the scenario 2ith

a reallocation of public spendin$ in favor of a$riculture under the three alternative

elasticity assumptions+ "he central case results 8AG5>9 2ere reported in "ables and 10

2hereas the results for the hi$h and lo2 elasticity cases 8AG5>.B>9 and 8AG5>.=?9 have

not been reported before+ "he ma9 real private investment 82hich in this model is

sensitive to chan$es in the price inde7 for investment $oods relative to the CP>9 and

a$ricultural and non.a$ricultural terms of trade 8here the ratio bet2een a$ricultural and

non.a$ricultural producer prices9+ As e7pected the hi$h.elasticity economy sho2s a

sli$htly stron$er performance+ Bo2ever the ma


36/43

?ur base simulation prot may also 2ell be that the

econometric estimates 2hich are based on noisy historical data for a period 2here many

countries 2ere under$oin$ chan$es in their economic and political systems and some

2ere involved in armed conflict do not provide parameter values that 2e can confidentlyuse in pro


37/43

human capital accumulation it is important that the frame2or( used can consider not

only a$$re$ate returns and productivity effects but also distributional aspects manifested

in relative price chan$es 8includin$ the terms of trade bet2een a$riculture and non.

a$riculture9+ A dynamic CGE model provides a $ood frame2or( for incorporatin$ the

lin(a$es that economic theory and empirical analysis consider important+ Such models

enable analysts to simulate the effects of different estimated lin(a$e elasticities and

incorporate different analytic specifications that theory indicates mi$ht be important+

3-


38/43

R"f"!"n*"s

Arndt C+ S+ 5obinson :+ "arp+ 001+ !Parameter Estimation for a Computable General

E)uilibrium odel A a7imum Entropy Approach# *iscussion Paper 40 "rade

and acroeconomics *ivision+ &ashin$ton *+C+ >:P5>+

A$hion P+A+ and P+ Bo2itt+ 1;+ Endo$enous Gro2th "heory+ Cambrid$e A >"Press+

'arro 5+ N+ Sala.i.artin+ 16+ Economic Gro2th+ e2 Qor( cGra2.Bill+

'autista 5+ + + "homas I+ uir.=eresche and B+ =of$ren+ 003+ acroeconomic

5eforms and A$riculture "o2ards E)uitable Gro2th in Fimbab2e+ 5esearch5eport 1;+ &ashin$ton *+C+ >:P5>+

'urmeister E+ and 5+ *obell+ 1-0+ athematical "heories of Economic Gro2th+

acillan 1-0+

*ervis I+ ,+ de elo and S+ 5obinson+ 1;+ General E)uilibrium odels for

*evelopment Policy+ e2 Qor( Cambrid$e Lniversity Press+

*essus S+ and 5+ Berrera+ 1+ =e role du capital public dans la croissance des pays endJveloppement au cours des annJes ;0# Centre de *Jveloppement de l@?C*E+

*ocuments "echni)ues o+ 116+

*iao N+ E+ Qeldan and "+ =+ 5oe+ 1;+ A Simple *ynamic Applied General

E)uilibrium odel of a Small ?pen Economy "ransitional *ynamics and "radePolicyJournal of Economic Development 3819 --.101

*umont ,+.C+ 1+ =a contribution des facteurs humains R la croissance Lne revue de

littJrature des Jvidences empiri)ues+ *>A=. LniversitJ Paris >N.*auphine+

Easterly &+ 000+ "he Effect of >nternational onetary :und and &orld 'an( Pro$ramson Poverty+ imeo+ &ashin$ton *+C+ &orld 'an(+

Easterly &+ and S+ 5ebelo+ 13+ :iscal policy and economic $ro2th An empirical

investi$ation+ &or(in$ Paper o+ 44+ Cambrid$e A ational 'ureau of

Economic 5esearch+

:an S+ and + 5ao+ 004+ Public Spendin$ in *evelopin$ Countries "rends*etermination and >mpact+ >n Coady *+ S+ :an A+ Gulati B+ =of$ren S+

5obinson and + 5ao+ Public E7penditures Gro2th and Poverty in *evelopin$

Countries >ssues ethods and :indin$s+ *raft 5eport of Synthesis +

&ashin$ton *+C+ >:P5>

Bulten C+ 5+ 1+ >nfrastructure capital and economic $ro2th Bo2 2ell you use it maybe more important than ho2 much you have+ &or(in$ Paper 6;4-+ Cambrid$e

A ational 'ureau of Economic 5esearch+

Iu%nets S+ 1+ odern Economic Gro2th 5ate Structure and Spread+ e2 BavenQale Lniversity Press+

=of$ren+ 004+ An Archetype Social Accountin$ atri7 for Sub.Saharan Africa 1;+

imeo+ &ashin$ton *+C+ >:P5>

3;


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=of$ren B+ 5+ =+ Barris and S+ 5obinson 2ith assistance from + El.Said and +

"homas+ 00+ A Standard Computable General E)uilibrium 8CGE9 odel inGAS+ icrocomputers in Policy 5esearch ol+ 6+ &ashin$ton *+C+ >:P5>+

=of$ren B and S+ 5obinson+ 004+ Gro2th Povertym and Public Policy A Selective

5evie2 ?f "he =iterature+ imeo+ &ashin$ton *+C+ >:P5>

=of$ren B+ S+ 5obinson and + El.Said+ 003+ !Poverty and >ne)uality Analysis in aGeneral E)uilibrium :rame2or( "he 5epresentative Bousehold Approach# pp+

36.33- in eds+ :ranois 'our$ui$non and =ui% A+ Pereira da Silva+ "he >mpact

of Economic Policies on Poverty and >ncome *istribution Evaluation "echni)ues

and "ools+ &orld 'an( and ?7ford Lniversity Press &ashin$ton *+C+ and e2Qor(+

?@Connell S+ A+ and '+ ,+ dulu+ 000+ Africa@s $ro2th e7perience A focus on sources

of $ro2th+ imeo+

5obinson S+ A+ CattaTeo and + El.Said+ 001+ !Lpdatin$ and Estimatin$ a SocialAccountin$ atri7 Lsin$ Cross Entropy ethods+#Economic Systems Research

ol+ 13 o+ 1 pp+ 4-.4+"arp :+ C+ Arndt B+ "arp ,ensen S+ 5obinson and 5+ Beltber$+ 00+ :acin$ the

*evelopment Challen$e in o%ambi)ue An Economy2ide Perspective+5esearch 5eport 1+ &ashin$ton *+C+ >:P5>+

"emple ,+ 1+ !"he e2 Gro2th Evidence#Journal of Economic Literature ol+ 3-

o+ 1 pp+ 11.16+

"homas + and 5+ + 'autista+ 1+ A 11 Social Accountin$ atri7 for Fimbab2e+

"rade and acroeconomics *ivision *iscussion Paper 3+ &ashin$ton *+C+>:P5>+

&obst Peter+ 001+ Structural Adntersectoral Shifts in "an%ania A

Computable General E)uilibrium Analysis+ 5esearch 5eport 11-+ &ashin$ton

*+C+ >:P5>+

&orld 'an(+ 001+ &orld *evelopment >ndicators+ &ashin$ton *+C+ &orld 'an(+

3


40/43

A77"n)&8: S77("$"n'a!+ Ta%("s

40


41/43

"able A+1+ "rade and production elasticities

alue

AddedE7port >mport

=ar$e.scale e7port crop 0+4 1+ 0+ Small.scale e7port crop 0+4 1+ 0+

=ar$e.scale other crop 0+4 1+3 0+-

Small.scale other crop 0+4 1+3 0+-

=ar$e.scale livestoc( 0+4 1+3

Small.scale livestoc( 0+4 1+3

inin$ 0+; 1+ 0+

:ood.fiber 0+; 1+3 0+

*omestic manufacturin$ 0+; 0+ 1+3

>mport.substitutin$ manufacturin$ 0+; 0+ 1+3

Construction 0+;

"rade and transportation 0+;

Public services 0+;

?ther services 0+; 0+; 1+3

Source =iterature estimates and authors@ assessment

"able A++ Bousehold e7penditure elasticities for consumption of mar(eted commodities

5ural Lrban

Lpper.income

=o2er.income

Lpper.income

=o2er.income

?ther crops 0+6 0+; 0+4 0+;

=ivestoc( 1+1 1+ 1+

:ood.fiber 0+6 0+; 0+4 0+;

*omestic manufacturin$ 1+3 1+ 1+ 1+

>mport.substitutin$ manufacturin$ 1+3 1+ 1+ 1+

"rade and transportation 1+3 1+ 1+ 1+

Public services 1+3 1+ 1+ 1+

?ther services 1+3 1+ 1+ 1+

Source =iterature estimates and authors@ assessment+

ote Elasticities for home.consumed $oods are the same as for their mar(eted

counterparts+

41


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"able A3+ :actor value shares 2ithin sector 8M9

:actors

Activities

Lns(illed

labor

S(illed

laborCapital

=ar$e.

scale

land

Small.

scale

land

"otal

=ar$e.scale e7port crop +3 3;+- 6+ 33+1 100+0 Small.scale e7port crop 63+; 1+; +4 100+0

=ar$e.scale non.e7port crop 3+- 4+4 1+ 60+3 100+0

Small.scale non.e7port crop 1+3 1+4 1-+3 100+0

=ar$e.scale livestoc( 4+ 3-+- 6-+- 100+0

Small.scale livestoc( + 30+; 100+0

inin$ 3+6 4+3 -+ 100+0

:ood.fiber +3 16+ -;+6 100+0

*omestic manufacturin$ 0+ +; 4+3 100+0

>mport.substitutin$ manufacturin$ 3+3 31+; 4+ 100+0

Construction 14+ 6;+3 +; 100+0

"rade and transportation 16+- 3+ 4-+4 100+0

Public services 6+ 6+; 34+3 100+0

?ther services 16+4 33+4 61+ 100+0

"otal 13+1 3+ 46+1 -+ 1+0 100+0

A$riculture 1-+- + -+3 4+; 3+ 100+0

on.a$riculture 10+ 36+- 63+4 100+0

Source SSA 1; SA+

4


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"able A4+ :actor value shares across sectors 8M9

:actors

Activities

Lns(illed

labor

S(illed

laborCapital

=ar$e.

scale

land

Small.

scale

land

"otal

=ar$e.scale e7port crop 3+0 1+ +- -0+6 1+ Small.scale e7port crop + 0+ 43+4 1+6

=ar$e.scale non.e7port crop 1+3 3+4 + +6 4+

Small.scale non.e7port crop 16+; 1+ 6+ 3+4

=ar$e.scale livestoc( 0+ + 3+ +6

Small.scale livestoc( 1+0 +1 3+0

inin$ 1+1 3+0 +4 4+0

:ood.fiber 4+ 4+0 16+0 ;+

*omestic manufacturin$ -+; 4+4 6+3 4+

>mport.substitutin$ manufacturin$ +3 ;+; 13+1 +1

Construction +; 4+3 1+4 +4

"rade and transportation 1+6 16+6 14+6 13+;

Public services 4+- 1;+; -+ 10+4

?ther services 1-+6 16+1 1+ 14+

"otal 100+0 100+0 100+0 100+0 100+0 100+0

A$riculture 43+3 + 1+4 100+0 100+0 3+0

on.a$riculture 6+- -3+; ;0+ ;+0

Source SSA 1; SA+

"able A6+ :actor income distribution across households in base year 8M9

:actors

Bouseholds

Lns(illed

labor

S(illed

laborCapital

=ar$e.

scale

land

Small.

scale

land

"otal

5ural

Lpper.income 33+1 4+ ;+- 3;+1

=o2er.income 46+0 4+6 100+0 +

Lrban Lpper.income + 4-+ 13+3 44+4

=o2er.income 66+0 1+4 ;+3

"otal 100+0 100+0 100+0 100+0 100+0

Source SSA 1; SA+

Lofgren Robinson Ss A

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