754 P. A. Dorosh and D. E. Sahn
of the adjustment process, while acknowledging that reforms have often failed to generate real economic growth,
1
suggest that, in general, the poor and especially the rural poor marginally bene-
fited from many adjustment measures World Bank, 1994; Sahn, Dorosh, and Younger, 1996.
In assessing the effects of reform on the poor, as well as other groups of households, it is crucial to separate the results of adjust-
ment policy from the impacts of terms-of-trade shocks and other factors linked to the economic crises that necessitated adjustment
measures. Therefore, in this paper we use computable general equilibrium models to simulate the effects of policy reform on real
incomes of various household groups from four African countries: Cameroon, The Gambia, Madagascar, and Niger.
2
We focus on two major broad types of adjustment policies—trade and exchange
rate liberalization, and reductions in government spending—and present counterfactual simulations that elucidate important path-
ways by which policy reforms affect real incomes of poor house- holds in the African context.
As a prelude to the model simulations, we briefly discuss key aspects of the economic structures and adjustment processes in
the four countries in Section 2. A brief description of the models follows in Section 3. Section 4 then presents the results of coun-
terfactual simulations of alternative adjustment policies. Conclud- ing remarks are in Section 5.
2. COUNTRY CONTEXT
The four countries modeled in this paper, while sharing some broad economic characteristics common to most countries in sub-
Saharan Africa such as a high share of labor employed in agricul- ture, dependence on primary commodity exports for foreign ex-
change, and relatively small industrial sectors, differ considerably
1
Poor macroeconomic performance in the wake of economic reform programs has been attributed to a number of factors including lack of effective implementation of policy
reforms, adverse terms-of-trade shocks, and other structural factors impeding growth.
2
CGE models have been used to examine the sectoral and macroeconomic impacts of economic policies in a number of African countries, such as Cameroon Benjamin, Devara-
jan, and Weiner, 1989, The Gambia Radelet, 1993, and Kenya Tyler and Akinboade, 1992. Few studies exist in which household disaggregation permits a discussion of the
implications for income distribution. An exception is the analysis of Coˆte d’Ivoire by Schneider et al. 1992.
MACROECONOMIC ADJUSTMENT AND POVERTY 755
in terms of the structure of production and household expendi- tures, the size of the external shocks they faced in the 1980s, and
the policy options available.
3
As members of the CFA franc zone, both Cameroon and Niger maintained fixed nominal exchange rates relative to the French
franc until January 1994. Adverse terms-of-trade shocks and for Niger, adverse weather shocks were major factors contributing
to the economic crises in both countries, as well. The differences between the countries in levels of income, natural resource endow-
ments, and government policies are greater than the similarities, however. Cameroon’s petroleum exports and overall good natural
resource endowment make it one of the wealthier countries in sub-Saharan Africa, with a GDP per capita of nearly U.S. 1,000
in 1990. Unlike most of the other countries in the region, the early 1980s were good years in Cameroon. However, when the price
of oil fell in the second half of the decade resulting in a 50 decline in Cameroon’s terms of trade between 1984–85 and
1988–89; Table 1, the Cameroonian government had little re- course but to adopt a stabilization and adjustment program. In
contrast, Niger’s landlocked location in the Sahel contributes to the marked instability in rainfall, degradation of the fragile soils,
and extreme dependence on uranium exports for foreign exchange and government revenues. These factors, in combination with a
policy of deficit spending, contributed to an economic crisis in the early 1980s as uranium prices fell and rainfall declined.
In common with Niger, the economic crises in The Gambia and Madagascar, each with a GDP of around one-quarter that of
Cameroon, hit early. In both cases, the crisis was largely attribut- able to the fiscal deficits that resulted from a heavy investment
push at the end of the 1970s. A decline in the world price of groundnuts, The Gambia’s major commodity export, coupled with
drought in the first half of the 1980s, reduced export earnings and domestic food production. Similarly, a decline in the world price
of coffee contributed to a 25 percent decline in Madagascar’s terms of trade in the early 1980s, and reduced Madagascar’s foreign
exchange earnings just as world credit markets tightened and commercial loans on foreign-financed investment projects came
3
A more detailed discussion of the economic crises and subsequent reforms undertaken in the four countries modeled in this study is found in Sahn 1994.
756 P. A. Dorosh and D. E. Sahn
Table 1: Budget SurplusDeficit, Terms of Trade, and Real Exchange Rate, 1975–1979 to 1990
Budget surplusdeficit Terms of trade
Real exchange rate GDP
1987 5 100 1987 5 100
Cameroon 1975–1979
20.1
a
170.9 —
1980–1983 20.9
146.3 76.3
1984–1985 1.3
142.5 79.0
1986–1987 21.4
99.2 94.7
1988–1989 21.1
71.0 92.8
1990–1991 —
89.7 92.5
The Gambia 1975–1979
27.1 145.8
— 1980–1983
27.4 116.8
129.9 1984–1985
22.9 120.8
126.3 1986–1987
24.1 102.8
97.4 1988–1989
23.9 121.0
105.8 1990–1991
20.4 89.6
97.2 Madagascar
1975–1979 25.6
117.8 —
1980–1983 29.7
88.9 181.8
1984–1985 23.6
96.3 159.7
1986–1987 23.4
115.9 102.0
1988–1989 23.8
105.7 84.7
1990–1991 23.1
84.5 87.5
Niger 1975–1979
24.8 150.2
— 1980–1983
212.0 119.7
138.5 1984–1985
28.3 125.1
120.3 1986–1987
29.5 108.5
105.1 1988–1989
210.1 83.1
90.9 1990–1991
210.4 77.8
84.8 Sources:
World Bank 1992; World Bank 1995; IMF various years.
a
1977–1979 only.
due. The financial crises that ensued in The Gambia and Madagas- car contributed to the need for stabilization efforts and subse-
quently set the stage for adjustment efforts to deal with the under- lying impediments to growth, including reform of exchange rate
and pricing policy.
Given the differences in timing of the crises, and the circum- stances and nature of the responses, the simulations in this paper
are not intended to tell a country-specific story that traces the evolution of the crisis and the subsequent path of adjustment.
MACROECONOMIC ADJUSTMENT AND POVERTY 757
Instead, we use the four models to show how external conditions and the policy framework result in different growth and distribu-
tional outcomes in the four countries with diverse economic struc- tures and different abilities to absorb and respond to changing
external conditions. That is, we choose to simulate the same shocks and same policy responses to enable cross-country comparisons.
Use of four different models also provides an implicit sensitivity analysis to changes in model structure and parameters.
3. THE MODELS
