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The Doha Trade Round and
Mozambique
Channing Arndt, Purdue University
Ministry of Planning and Development, Mozambique
Outline
• Background information
• Macroeconomic results from country CGE model
linked to GTAP model of global trade.
• Poverty implications from a microsimulation
model using 8700 households.
• Conclusions.
Purpose of Trade Liberalization
• Shift resources to sectors with comparative
advantage.
• Foster links with the global economy which is
thought to yield dynamic advantages.
• Technology transfer
• Skills acquisition
• Large demand source
Attributes
• Large volume of reasonably high quality arable land
• Long coastline
• Fisheries
• Tourism
• At least three decent natural harbors (transport services to
interior)
• Mineral and other natural resources
• Not quite 19 million people
National Accounts: 1996-2002
GDP
Consumption
Population
Cumulative
1.62
1.50
1.20
Annual
8.4%
7.0%
3.0%
Poverty
• Despite growth and the positive attributes, more than
half the population is classified as absolutely poor.
• About 90% of the population lives on less than twice the
line defining absolute poverty.
• Measured poverty rates are declining
• 54% in 2002-03
• 69% in 1996-97
• Overall, trend good – level bad.
History
• Weak human capital development over the
colonial period even by African standards,
• Failed socialist policies initiated shortly after
independence in 1975, and
• A brutal civil war that endured for more than a
decade.
“Poorest country in the world” at the cessation of
hostilities in 1992.
Commonalities with other Countries
• A predominantly rural population with economic and social
indicators at less favorable levels in rural areas (About 3 out of 4
poor people rural).
• An overwhelming dependence on agriculture in rural areas.
• Large distances and poor transport infrastructure which result in
substantial transport costs particularly between distant regions.
• Large price changes within seasons (post-harvest low to preharvest high) for many basic commodities.
• High food shares in the total budget of the poor (around 70% in
the case of Mozambique).
Indicators of Food Price Dispersion
1
2
3
4
5
6
7
8
9
10
11
12
13
Spatial Domain
Niassa and Cabo Delgado-rural
Niassa and Cabo Delgado-urban
Nampula-rural
Nampula-urban
Sofala and Zambezia-rural
Sofala and Zambezia-urban
Manica and Tete-rural
Manica and Tete-urban
Gaza and Inhambane-rural
Gaza and Inhambane-urban
Maputo Province-rural
Maputo Province-urban
Maputo City
Avg.
Price
Ratio
1.57
1.90
1.00
1.38
1.39
1.73
2.34
2.42
1.51
1.72
2.49
2.78
2.70
Urban/
Rural
1.21
1.38
1.24
1.04
1.14
1.12
Ja
n9
M 5
ay
-9
Se 5
p95
Ja
n9
M 6
ay
-9
Se 6
p96
Ja
n9
M 7
ay
-9
Se 7
p97
Ja
n9
M 8
ay
-9
Se 8
p98
Ja
n9
M 9
ay
-9
Se 9
p99
Ja
n0
M 0
ay
-0
Se 0
p00
Ja
n0
M 1
ay
-0
Se 1
p01
Ja
n0
M 2
ay
-0
Se 2
p02
Ja
n0
M 3
ay
-0
3
Meticais/kg
Maize Price Series
7000.00
6000.00
5000.00
4000.00
3000.00
2000.00
1000.00
.00
Mean National Price
Sofala
Home Consumption Expend. Share
Macroeconomic Share
Population Weight Share
Poor Pop. Weight Share
Urban
Rural
Total
7.8
35.7
22.0
15.7
58.2
44.6
19.5
59.2
47.1
Impact of Trade Margins
• Pe=Pwe(1-te)*exr-ice*Pice
50=100 – 50 (initial equilibrium)
60=110 – 50 (proportional magnification)
• Pm=Pwm(1+tm)*exr-icm*Picm
100=50+50 (initial equilibrium)
105=55+50 (proportional dampening)
Macro Structure (2001)
Private Consumption
Private Investment
Government
Exports
Imports
Total
Share (%)
72.4
11.2
28.9
20.6
-33.0
100.0
Mozambique’s Three Economies
• Mega projects
• Aluminum smelting
• Hydro electric power generation
• Large scale mineral extraction (natural gas etc.)
• Subsistence and informal sectors
• Rest of the formal sector
Import Competition Indicator
Specialized1
Total Economy
Agriculture, Forestry and Fisheries
Primary Product Processing
Other goods
Services
1The
Overall
Production
Share of
Share of
Value Share Total Supply Production
100.0%
82.1%
88.8%
15.1%
98.2%
98.5%
12.9%
46.1%
53.4%
8.1%
74.6%
74.5%
63.9%
89.1%
95.5%
figures in the above Table are drawn from production and import information for 144 sectors
representing all commodities. The intent is to discover which productive sectors compete intensively with
imports and which are specialized meaning that either commodity supply comes 90% from domestic
production or 90% from imports.
Static CGE Model
• Disaggregation
• 47 commodities
• 6 factors
• 2 households
• Accounts for marketing wedges for domestic
products, exports, and imports.
• Accounts for home consumption
• Neoclassical closure
Simulations
Simulation
UniLib
Global
FL
DHAll
DHSDT
Description
Unilateral complete trade liberalization by Mozambique uniquely.
Complete global trade liberalization excluding Mozambique.
Complete global trade liberalization including Mozambique.
Deep Doha cuts.
Doha with Special and Differential Treatment.
NB: Due to tariff binding overhand, Mozambican tariff cuts in
the Doha scenarios are essentially zero.
Macroeconomic Results
Total Absorption
Real Exports
Real Imports
Real Exchange Rate
Terms of Trade
UniLib
-0.7
4.4
0.5
4.3
-1.4
Global
0.6
0.0
1.9
-3.4
0.8
FL
0.0
4.4
2.4
0.8
-0.6
DHAll DHSDT
-0.1
-0.2
0.2
0.2
-0.3
-0.4
0.2
0.4
-0.6
-0.7
Welfare Results
Urban
Rural
Total
Base
2539
2631
5170
UniLib
-0.55
-0.75
-0.65
Global
0.49
0.53
0.51
FL
-0.09
-0.19
-0.14
DHAll DHSDT
-0.16
-0.22
-0.15
-0.17
-0.16
-0.20
Microsimulation (Post Sim)
• Use data on 8700 households from household survey to
obtain information on expenditure shares and shares in
factor earnings.
• Obtain price changes by commodity and wage changes
by factor from the CGE model.
• Use this information to determine the first order welfare
impact of reform on each household in the sample.
Note: For home produced/consumed commodities, the first
order welfare impact of price changes is zero.
Micro-simulation for DHSDT
Urban
0
10
Percent
20
30
Rural
-1.5
-1
-.5
0
.5 -1.5
Welfare Change
Graphs by =1 if rural, 0 if urban
-1
-.5
0
.5
Critique of Current Model
• Price transmission.
• “Engineering issues” associated with linking to
the global model. In particular, excessive export
price declines when Mozambique liberalizes.
• Evasion, exemptions, and revenue replacement.
Robust Conclusions
• Static implications of Doha scenarios very small
due to:
• Lack of domestic tariff cuts
• Isolation of much of the economy
• Home consumption
• Insulation due to import margins
• Tendency of much of the economy to be “specialized”
• Even with full domestic liberalization, the static
implications for poverty are likely to be small.
Implications
• Winters, McCulloch, and McKay (2004): More
liberal trading regimes are associated with
higher rates of economic growth.
• Mozambique has an opportunity to move to a
much more open trade regime at relatively small
adjustment cost.
NB: Full trade liberalization is not a sufficient
condition for growth.
Future Research
• Price transmission.
• Implication of large margins between FOB export
prices and farm/factory gate prices for exportable
commodities.
• Revenue replacement with evasion and
exemptions considered explicitly.