Analyzing country strategies for structural transformation, poverty eradication and shared prosperity: Method and application to Sub-Saharan Africa

Hans Lofgren and Martín Cicowiez

No 332535, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: In order to eradicate extreme poverty and raising the income share of the bottom 40 percent, African countries need to design policies that use international trade to generate jobs and inclusive growth. This paper develops an approach to medium- and long-run analysis that integrates elements of product-space (PS) analysis with CGE modeling. In this pilot study, the approach is applied to a stylized Sub-Saharan country and used to analyze the impact of alternative export market conditions and government policies on growth, sector structure, poverty, and shared prosperity. The analysis uses a recursive-dynamic CGE model, augmented to incorporate the following PS features: (a) proximity between sectors influences loss in labor effectiveness from reallocation; (b) proximity-weighted learning-by-doing, driven by accumulated production, influences activity TFP; and (c) penetration of export markets may lead to quality upgrading and higher export prices. Due to the addition of PS features, the database is expanded to include a matrix of global proximities between sectors based on export data for tradable goods sectors and value-added data for other sectors; (b) unit export price data by sector and distance from unit price frontier for top-quality exporters; and (c) econometric estimates of the determination of country-level deviations from average unit export prices. In simulations, selected goods sectors are defined as promising on the basis of scope for labor absorption without productivity losses, and for raising productivity, and export revenue. It is anticipated that policy discrimination (via taxes, subsidies and/or public investment) in favor of promising sectors may have significant positive effects (in terms of growth, poverty reduction, and reduced inequality). Policy discrimination in favor of sectors that lack these characteristics has opposite effects. Such results may be negated by adverse world price changes for promising sectors.

Keywords: Food Security and Poverty; International Relations/Trade (search for similar items in EconPapers)
Pages: 29
Date: 2014
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