Nancy C. Benjamin

The ‘Dutch’ disease in a developing country: Oil reserves in Cameroon☆

Abstract Noting that most of the literature on the ‘Dutch disease’ refers to developed countries, this paper looks at the impact of an oil boom on a developing country. When certain features of developing countries – particularly the imperfect substitutability between domestic and imported goods – are incorporated, one of the standard Dutch disease results can be reversed: not all the traded goods sectors will contract. A simulation with a computable general equilibrium model of Cameroon reveals that the agricultural sector is most likely to be hurt, whereas some of the manufacturing sectors will benefit. This suggests possible areas for government intervention, should it be warranted, and may explain the differential performance between the agricultural and industrial sectors of oil exporting countries in the post-1973 period.

The Informal Sector in Francophone Africa: Firm Size, Productivity, and Institutions

This book is a major step towards improving the understanding of the complex reality of informal sector firms in francophone West Africa. It innovates by concentrating on informal firms rather than informal employment (as other studies do), and identifying large informal sector firms whose sales rival those of large formal-sector firms but operate in ways that are similar to small informal operators. Not only is the regulatory environment facing these two types of informal firms distinct, but policies aimed at improving their productivity need to be differentiated. This study focuses on the urban informal sector in three capital cities: Dakar (Senegal), Cotonou (Benin), and Ouagadougou (Burkina Faso). The study also breaks new ground with an eclectic methodology and primary data collection. Quantitative and qualitative firm-level data were collected involving a unique and fruitful collaboration among academic researchers, government officials, the West African economic and monetary union commission, informal and formal sector business associations, and labor unions. This volume represents the culmination of a long collaboration between the Centre de Recherches Economiques Appliquees (CREA) at the University Cheikh Anta Diop of Dakar and the World Bank.

The Informal Sector, Productivity, and Enforcement in West Africa: A Firm‐Level Analysis

The informal sector accounts for a major share of African economies GDP, employment and firms. Most national surveys of the sector focus on informal employment rather than the structure of informal businesses, with sample designs oriented to small scale individual or household firms. Here, firm‐level data are used, collected on 900 formal and informal businesses in the capitals of Benin, Burkina Faso and Senegal. Data from these surveys, complemented by semi‐structured interviews of major stakeholders in the three cities as well as data from national accounts, document huge enforcement problems, leading to the emergence of large informal actors coexisting with smaller informal businesses. While there is a significant difference in productivity between formal and informal firms, the productivity gap is much smaller for large informal firms than for small informal firms, suggesting that large informal firms have the pre‐requisites to formalize but choose not to do so.

Liberalizing Services Trade In APEC: A General Equilibrium Analysis with Imperfect Competition

The paper studies services-sector trade liberalization in the Asia-Pacific Economic Co-operation APEC; Forum using a global, multicountry, multisector applied general equilibrium model with an imperfectly competitive service sector. Reducing the service sector?s nontariff barriers is modeled by eliminating the possibility for oligopolistic firms to price-discriminate between client countries within APEC and lowering the fixed costs of the firms doing service exporting business. The results suggest that services trade liberalization reinforces existing sectoral trade balances. Increase in demand for intermediate services tends to reinforce rather than counteract the role of primary factors in determining sectoral comparative advantage. The western APEC members received the greatest welfare gains from services trade liberalization, while the developing economies gained more if only tariffs were eliminated.

Estimating informal trade across Tunisia's land borders

This paper uses mirror statistics and research in the field to estimate the magnitude of Tunisias informal trade with Libya and Algeria. The aim is to assess the scale of this trade and to evaluate the amount lost in taxes and duties as a result as well as to assess the local impact in terms of income generation. The main findings show that within Tunisian trade as a whole, informal trade accounts for only a small share (5 percent of total imports). However, informal trade represents an important part of the Tunisias bilateral trade with Libya and Algeria, accounting for more than half the official trade with Libya and more than total official trade with Algeria. The main reasons behind this large-scale informal trade are differences in the levels of subsidies on either side of the border as well as the varying tax regimes. Tackling informal trade is not simply a question of stepping up the number of controls and sanctions, because differences in prices lead to informal trade (and to an increase in corruption levels among border officials) even in cases where the sanctions are severe. As local populations depend on cross-border trade for income generation, they worry about local authorities taking action against cross-border trade. At the same time, customs officials are concerned about the risk of local protests if they strictly enforce the tariff regimes in place. This issue will become even more significant if fuel prices in Tunisia rise again as a result of a reduction in the levels of domestic subsidies.

Regionalizing infrastructure for deepening market integration: the case of East Africa

The East African Community has long recognised that regional economic integration can yield significant welfare gains to its member states. To that end, the community has been making steady progress towards the removal of tariffs and quantitative restrictions to trade. Moreover, in recent years, there has been an increasing recognition that (a) even greater welfare gains could be realised through deeper forms of regional integration which entail harmonisation of legal, regulatory and institutional frameworks; and (b) reforms that reduce cross-border transaction costs and improve the performance of ‘backbone’ infrastructure services are arguably even more important for the creation of an open, unified regional economic space than trade policy reforms narrowly defined. Disparities of regulatory treatment across borders can introduce distortions that hinder both cross-border trade and the aggregate flows of investment on a regional basis. Regulatory harmonisation and infrastructure regionalisation could make a significant contribution to the region’s economic development by promoting a more efficient utilisation of its human and physical resources, enhancing connectivity, reducing the costs of trade and facilitating the integration of the continent with the global economy.

What happens to investment under structural adjustment: Results from a simulation model

Abstract This paper considers frameworks traditionally used to analyze structural adjustment issues and notes the lack of an endogenous investment response. This response is important because it can reverse standard structural results and can alter the long-term growth effects of contractionary shocks and policy. This study includes both the structural and aggregate investment dimensions by incorporating two-period optimization in a multisectoral computable general equilibrium (CGE) model for Cameroon. Unlike other CGE models, the composition of aggregate demand responds to factor prices driving investment decisions. The structure of output and trade similarly respond to both macroeconomic forces and relative prices. Unlike other studies of investment during adjustment, this model emphasizes the role of the structure of the economy in the level and sectoral distribution of investment. Model simulations of foreign capital outflow show that the pattern of investment reflects both sectoral interest rate sensitivity and relative price changes. Tariff protection for manufacturers raises the price of investment goods and interest rates, affecting all investment trends. Reductions in the budget deficit tend to “crowd-in” private investment.

Informal Economy and the World Bank

Many countries have expressed an interest in the size, performance and motivation of the informal sector, especially where the informal sector provides the livelihood and employment for a critical segment of the population. This essay reviews recent literature, methodologies, and relevant Bank studies as a way to share information with country teams interested in expanding their knowledge of the informal sector and related policy debates. Research in a number of regions points to four main areas where development policy can be improved by taking the informal sector into account. First, improvements should be made along a continuum; the heterogeneity among informal firms points to different policy approaches for different types of firms. Second, there should be public-private collaboration on mutual reforms. Many efforts to improve firm performance focus on elements of the production function (labor skills, credit) while treating government mainly as a cost (taxes, cost of compliance with regulations). Yet research reveals that many characteristics of the public regime strongly influence the decisions of firms regarding informality. Third, research indicates a strong relation between basic skills and labor outcomes, particularly in the informal sector, despite the sectors lower average returns. Research also indicates the benefits of targeted training programs. Business services programs have a decidedly mixed record, yet ongoing research is refining results on what works best. Fourth, informal trade is pervasive in developing countries and the networks developed in informal trade -- wholesalers, credit suppliers and money-changers, transporters -- are a strong presence in the informal sector. Yet these kinds of complex and nontransparent trading systems can be discouraging to foreign investors and can otherwise undermine trade policy and the international competitiveness of developing countries. The paper concludes with recommendations.

Devaluations and credibility in structural adjustment policy

Abstract This study uses general equilibrium models of three developing countries to examine the effects of a major structural adjustment policy: currency devaluation. The paper considers frameworks traditionally used to analyze structural adjustment issues and notes the lack of an endogenous investment response. This response is important because it can reverse standard results and can alter the long-term growth effects of adjustment policy. This study includes both the structural and aggregate investment dimensions by incorporating two-period optimization into a multisectoral computable general equilibrium (CGE) model. Unlike other CGE models, the composition of aggregate demand responds to factor prices through their effect on investment decisions. The structure of output and trade similarly respond to macroeconomic forces, as well as to relative prices.

Investment, the real exchange rate, and Dutch disease: A two-period general equilibrium model of Cameroon

Abstract This paper examines the structural adjustment problem of a developing country with a finite foreign-exchange surplus and develops a method of evaluating choices among the possible sectoral and macroeconomic policies for such a country. Traditional treatment of this adjustment, commonly known as “Dutch disease,” considers the composition of output between traded and nontraded goods but does not include the trade-off between consumption and investment. This study adds the investment dimension by incorporating two-period optimization in a multisectoral computable general equilibrium (CGE) model for Cameroon. Unlike other CGE models, the composition of aggregate demand responds to factor prices driving investment decisions. The structure of output and trade similarly respond to macroeconomic forces, not just to relative prices. The model is used to test the impact of foreign-capital inflow, tariff policy, and policy toward public firms. Simulation results point out the key role of import substitutes, manufactures in this case. The pattern of the investment response indicates that this sector is likely to contract in the short run and expand in the near future. However, public firms, also producing import substitutes, are unlikely to succeed in an investment boom, even with credit distribution biased in their favor. Tariff protection for manufactures raises the price of investment goods and heightens credit demands, but does encourage the domestic sector. On the macroeconomic side, we note a significantly greater impact of the interest rate on investment than on savings. These results conform with empirical observation.