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GTAP Resource #1509

"Some Consequences of the 1994-95 Coffee Boom on Poverty and Growth in Uganda"
by McDonald, Scott, Lindsay Shutes and Arjan Verschoor

The paper uses a CGE analysis to explore the consequences of the 1994-95 rise in the international price of coffee for the Ugandan economy. Due to a comprehensive package of reform measures in the early 1990s, which achieved macroeconomic stability, privatised and deregulated the export sector, and encouraged better agronomic practices, Uganda was exceptionally well placed to take advantage of the sharp mid 1990s coffee price spike. Primarily on the basis of the initial effects for the cash crop sector, the well-publicised claim has been made that the coffee boom accounts for half of Uganda’s considerable fall in the poverty headcount measure during the 1990s. The main purpose of the paper is to explore the consequences of the boom for the factors employed and household groups participating in all major sectors of the Ugandan economy – not only the cash crop sector to which the initial benefits of the boom accrued.
This paper reports the results from a dynamic CGE model for Uganda, which is calibrated to a social accounting matrix that has, inter alia, thirty sectors, seven factors and ten household groups. The CGE model is a recursive dynamic single country model with a putty-clay treatment of capital/investment. The novel feature of the model is the endogenous determination of the functional distribution of income; consequently changes in the ownership of assets (labour types and capital) by households drive changes in the functional distribution of income. This development is shown to have non trivial consequences for the simulation results.
Three scenarios are compared: the first assumes that the economy continues to grow on its pre-boom growth path; the second imposes the coffee price series during the 10 years from the boom on the pre-boom baseline, an important component of this simulation is the sharp decline in real coffee prices during the last 4 years of the period; and the third imposes the 1994-95 coffee price spike on the pre-boom baseline but assumes that after the price boom period the relative price of coffee returns to its pre-boom level.
The analyses find that for the second scenario a substantial part of the initial large impact of the boom is dissipated through spending and resource movement effects. A small effect on medium-term growth and poverty reduction remains, but the major beneficiary groups are not the farmers, to whom the windfall initially accrued, but rural and urban wage earners. However the third scenario indicates that the appreciable decline in the relative price of coffee from the late 1990s is a major factor in the distribution of the welfare gains between farmers and wage earners; without the collapse in the price of coffee the distribution of welfare gains would have been very different. By disentangling the effects of different aspects of changes in the price of coffee the results lend support to the arguments that resource booms do not necessarily damage economic performance.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: McDonald, S. (5/1/2004)
Updated: Ahmed, S. (9/13/2004)
Visits: 3,180
No keywords have been specified.

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