Market and Trade Policy for Staple Foods in Eastern and Southern Africa
Edited by Alexander Sarris and Jamie Morrison
Chapter 5: Liberalizing Trade Under Structural Constraints in Developing Countries: A General Equilibrium Analysis of Tanzania
5. Liberalizing trade under structural constraints in developing countries: a general equilibrium analysis of Tanzania Piero Conforti and Alexander Sarris1 INTRODUCTION 1 The purpose of this chapter is to explore trade liberalization in the context of structural features that are endemic in low-income agriculturedependent economies. In most developing countries, major policy changes such as trade liberalization take place against a background characterized by significant structural constraints, which affect the functioning of markets and their degree of completeness and competitiveness. Common characteristics of such contexts are backward technologies and poor infrastructural endowments, contributing to significant market weaknesses. Where subsistence farming is widespread, a significant portion of households’ consumption flows directly from production into self-consumption, bypassing specialized processing and distribution systems. Food processing and marketing usually show high transaction costs arising from poor infrastructures, such as inadequate physical transport facilities, and by institutional and physical gaps in the organization of activities. The structural features of major concern in this chapter are the large marketing margins for agricultural products and the functioning of labour markets. The extent to which the labour market is characterized by rigidities – such as those limiting changes in wages and/or in employment – can shape the social implications of a policy change, in terms of welfare of the different social groups in the country. Trade liberalization is a particularly sensitive policy issue, and it has been shown analytically that its potential impacts are deeply affected by assumptions concerning the structure of the labour market (Ackerman, 2005; Taylor and von Arnim,...
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