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When Economic Reform Goes Wrong: Cashews in Mozambique

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  • Horn Welch, Karen
  • McMillan, Margaret
  • Rodrik, Dani

Abstract

Mozambique liberalized its cashew sector in the early 1990s in response to pressure from the World Bank. Opponents of the reform have argued that the policy did little to benefit poor cashew farmers while bankrupting factories in urban areas. Using a welfare-theoretic framework, we analyse the available evidence and provide an accounting of the distributional and efficiency consequences of the reform. We estimate that the direct benefits from reducing restrictions on raw cashew exports were of the order $6.6 million annually, or about 0.14% of Mozambique GDP. However, these benefits were largely offset by the costs of unemployment in the urban areas. The net gain to farmers was probably no greater than $5.3 million, or $5.30 per year for the average cashew-growing household. Inadequate attention to economic structure and to political economy seems to account for these disappointing outcomes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3519.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3519

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Keywords: cashew; export taxes; Mozambique; trade policy;

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Cited by:
  1. Sexton, Richard J. & Sheldon, Ian M. & McCorriston, Steve & Wang, Humei, 2004. "Analyzing Vertical Market Structure And Its Implications For Trade Liberalization," 2004 Annual meeting, August 1-4, Denver, CO 20060, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Cadot, Olivier & Dutoit, Laure & Olarreaga, Marcelo, 2005. "How Costly is it for Poor Farmers to Lift Themselves out of Subsistence?," CEPR Discussion Papers 5392, C.E.P.R. Discussion Papers.
  3. Jorge Balat & Irene Brambilla & Guido Porto, 2007. "Realizing the Gains From Trade: Export Crops, Marketing Costs, and Poverty," NBER Working Papers 13395, National Bureau of Economic Research, Inc.
  4. McMillan, Margaret & Rodrik, Dani, 2012. "Globalization, structural change, and productivity growth:," IFPRI discussion papers 1160, International Food Policy Research Institute (IFPRI).
  5. Cadot, Olivier & Dutoit, Laure & Olarreaga, Marcelo, 2006. "How costly is it for poor farmers to lift themselves out of poverty?," Policy Research Working Paper Series 3881, The World Bank.
  6. Mujawamariya, Gaudiose & Burger, Kees & D'Haese, Marijke F.C., 2012. "Behaviour and performance of traders in the gum arabic supply chain in Senegal: Investigating oligopsonistic myths," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126236, International Association of Agricultural Economists.
  7. Hoque, Mainul Mohammad & Schroeter, John R., 2010. "Agricultural Trade Liberalization and Downstream Market Power: Some Extensions," Staff General Research Papers 31390, Iowa State University, Department of Economics.
  8. Chau, Nancy H & Goto, Hideaki & Kanbur, Ravi, 2009. "Middlemen, Non-Profits and Poverty," CEPR Discussion Papers 7459, C.E.P.R. Discussion Papers.
  9. Alfieri, Andrea & Arndt, Channing & Cirera, Xavier, 2007. "Distortions to Agricultural Incentives in Mozambique," Agricultural Distortions Working Paper 48552, World Bank.
  10. Andrew K. Rose, 2002. "Do WTO Members have More Liberal Trade Policy?," NBER Working Papers 9347, National Bureau of Economic Research, Inc.
  11. Thierry Buchs, 2005. "Privatization in Sub-Saharan Africa: Some Lessons from Experiences to Date," Microeconomics 0502007, EconWPA.
  12. Lefèvre, Mélanie & Tharakan, Joe, 2011. "Intermediaries, transport costs and interlinked transactions," CEPR Discussion Papers 8615, C.E.P.R. Discussion Papers.
  13. Ronchi, Loraine, 2006. "Fairtrade and market failures in agricultural commodity markets," Policy Research Working Paper Series 4011, The World Bank.
  14. Porto, Guido, 2008. "Agro-manufactured export prices, wages and unemployment," Policy Research Working Paper Series 4489, The World Bank.

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