Transfers, Trade Taxes, and Endogenous Capital Flows: With Evidence from Sub-Saharan Africa
Sub-Saharan Africa (SSA) is highly dependent on imported capital goods that are used in the import competing industrialized sector. The exporting sector focuses on primary products where land and labor are predominantly used. We build a two-good general equilibrium model, where the import competing sector uses imported capital input. Transfers induce changes in commodity terms of trade, which in turn affects capital inflows and the price of imported capital. The welfare effect of transfers is considered in the context of induced changes in these variables. In the context of an exogenous export tax, we find that endogenous capital flows aggravate the transfer problem that exists under trade taxation. When trade liberalization is tied to transfers, we find that the tying of aid may worsen or alleviate the transfer problem, depending on how the existing export tax compares with the optimum. We complement our theoretical analysis with an empirical analysis of the transfer problem in the context of endogenous capital inflows. This is done by estimating a regression model with fixed effects for a panel of 14 countries in SSA. Our findings substantiate the concerns raised by the theoretical analysis.
Volume (Year): 5 (2006)
Issue (Month): 1 (April)
|Contact details of provider:|| Postal: 100 Wenhwa Road, Seatwen, Taichung|
Web page: http://www.ijbe.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bandyopadhyay, Subhayu & Majumdar, Baishali, 2004. "Multilateral transfers, export taxation and asymmetry," Journal of Development Economics, Elsevier, vol. 73(2), pages 715-725, April.
- Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
- Schweinberger, A G, 1990. "On the Welfare Effects of Tied Aid," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 457-62, May.
- Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
- Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
- Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
When requesting a correction, please mention this item's handle: RePEc:ijb:journl:v:5:y:2006:i:1:p:29-40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yi-Ju Su)
If references are entirely missing, you can add them using this form.