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Devaluation and Household Welfare in Rwanda

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  • Minot, Nicholas W.

Abstract

One of the most common criticisms of currency devaluation is that it causes disproportionate suffering among the poor. This study examines the distributional impact of price changes associated with devaluation in Rwanda using a simplified household-firm model based on household budget data. The study approximates the welfare impact on each household in the sample, making use of 'willingness-to-pay' measures of welfare impact which are theoretically superior to the standard 'consumer surplus' measure. The results indicate that price changes associated with devaluation have a proportionately greater negative impact on the real income of urban households than rural, and within each sector a greater impact on high income households than low-income. The main reason for this pattern is that rural and low-income households tend to be insulated from price changes by being less integrated in the cash economy.

Suggested Citation

  • Minot, Nicholas W., 1997. "Devaluation and Household Welfare in Rwanda," 1997 Occasional Paper Series No. 7 198190, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaaeo7:198190
    DOI: 10.22004/ag.econ.198190
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    File URL: http://ageconsearch.umn.edu/record/198190/files/agecon-occpapers-1997-030_1_.pdf
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    References listed on IDEAS

    as
    1. Cornia, Giovanni Andrea & Jolly, Richard & Stewart, Frances (ed.), 1987. "Adjustment with a Human Face: Volume 1, Protecting the Vulnerable and Promoting Growth," OUP Catalogue, Oxford University Press, number 9780198286097.
    2. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    3. Sahn, David E & Sarris, Alexander H, 1991. "Structural Adjustment and the Welfare of Rural Smallholders: A Comparative Analysis from Sub-Saharan Africa," World Bank Economic Review, World Bank Group, vol. 5(2), pages 259-289, May.
    4. Glewwe, P. & De Tray, D., 1988. "The Poor During Adjustment - A Case Study Of Cote D'Ivoire," Papers 47, World Bank - Living Standards Measurement.
    5. Vartia, Yrjo O, 1983. "Efficient Methods of Measuring Welfare Change and Compensated Income in Terms of Ordinary Demand Functions," Econometrica, Econometric Society, vol. 51(1), pages 79-98, January.
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