Should sub-Saharan Africa expand cotton exports?

In the 1980s, cotton production in sub - Saharan Africa expanded significantly. Annual production growth averaged 4.7 percent between 1980 and 1990, compared with only 1.2 percent for 1964-79. At the same time, cotton exports grew an average 8 percent a year, compared with almost no growth between 1964 and 1979. Concern has been expressed, at the World Bank and elsewhere, about the adding-up problem of expanding exports for commodities that are highly price-inelastic. The concern has been that export expansion - as a result of project loans or structural adjustment programs - could lead to a fall in world prices and an overall reduction in export revenues. The authors assess whether expansion of cotton exports in sub - Saharan African countries has produced an adding-up problem. They test the hypothesis that export expansion has led, or will lead, to a decline in the terms of trade, which would offset any benefits from export expansion. Their results reject this hypothesis. Using comparative static analysis - comparing sub - Saharan Africa's export share with estimated world demand elasticies - they show that sub - Saharan Africa's 14 percent share of world exports is too small relative to the estimated price elasticity of demand (ranging from -0.2 to -0.3) to produce an adding-up problem. Using an econometric model of the world fibers market, the authors show that maintaining the high 1980s growth rate of cotton exports in the 1990s would increase sub-Saharan African export revenues more than 50 percent by the end of the decade, compared with base-case projections. And, except when the price elasticity of world cotton demand is lowered substantially below its estimated value, estimates of the elasticity of export revenue relative to export volume were close enough to unity for the authors to conclude that an adding-up problem does not exist for expanded cotton exports in sub-Saharan Africa. Their analysis also shows that the structural adjustment programs implemented in the 1980s are unlikely to have had a significant adverse impact on the world cotton market. A 20 percent real devaluation for all of sub-Saharan Africa, for example, leads to an average 0.4 percent decline in the world price of cotton, while a 20 percent increase in producer cotton prices in all sub-Saharan African countries leads to a 0.8 percent decline in the world price.