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A firm's-eye view of policy and fiscal reforms in Cameroon

  • Gauthier, Bernard
  • Soloaga, Isidro
  • Tybout, James

After decades of heavy trade restrictions, fiscal distortions, and currency overvaluation, Cameroon implemented important commercial and fiscal policy reforms. Almost simultaneously, a major CFA devaluation cut the international price of Cameroon's currency in half. The authors examine the effects of these reforms on the incentive structure that manufacturing firms face. Did they create a coherent set of new signals? Was the net effect to stimulate the production of tradable goods? Was the dispersion of tax burdens lessened? They address each of these questions using a cost function decomposition applied to detailed firm-level panel data. They observe that Cameroon's reforms appear to have sent clear new signals to manufacturers, as the effective rate of protection fell by between 80 and 120 percentage points. Unlike trade liberalization, neither tax reforms nor the CFA devaluation had a major systemic effect on profit margins. But the CFA devaluation did twist relative prices dramatically in favor of exportable goods, so export-oriented firms exhibited rapid output growth.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2442.

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Date of creation: 30 Sep 2000
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Handle: RePEc:wbk:wbrwps:2442
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  1. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series 96-30, Board of Governors of the Federal Reserve System (U.S.).
  2. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  3. Bela Balassa, 1965. "Tariff Protection in Industrial Countries: An Evaluation," Journal of Political Economy, University of Chicago Press, vol. 73, pages 573.
  4. Tybout, James, et al, 1997. "Firm-Level Responses to the CFA Devaluation in Cameroon," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 3-34, March.
  5. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November.
  6. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
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