Commodity exports and real income in Africa

It has been argued that if several developing countries expand exports, they are likely to experience a decline in their terms of trade, export revenues, and real incomes. The general case for this export pessimism has lost much of its force, but remains very much alive for some specific countries and commodities - particularly the export of cocoa, coffee, and tea, which exhibit low price elasticity. The authors of this paper systematically analyze this issue for cocoa, a commodity for which many African countries have a large share in world exports. Their concern is chiefly with the problems that arise from low price elasticity of demand in the world market and their implications for trade policy. They find that increasing productivity in one African country through new investments would benefit that country - but the other African countries would lose. On the whole, the African countries would gain, however, so the gains to the country with expanded output would dominate the losses for the other countries. The return on the new investments for Africa as a whole would be positive - although significantly lower than returns for the country in which the new investments were made. This paper examines how real incomes and tax and export revenues compare under existing taxes. It analyzes the impact of export expansion on real income, export and tax revenues, and compares the effects of export expansion by African countries with that by non-African countries.