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Abstract

Using a CGE (computable general equilibrium) model for Zimbabwe with 1991 as base period, this paper examines quantitatively the income and equity effects of macroeconomic reform measures in isolation and in conjunction with potentially complementary changes in agricultural sector policies. Some important features of the CGE model are an explicit focus on agriculture, distinction among various rural and urban household groups, and detailed specification of factor markets. Specific aspects of economic policy existing in the pre-reform benchmark year are taken into account in the base model, such as the administered setting of the foreign exchange rate, quantitative import restrictions, and government-determined maize prices for domestic producers and grain millers. The model makes use of a 1991 SAM (social accounting matrix) for Zimbabwe as database. “Policy experiments” performed on the model include trade liberalization, maize price decontrol, fiscal reform measures, land redistribution, and reduction in agricultural marketing margins -- implemented in isolation and concurrently. Trade policy reform alone (dismantling of import and foreign exchange controls and reduction of import taxes to a low uniform rate) is shown to increase aggregate household income significantly. However, the least income gain accrues to smallholder farm households, which account for about four-fifths of the poor in Zimbabwe, so the equity impact is unfavorable. Concurrent implementation of two alternative land reform packages with trade liberalization, maize market decontrol, and income tax adjustment result in improved outcomes in aggregate income and in the incomes of poorer household groups. Significant synergy effects are revealed, as the income gains from policy reform packages exceed the sum of corresponding gains from component measures. The comparative results of counterfactual model simulations illuminate the greater effectiveness of trade policy reform in promoting overall income growth and equity when linked to complementary fiscal and sectoral reforms aimed at reducing poverty. They also give strong support to the general argument that piecemeal or partial reforms are inferior to more comprehensive reforms that take account of policy complementarities.

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