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.


Downloads Statistics

Download Full History