By Christopher D. Gerrard, Greg D. Posehn, Granville Ansong
Read or Download Agricultural pricing policy in Eastern Africa: a macroeconomic simulation for Kenya, Malawi, Tanzania, and Zambia, Part 76 PDF
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Additional info for Agricultural pricing policy in Eastern Africa: a macroeconomic simulation for Kenya, Malawi, Tanzania, and Zambia, Part 76
Consequently, the import bill may actually increase; the foreign exchange required to purchase the parts, components, etc. can easily exceed the foreign exchange which was previously required to purchase the final consumer goods. At world prices, domestic value added may be negative. Overall, as a result of this changing composition of Page 18 Figure 3 The Long-term Impact of a Protective Tariff imports, the rate of growth of imports tends to exceed the rate of growth of GDP. On the other hand, the rate of growth of exports tends to be lower than the rate of growth of GDP, for the simple reason that the protective tariff favours domestic production for sale in the domestic market.
The long-term and the short-term policy objectives are, of course, related. First, short-term balance is a pre-condition to the achievement of long-term goals. If the government is continually involved in short-term crisis management in response to external and internal imbalances, it will be unable to direct its attention to the achievement of long-term goals. Second, short-term imbalances have long-term impacts on the allocation of resources. For example, in the absence of external balance, and in particular with a persistent foreign exchange deficit, a country will be forced to adopt quantitative restrictions and controls on foreign exchange which, if more or less permanent, will adversely affect both the import and the export sectors of the economy.
Similarly, import-substitution policies have little impact on the supply of agricultural exports in the short term, but they reduce the incentive for farmers to invest in agricultural exports in the long term. Thus the import-substitution policies cause a long-term deterioration in the country's balance of payments. In currency terms, as the demand for imports grows more rapidly than the supply of exports, the supply curve of the domestic currency will shift out more rapidly than the demand curve.
Agricultural pricing policy in Eastern Africa: a macroeconomic simulation for Kenya, Malawi, Tanzania, and Zambia, Part 76 by Christopher D. Gerrard, Greg D. Posehn, Granville Ansong