A natural experiment for identifying the impact of natural trade barriers on exports, 2005

8/13/2019 A natural experiment for identifying the impact of natural trade barriers on exports, 2005

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A n at ur al e xp er im en t f or i de nt if yi ng t he i mp ac t o f

dnaturalT t ra de b ar ri er s o n e xp or ts

C hr i s M i ln e r *, E vi ou s Z go vu

S c ho o l o f E c o no m ic s a n d C R E DI T, U n iv e rs i ty o f N o tt i ng h a m, N o tt i ng h a m, N G 7 2 R D , U K

R e ce i ve d 1 M a y 2 0 03 ; a c ce p te d 1 F e br u ar y 2 0 05

Abstract

T he p ap er i nv es t ig at es t h e r el a ti ve i mp o rt an ce o f t r ad e p o li cy a nd dnaturalT s o u rc es o f e xp or t

t a x a t i o n i n M a l a w i , a l a n d l o c k e d A f r i c a n e c o n o m y . T h e s e s o u r c e s o f e x p o r t t a x a t i o n a r e i n t u r n u s e d

t o e xp l or e h ow e xp o rt s up p ly w o ul d r es po n d t o t ra de l i be ra li s at i on a s o p po s ed t o m ea su re s w h ic h

l o w er o t h er i n t er n at i o na l t r ad e c o st s . T h e f i nd i n gs i n d ic a te t h a t t r a d e p o l ic y b a rr i er s a r e n o w o n l y a

l i m i t e d s o u r c e o f dtrueT e xp o r t t a x a t io n a n d t h at t r ad e p o l ic y r e fo r m n e e d s t o b e c o mp l em e nt e d w i t h

r e fo r ms t o r e du c e i n t er n at i o na l t r ad e , i n c lu d i ng t r an s p or t , c o st s .

D 2 0 0 5 E l s ev i er B . V. A l l r i g ht s r e se r ve d .

JEL classification: O 2 4 ; F 1 3 A

Keywords: T r a de b a r ri e r s ; E x p or t s

1. Introduction

D e sp i t e s i gn i fi c a nt l i be r al i sa t io n o f t r ad e p o li c y a c ro s s d e ve l o pi n g c o un t ri e s, t h er e a r e

s t il l a s i gn i fi c a nt n u mb e r o f c o un t r ie s ( e sp e c ia l ly i n s u b- S ah a r an A f ri c a) w h er e t h er e h a s

been a weak or sluggish export response. A number of explanations for this muted export

a n d i n ve s tm e nt r e sp o n se h a v e b e en o f fe r ed . S o m e c o mm e n ta t or s e m ph a s is e p r ob l e ms o f

l i mi t ed c r ed i bi l i ty a n d f e ar o f p o li c y r e ve r sa l s ( e .g . , C o l l i er , 1 9 9 7). R o d ri k ( 1 9 9 9 ) a d d s t o

t hi s a c on ce rn a bo ut t he l im it ed s oc ia l a nd p hy si ca l i nf ra st ru ct ur e o f m an y A fr ic an

0 3 04 - 38 7 8/ $ - s e e f r on t m a tt e r D 2 0 0 5 E l s e v i er B . V. A l l r i g ht s r e s er v e d .

doi:10.1016/j.jdeveco.2005.02.008

* C o r r es p o nd i n g a u t h o r. Te l . : + 4 4 1 15 9 5 1 56 2 4 ; f a x : + 4 4 1 1 5 9 5 1 41 5 9 .

E-mail address: [email protected] (C. Milner).

J o ur n al o f D e ve l op m en t E c on om i cs 8 0 ( 2 00 6) 2 5 1 – 2 68

www.elsevier.com/locate/econbase

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e c o n o m i e s t o c o p e w i t h a d j u s t m e n t i n d u c e d b y t r a d e r e f o r m s . T h e r e a r e a l s o a n u m b e r o f

r ec en t s tu di es t ha t d ra w a tt e nt io n t o t he e xt en t o f n on -t r ad e p ol ic y o r dnaturalT b a r ri e rs t o

t ra de , a ss oc ia te d w it h f or e xa m ple a lim ited tra nsp ort inf ras truc tur e, loc ati ona l

c ha ra ct er i st ic s o r p o rt e ff ic ie nc y ( A mj ad i a nd Ye at s, 1 99 6; M il ne r, 1 99 7; C la rk e t a l. ,

2004) . T h es e s t ud i es t y pi c al l y m e as u re t h e r e la t i ve i m po r ta n c e o f t r ad e p o li c y a n d n a tu r al

barriers and therefore the impact of liberalisation on total levels of protection, but do not

s ee k t o i de nt i fy o r q ua nt if y t he i mp ac t o f n at ur al b ar ri er s o n e xp or t p er fo rm an c e. T he se

s tu di es , i n l in e w it h m os t r es ea rc h o n n at ur al b ar ri er s, a re u na bl e t o p er su as iv el y

d i s t i n g u i s h b e t w e e n t h e e f f e c t s o f n a t u r a l b a r r i e r s a n d o t h e r c o u n t r y - s p e c i f i c c h a r a c t e r i s t i c s

o n t r ad e p e rf o rm a nc e .

T hi s p ap er f il ls t hi s g ap f or a s pe ci fi c, l an dl oc ke d e co no my i n A fr ic a ( Ma la wi ), b y

m od el li ng e xp or t s up pl y s o a s t o c ap tu re t he r el at iv e i mp a ct o f p o li cy a nd n at ur al b ar ri er s

o n e xp or t g ro wt h. M al aw i p ro vi d es a n o pp o rt un it y t o c on du ct a dnaturalT

e x p er i m en t o nnatural barri ers sin ce its natur al barri ers changed as a result of first civil war in

M oz am bi qu e a nd t he s ub se qu en t p ea ce . F ol lo wi ng t he c iv il w ar i n M oz am bi qu e, f or

e xa mp le , M al a wi h ad t o i mp o rt a nd e xp or t t hr ou g h S ou th A fr ic a. A s a r es ul t t he cif-fob

d if fe re nt i al o n i mp or ts r os e b y a d ra ma ti c 4 5 p er ce nt a ge p oi nt s.

Tr ue e xp or t p ro te ct io n m ea s ur es t ha t i nc or p or at e b ot h p o li cy a nd n at ur al s ou rc e s o f

t ax at io n a re c on st ru ct e d f or t he p er io d 1 97 0– 19 98 . T h es e m ea s ur es o f i nt er na l r el at iv e

price changes are then introduced into an econometrically estimated export supply

m od el f or M al aw i, a lo ng si de o th er i nf lu en ce s ( ex te rn al r ea l e xc ha ng e r at e a nd

productive capacity). This innovation allows us to simulate the in and out of sample

i mp ac t o f c ha ng es i n n at ur al a nd p ol ic y b ar ri er s o n e xp or t s up pl y. T he se s im ul at io nss ho w t ha t t he c on tr ib ut io n t ha t t ra de l ib er al is at io n h as m ad e t hu s f ar t o e xp or t g ro wt h

i s s ma ll , r el at iv e t o w ha t c ou ld b e a ch ie ve d b y f ur th er l ib er al is at io n a nd /o r l ow er in g

n a tu r al b a rr i e rs . I n de e d f o r n o n -t r ad i ti o na l e x po r t s, t h e e l im i n at i o n o f n a tu r al b a rr i er s i s

predicted to induce a significantly larger export response than that resulting from

i m p o r t l i b e r al i s a t i on .

T he r em a in de r o f t he p ap e r i s o rg an is ed a s f ol lo w s. S ec ti on 2 r ev ie ws t he t ra de p o li cy

r e gi m e i n M a la w i, p r ov i d in g s o me s u mm a ry i n fo r ma t io n a l so o n n a tu r al b a rr i er s . S e c ti o n

3 s et s u p t he m od el li ng f ra me wo rk , e xp lo ri ng h ow t he r el at iv e p ri ce e ff ec ts o f t he se

barriers can be represented within a dt r u e p r o t ec t i o nT f r a m e w o r k a n d i n c o r p o r a t e d i n t o t h e

e xp or t s up pl y f un ct io n. S ec ti on 4 s et s o ut t he e st im at es o f dtrueT e xp o rt t a xa t i on f r om policy and natural barriers. These true protection rates of exportables (alternatively viewed

a s i n te r na l r e al e x ch a n ge r a te s ) a r e i n tr o du c ed , a l on g s id e o t he r f a ct o rs , i n to e x po r t s u pp l y

f un ct io ns f or M al aw i i n S ec ti on 5. T he e st im at ed f un ct io ns f or t ra di ti on al a nd n on -

t ra di ti on al e xp or ts a re u se d i n S ec ti on 6 t o d ec om po se t he t ot al e xp or t r es po ns e t o

lowering dtrueT e x po rt t ax at io n i nt o p ol ic y a nd n at ur al b ar ri er s. T he c on cl us io ns a nd

i mp li ca ti on s o f t he s tu dy a re s et o ut i n S ec ti on 7.

2. Trade barriers and regime changes in Malawi

M al aw i i s a s ma ll l an dl oc ke d e co no my i n t he s ou th er n A fr ic an r eg io n t ha t s ha re s

borders with Tanzania, Zambia and Mozambique. It is not natural resource abundant, but

C . M i ln e r, E . Z g o vu / J o ur n a l o f D e ve l op m en t E c on o m ic s 8 0 ( 2 0 06 ) 2 5 1 –2 6 8252



i ts m aj o r w ea lt h- p ro du ci n g a ct iv it ie s d ra w u po n i ts r el at iv e a bu n da nc e o f l ow -s ki l le d

l a b o u r a n d a g r i c u l t u r a l l a n d . A s a r e s u l t o f t h i s a n d r e l a t i v e l y h i g h t r a n s a c t i o n c o s t s f a c i n g

m an uf a ct ur in g a ct iv it ie s, i ts e xp or ts h av e t ra di ti on a ll y b ee n d om in a te d b y p ar ti c ul ar

a g ri c u lt u ra l p r o du c ts ( t ob a cc o , t e a a n d s u ga r ) . I n d e e d t h e s h ar e o f t o ba c c o i n t o ta l e x po r ts

h as t en de d t o g ro w p os t- 19 70 . T he U K a nd U S a re s ig ni fi ca nt m ar ke ts f or M al aw i’s

e xp or ts , w it h S ou th A fr ic a a nd Z im ba bw e s ti ll o nl y r ec ei vi ng a bo ut o ne -s ix th o f t he

c o u n t r y’s e x p o r t s.

F ig . 1 i n cl ud es i nf or m at io n o n a ve ra ge i mp o rt t ar if f r at es f or t he p er io d 1 97 0– 19 9 8.1

I t c ap tu re s t he t hr ee d is t in ct e pi so de s f or t ra de p ol ic y o ve r t hi s p er io d ; a r el at iv el y f re e

t ra de r eg im e ( 19 70 –7 9 ), a r es tr ic ti ve t ra de r eg im e ( 19 80 –8 6 ) a nd a l ib er al is in g r eg im e( 19 87 –9 8) . D ur in g 1 97 0– 79 , t he re w as l im it ed i nt er ve nt io n i n t he t ra de ab le g oo ds

s ec to r, w it h i mp or t t ar if fs u se d m ai nl y f or f is ca l p ur po se s a nd l im it ed u se o f i mp or t

l ic en si ng a nd f or ei gn e xc ha ng e l ic en si ng o n s el ec te d c om pe ti ng c on su me r g oo ds

imports.2 T he se c on di ti on s c ha ng ed s ha rp ly a ft er 1 97 9 i n r es po n se t o c ri s is c on di t io ns .

F ur th er p re ss ur e o n f or ei gn e xc ha ng e r es er ve s w as a ls o e xe rt ed b y t he e sc al at io n o f

t he c iv il w ar i n M oz am bi qu e. I mp or t t ar if fs w er e i nc re as ed s ha rp ly a nd t he c ov er ag e

o f q ua nt i ta ti ve i mp o rt a nd f or ei g n e xc ha ng e c on tr ol s i nc re a se d s ub st a nt ia ll y. F ig. 1

plots also the changes in the extent of non-tariff barriers to trade, using the import-

weighte d black market premium as a proxy measure. It show s a sharp rise in the

black market premium in particular after 1978, with a fall back to below 40% after 1 98 6. Ta x r ef or ms b eg an i n 1 98 5, i nc l ud in g t ar if f r ed uc t io n a nd i nt ro d uc ti on o f s om e

e xp or t i nc en ti ve s w er e c om pl em en te d b y t he a bo li ti on o f i mp or t l ic en si ng a nd

q ua nt it at iv e r es tr ic ti on s i n 1 98 8 a nd w it h t he s ub st an ti al e as in g o f f or ei gn e xc ha ng e

c on tr ol s. B y t he m id -1 99 0s , t he a ve ra ge t ar if f w as a bo ut 2 0% a nd t he b la ck m ar ke t

premium was below 10%.

I n a dd it i on t o b ar ri er s a g ai ns t i mp or ts w hi ch i nd i re ct ly d is co ur ag e e xp o rt s ( im p li ci t)

d ir ec t t ax at io n o f e xp or ts h as b ee n u se d i n M al aw i e it he r t hr ou gh p er io di c e xp or t

s ur ch ar gi ng o r t hr ou gh t he p ri ce -s et ti ng b eh av io ur o f t he c ou nt ry ’s a gr ic ul tu ra l

1 I n fo r ma t io n o f d u ty c o ll e ct e d o n i m po r ts r a th e r t h an s c he d ul e d t a ri f fs w a s u s ed .2 L i k e m a n y o t h er l o w - in c o me d e v el o p i ng c o u nt r i e s, M a l a wi h a s a r e l a ti v e ly h i g h d e p e n de n ce o n t r a de t a x es .

0

10

20

30

40

50

60

70

80

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

P e r c e n

t

Average tariff Import-weighted black market premium

F i g . 1 . I m p o rt p o l ic y b a r r ie r s ( 1 9 70 – 1 99 8 ) .

C . M i ln e r, E . Z g o vu / J o u rn a l o f D e ve l op m en t E c o no m i cs 8 0 ( 2 00 6 ) 2 5 1 –2 6 8 253



c om mo di ty m ar k et in g b oa rd (K y dd a nd C hr is t ia ns en , 1 98 2). We can cap ture this in

F ig . 2 w it h t he r at i o o f t he d if fe re nc e b et we en t he w or l d a nd d om es ti c p ri ce r el at iv e t o

t he w or ld p ri ce . T he a ve ra ge i mp li ci t e xp or t t ax r at e h as t en de d t o r is e o ve r t im e,

t h ou g h w i th c o ns i d er a bl e f l uc t ua t i on y e ar - on - ye a r.

Natural barriers3 a re o ft en o ve rl o ok ed i n p ol i cy a na ly s es . F or a l an dl o ck ed e co no m y

s uc h a s M al aw i, w it h i ts li mi te d a nd u nd er de ve lo pe d l oc al f re ig ht c ap ac it y, i t i s

particularly important not to do so. When confronted by disruption of its traditional

a nd s ho rt er r ou te s t o t he s ea t hr ou gh M oz am bi qu e, M al aw i w as f or ce d t o s hi ft m os t

o f i ts i nt er na ti o na l f re i gh t t hr ou g h S ou th A fr ic a, u si ng r oa d t ra ns p or t t hr ou g h Z am bi a

and Zimbabwe (a distance of ab out 2500 miles from its commercial centre of

Blantyre).4 Not surprisingly, the route diversion increased markedly the country’s

a lr ea dy s ub st an ti al n at ur al t ra de b ar ri er s. F i g . 2 p lo ts t he c ou nt ry ’s a ve ra ge

i nt ern at io na l t ra ns po rt c os ts ( fr ei gh t a nd i ns ur an ce c os ts a s a p er ce nt ag e o f t he

f .o .b . i mp or t v al ue ). T he normal b arrier was about 1 5% of the imp ort value up to

1 98 2. T hi s j um pe d s ha rp ly a ft er t he n r is in g t o o ve r 6 0% f or th e r em ai nd er o f t he

period.

3. Modelling framework: export supply and dtrueT export taxation

We p o si t t h at b e si d es e x te r n al – do m e st i c r e la t i ve p r ic e s a n d c a pa c i ty v a ri a bl e s, e x po r t

s u p p l y i s a l s o a f f e c t e d b y i n t e r n a l r e l a t i v e p r i c e s o r t h e l e v e l o f t r u e e x p o r t t a x a t i o n a r i s i n g

0

10

20

30

40

50

60

70

80

90

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

P e r c e n t

International transport costs Implicit export tax

F i g . 2 . E x p or t t a x at i o n a n d n a t u ra l b a r ri e r s : 1 9 7 0 – 1 99 8 .

3 T h e t e r m dnaturalT b a r r i e r i s c o m m o n l y u s e d t o c a p t u r e t h e e f f e c t s o f f a c t o r s s u c h a s g e o g r a p h i c a l d i s t a n c e a n d

l o c at i o n o n i n t e rn a t io n a l t r a n s a c ti o n s c o s t s . To t h e e x t e nt t h a t i t i s s u c h e x o g e n ou s g e o gr a p hi c a l f a c t o r s i n v ol v e d

t h e t e r m i s n ot m i sl e ad i ng . To t h e e x te n t, h o we v er , t h at i t i s e n do g en ou s f a ct o rs s u ch a s t h e s c al e o f i n te r na t io n al

t r an s ac t io ns o r n a ti o na l p o li c ie s a f fe ct i ng t h e c o mp e ti t iv e ne s s o r e f fi c ie n cy o f s e ct o rs s u ch a s i n te r na t io na lt r a ns p o rt , t h e n t h e t e r m dnaturalT m a y b e m i s l ea d i ng .

4 R a il t r an s po r t t h ro u gh Ta n za n ia w a s n o t u s ed b e ca u se o f p o li t ic a l d i ff e re n ce s , u n ti l t h e e v en t ua l c o mp l et e

c l os u re o f t h e M o za m bi q ue r o ut e . D a r e s S a la a m i s h o we v er a b ou t 2 6 00 m i le s f r om B l an t yr e .




f r om p o li c y a n d n a tu r al b a rr i er s t o t r ad e .5 T h is e x te n de d f u nc t i on a l lo w s u s t o i n ve s t ig a t e

external and internal r e l a t i v e p r i c e e f f e c t s s i m u l t a n e o u s l y . T h e l a t t e r a r e n o r m a l l y a s s u m e d

c o n s t a n t i n t h e s t a n d a r d e x p o r t s u p p l y m o d e l . T h e e x t e r n a l – d o m e s t i c r e l a t i v e p r i c e s d o n o t

c ap tu r e a ny a nt i- ex po r t b ia se s a ss oc ia te d w it h i nt er na l r el at iv e p ri ce i nc en t iv es ( th at i s,

i n t e r -s e c t o ra l e f f e ct s ) .6 A ll ow i ng f or t he se c on si de ra t io ns , t he e xt en d ed e xp or t s up pl y

f un ct i on c an b e e xp re s se d a s:

X t ¼ d0 ITd1

Xt Reer d2t K d3

t elt ð1Þ

where X t i s r ea l e xp or ts m ea su re d i n p er io d t , K r e p r es e nt s t h e e c on o m y’s p r od u ct i ve

c a p a c i t y t o p r o d u c e e x p o r t s , I T Xt i s a n i n d e x o f t h e r a t e o f t r u e t a x a t i o n o f e x p o r t s , R e e r i s

r ea l e ff ec ti ve e xc ha ng e r at e ( ex p re s se d i n t er ms o f u ni ts o f d om es ti c c ur re n cy p er u ni t o f

f or ei gn c ur re nc y ), s om et im es r ef er r ed t o a s a P P P r ea l e xc h an ge r at e, a nd l i s a n e rr or

term.

R e wr i ti n g i n l o ga r it h mi c f o rm , w e h a ve :

ln X t ¼ lnd0 þ d1 lnIT Xt þ d2 lnReer t þ d3 ln K t þ lt d1b0; d2N0; d3N0 ð2Þ

T he c ho ic e o f t he m ea su re o f p ro du ct iv e c ap ac i ty i s c on te nt io u s. G o ld s te i n a n d K h an

( 1 97 8 , 1 9 8 5); B o nd ( 1 98 5 ) and N o l a nd ( 1 98 9 ) u se t re nd o u tp ut . T he a rg um en t f or t hi s

m ea s ur e i s t ha t r el at iv e p ri ce s a lo ne c an no t f ul ly e xp la i n t he w il li ng ne s s a nd a bi li ty t o

s u p p l y e x p o r ts . B e en s to c k e t a l . ( 1 99 4 ) a r gu e t h at s u pp l y in g f o re i g n m a rk e ts i s i n ve r se l y

r el at ed t o i nc re as es i n d o me st ic d em an d p re ss ur es . S p ec if ic al ly, i nc re as in g d om es ti c

d em an d p re ss ur es f or t he e xp or t g oo d m ak es i t m or e p ro fi t ab le t o s up pl y t he d om es ti c

m a r k e t t h a n t h e f o r e i g n m a r k e t . A m o n g o t h e r n o t a b l e s t u d i e s , M u s c a t e l l i e t a l . ( 1 9 9 5 ) use

t he s to ck o f f ix ed c ap it al t o c ap tu re t he e ff ec ts o f i nc re as in g p ro du ct iv e c ap ac it y a nd

productivity on export supply for some Asian newly industrialised economies. While

H ay n es a nd S to ne ( 19 83 ) m e a su r e c a pa c it y u t il i s at i on a s d e vi a t io n -f r om - tr e nd i n co m e.

O ur c ho ic e f or t he p re se n t w or k i s i n f ac t d at a- co ns t ra in e d, a nd w e t ak e a gr ic ul tu r al G DP

a s a p ro x y o f c ap ac i ty.7

6 I n t h eo r et i ca l t e rm s , i t i s q u it e p o ss i bl e f o r a P P P- t yp e r e al e x ch a ng e r a te ( R E R ) a n d d o m es t i c r e l a t i ve p r ic e

( i .e . , t r ue p r ot e ct i on m e as u re ) t o m o ve i n o p po s it e d i re c ti o ns ( s ee f o r e x am p le M i l ne r a n d M c K a y, 1 9 9 6).7 A l th o ug h a s i mi l ar p r ox y i s t o b e f o un d i n o t he r s t ud i es , t h er e i s a p o te n ti a l p r o bl e m o f e n do g en e it y i n u s in g

a g r i c u l t u r a l G D P s i n c e i t i n c l u d e s ( t r a d i t i o n a l ) e x p o r t s . T h e l a t e r e x o g e n e i t y t e s t i n g s h o w s t h a t t h e p r o b l e m i s n o t

i n f a ct s e ri o us .

5 The use of such bsupply-quantity Q e qu at io ns h as b ee n q ues ti on ed , a nd i ns te ad t he bsupply-price Q

e qu at io n i n w hi ch p ri ce i s t he d ep en de nt v ar ia bl e i s a dv oc at ed (G ol ds te in a nd K ha n, 1 97 8; H ay ne s a nd

S t on e , 1 98 3, a mo ng o th er s) . T he a ss um pt io n o f d price-settingT i s m or e a ppl ica bl e t o t he a na lys is o f

s up pl y b eh av io ur o f m aj or e xp or ti ng c ou nt ri es o r m an uf ac tu ri ng f ir ms w it h a pp re ci ab le w or ld e xp or t

m a rk e t c o nt r ol . I n t h e c o nt e xt o f a s m al l o p en d e ve l op i ng e c on om y, h o we v er , p r od u ce r s f ac e a n i nf initely

e l a s ti c d e m a nd f or t he e xp or t c om mo di ti es i n w or ld m ar ke ts a nd a re d price-receiversT. B o nd ( 1 98 5 ) and

A h me d ( 2 00 0 ) o bs erv e t hat i n t hi s co nt ex t, it i s pe rm is sib le t o us e s in gl e eq ua ti on ex po rt s upp ly

functions.




3 . 1. Ta x at i on o f e x po r t s

T he r at e o f t ru e t ax at io n o f e xp or ts (T Xt

* ) i s d ef in ed a s th e ch an ge i n t he d om es ti c

r el at iv e p ri ce ( P ) o f e xp or ta bl es ( re la ti v e t o t he e nd og en o us ly d et er mi n ed p ri ce o f n on -

t r ad e ab l es ) i n du c e d b y t r ad e p o li c y a n d n a tu r al b a rr i er s , n a me l y :

T Xt 4 ¼ D P Nt

P Xt

ð3Þ

where X d e n o te s e x p o r ta b l e s a n d N d e no t e s n o n- t ra d ea b l es . R i se s i n t h e r e la t i ve p r ic e o f

n o n- t ra d ea b l es i n cr e as e t r ue e x po r t t a xa t io n , a n d f a ll s r e du c e t h e r a te o f t a xa t io n .8

C o ns i de r t h e s m al l c o un t ry c a se w i th p e rf e ct s u bs t i tu t ab i l it y b e tw e e n t r ad e d a n d l o ca l

g oo ds , i .e ., w it h f ul l t ra ns mi ss io n o f c ha ng es i n t he b or de r p ri ce s o f e xp or ts t o l oc al lyc on su me d e xp or ta bl es ( or s im il ar ly f ro m i mp or t p ri ce s t o l oc al ly p ro du ce d i mp or t

substitutes).9 T he n om in al , d om es ti c p ri ce o f e xp or ta bl es c an b e a ff ec te d b y e xp li ci t

s ou rc es o f t ax at i on (t X e) o r i mp l ic it e xp or t t ax at i on (t X

i) f r om p o li c ie s o f e x po r t m a rk e ti n g

a ge nc ie s o r f ro m i nt er na ti o na l t ra ns ac ti o ns , i n p ar ti c ul ar t ra ns p or t c o st s (t X n) borne by

d o me s ti c p r od u ce r s o f e x po r t s. T h us , f o r c o nv e ni e n ce , s e tt i ng i n it i a l r e la t iv e p r ic e s e q ua l

t o u ni ty, t he r at e o f t ru e e xp or t t ax at io n i n t he a bs en ce o f a ny e xp or t s ub si di es c an b e

w r it t en a s :

T Xt 4

¼

ˆ P P N þ P Xt

1 P

Xt ð4Þ

whereP

Xt =t e Xt + t i Xt + t n Xt d e no t e s t h e s u m o f e x pl i ci t a n d i m p l i ci t t a xa t io n o f e x po r t s; a n d ,

P ˆ N i s t h e p r o p o r t i o n a t e e n d o g e n o u s a d j u s t m e n t o f t h e p r i c e o f n o n - t r a d e a b l e s t o c h a n g e s i n

t ra d e p ol ic y a nd n at ur al b ar ri er s o n a ll t ra de a bl e g oo ds .

A ss um i ng s ub s ti tu ta bi li ty b et w ee n t r ad ea b le s a nd n on -t r ad ea bl es a nd r e qu ir i ng

h om og en ei ty, w e c an e xp re s s t he p ro po rt io n at e c h an ge i n t he p ri ce o f n on -t ra de ab le s a s

follows:

ˆ P P N ¼ x ˆ P P M þ 1 xð Þ ˆ P P X 0VxV1 ð5Þ

where x i s t h e i n d e x o f s u b s t i t u t a b i l i t y b e t w e e n n o n - t r a d e a b l e s a n d i m p o r t a b l e s ; P ˆ X i s t h e

proportionate fall in the nominal price of exportables following changes in t Xt e, t Xt

i and t Xt n;

and P ˆ M i s t h e p r op o r ti o na t e c h an g e i n t h e n o mi n a l p r i c e o f i m po r ta b l es f o ll o w in g e x pl i c it

o r i mp li ci t s ub si di sa ti on o f i mp or ta bl es f ro m t ar if f, t Mt e, n o n- t ar i ff , t Mt

i, a nd n at ur al

barriers, t n Mt .

9 T h e s m al l c o un t ry a s su m pt i on i s a r e as o na b le o ne f o r M a la w i. P e rf e ct s u bs t it u ta b il it y b e tw e en t r ad e d a n d

d o m es t i c g o o d s , e s p e c i a ll y i n t h e i m p o r t a bl e s b a s ke t , i s l e s s c r e d i b l e. T h e e m p i r i c a l e s t i m a te s o f t r u e p r o t e c t io n

a l l ow t h e re f o r e a l s o f o r i m p e rf e c t s u b st i t u ti o n.

8 T h e t r a d it i o n al l i t e r at u r e o n t r u e p r ot e ct i on ( s ee f o r e x am p le C l em e n t s a n d S j a as t a d , 1 9 8 5 ; G r e e na w a y a n d

M i l n er , 1 9 9 3 and M i l n e r, 1 9 9 5) e x pr e ss e s t h e m e as u re a s t h e i n v e rs e o f E q. ( 3 ).




S u b s t i t u t i n g ( 5 ) i n t o ( 4 ) a n d f o r P ˆ M and P ˆ

X g i v e s u s a m e a s u r e o f t h e o v e r a l l t r u e r a t e o f

e xp or t t ax at io n a ri si ng f ro m e xp li ci t a nd i mp li ci t s ou rc es o f p ol ic y t ax ati on a nd

s u bs i d is a ti o n f r om n a tu r a l b a rr i er s , n a me l y:

T * Xt ¼

xP

Mt þ 2 xð ÞP

Xt

1 P

Xt

ð6Þ

whereP

Xt = t e Xt + t i Xt + t Xt n and

P Mt =t e Mt + t i Mt + t n Mt . Th e r at e o f t ru e e xp or t t ax at i on d ep en ds

t he re fo re n ot o nl y o n t he d ir ec t e ff ec ts o n t he p ri ce o f e xp or ta bl es (t Xt ) , b ut a ls o o n t he

i n d i r e c t e f f e c t s o f t r a d e p o l i c y i n t e r v e n t i o n s o n t h e p r i c e o f n o n - t r a d e a b l e s ( t Xt , t Mt ) a n d o n

t h e d o me s ti c s u b st i t ut i on r e la t io n s hi p s (x) . Tr ue t ax at io n o f e xp or t s i nc re a se s i f a ny t Xt and t Mt i n c r e as e ( i f xN0 ) . S i mi l ar l y f o r g i ve n t Xt and t Mt , t he r at e o f t ru e e xp or t t ax at io n

i n cr e a se s a s x increases.

4. Evidence on true export taxation for Malawi

T h e m e a s u r e m e n t o f t r u e e x p o r t t a x a t i o n r e q u i r e s i n f o r m a t i o n o n n o m i n a l r a t e s o f t r a d e

t a xa t io n a n d e s ti m at e s o f t h e s u bs t it u ti o n i n de x (x) . S o me i n fo r ma t io n o n t h e c o mp o ne n t

e l em e n ts o f t r ad e t a xa t io n i n M a la w i f o r t h e p e r i o d 1 9 7 0 – 19 9 8 w e re d e sc r ib e d i n S e ct i on

2 . T he d et ai le d a nn ua l i nf or ma ti on a nd t he s ou rc es o f t hi s i nf or ma ti on a re g iv en i n

A p p e n d i x A. S h o r t a n d l o n g - r u n i n d i c e s o f s u b s t i t u t a b i l i t y b e t w e e n e x p o r t a b l e s ( a g g r e g a t e

o r t r a d i t i o n a l a n d n o n - t r a d i t i o n a l s e p a r a t e l y ) a n d n o n - t r a d e a b l e s w e r e e s t i m a t e d u s i n g t i m e

s er ie s d at a o n p ri ce s o f c at eg or ie s o f t ra de ab le a nd n on -t ra de ab le g oo ds . Ti me s er ie sm od el s o f r el at iv e p ri ce c ha ng e, a ug me n te d f or i nc om e a nd t ra de b al an c e e ff ec ts , w er e

e st im at ed f or a nn ua l d at a f or t he p er io d 1 97 0– 19 98 .10 T he e st i ma te d i nd i ce s i nd ic at e

r e la t iv e l y h i gh s u bs t it u t ab i li t y b e tw e en n o n- t r ad e ab l es a n d i m po r ta b l es , a n d a s e x pe c t ed

h ig he r s ub st it ut ab il it y i n t he l on g r un ( 0. 87 c om pa re d w it h 0 .7 7 i n t he s ho rt r un f or

a g gr e ga t e e x po r ts ) . A l so i n l i ne w i th t h e v a lu e s f o un d f o r o t he r d e ve l o pi n g c o un t ri e s, t h e

i nd ex i s h ig he r w he n t ra di ti on al r at he r n on -t ra di ti on al e xp or ta bl es a re u se d i n t he

r e g r e s si o n m o d e l .

A p p l y i n g t h e a l t e r n a t i v e m e a s u r e s o f n o m i n a l p r o t e c t i o n a n d e s t i m a t e s o f t h e i n c i d e n c e

parameter to Eq. (6), we can derive a number of alternative estimates of true export

t a x a t i o n f o r M a l a w i . T h e s e a r e r e p o r t e d i n T a b l e 1 f o r t h e s a m e p e r i o d s o r p o l i c y e p i s o d e s

d is cu ss ed e ar li er. F or e ac h p er io d, s ho rt a nd l on g- ru n m ea su re s a re r ep or te d f or

e xp or t ab le s a s a w ho le a nd s ep ar a te ly f or t ra di ti o na l a nd n on -t ra di ti on a l e xp or t ab le s,

both for the full and partial transmission cases.11

10 T h e i n di r ec t m e th o d o f i n fe r ri n g t h e s u bs t it u ti o na l r e la t io n sh i p f r om r e ve a le d a d ju s tm e nt o ve r t i me i n t h e

r e l a ti v e p r i ce s o f n o n -t r a de a b le s ( P N / P X ) t o c ha ng es i n t h e r e l a ti v e p r ic e o f t r ad e a bles ( P M / P X ) i s c o mm o nl y

u s ed i n t h e t r ue p r ot e ct i on o r i n ci d en c e l i te r at u re ( s ee G r e e na w a y a n d M i l n er , 1 9 9 3). T h e e s ti m at e d t i me s e ri e s

e q ua t io n s a r e a v ai l ab l e f r om t h e a u th o rs o n r e qu e st .

11 T i m e s e r i e s i n f o r m a t i o n o n t h e p r i c e s o f i m p o r t s a n d i m p o r t - c o m p e t i n g g o o d s a n d o n t h e p r i c e s o f e x p o r t s a n dl o c a l l y c o n s u m e d e x p o r t a b l e s w e r e u s e d t o e s t i m a t e t r a n s m i s s i o n c o e f f i c i e n t s . ( R e g r e s s i o n e s t i m a t e s a r e a v a i l a b l e

f r o m t h e a u t h o r s ) . T h e s h o r t - a n d l o n g - r u n e s t i m a t e s f o r e x p o r t a b l e s w e r e 0 . 7 2 a n d 0 . 7 9 , a n d f o r i m p o r t a b l e s , t h e

e s ti m at e s w e re 0 . 65 a n d 0 . 82 .




F i r s t l y , i t s h o u l d b e n o t e d t h a t p o s i t i v e t r u e e x p o r t t a x a t i o n i s c o n s i s t e n t l y f o u n d f o r a l l

m e a s u r e s a n d a l l t i m e p e r i o d s , w i t h t h e h i g h e s t v a l u e s c o n s i s t e n t l y f o u n d f o r t h e e n d o f t h e

r e st r ic t iv e t r ad e p o li c y e p is o d e ( 1 98 3 –8 6 ). S e co n dl y, a n d a s e x pe c te d , t r ue t a xa t io n r a te s

a re a lw a ys h ig he r f or a p ar ti cu la r c a te go ry o f m ea su re f or t he f ul l p ri ce t ra ns mi s si on c as e

t ha n t he p ar ti al t ra ns mi ss io n c as e, f or t he l on g r un t ha n t he c or re sp on di ng s ho rt -r un

m e as u re a n d f o r t r ad i ti o n al r a th e r t h an n o n- t r ad i ti o na l e x po r ta b le s . T h ir d l y, w e f i nd t h at

t he l on g- ru n r at e o f t ru e e xp or t t ax at i on i s c on si s te nt ly h ig he r t ha n t he c or re s po nd in g

n o mi n al r a te o f e x po r t t a xa t i on .

I t i s e v i d e n t f r o m F i g . 3 t h at t he m ov em en ts i n t he t ru e r at es o f t ax at i on f or t ra di ti on al

a n d n o n - t r a d i t i o n a l e x p o r t a b l e s a r e c l o s e l y ( p o s i t i v e l y ) c o r r e l a t e d . I t i s e v i d e n t a l s o t h a t t h e

i nc re as e i n t ru e t ax at io n a ft er 1 97 8 w as s ha rp a nd s us ta in ed . B y c on tr a st , t he e as in g o f

t ax at io n a ft er 1 98 6 i s l es s m ar ke d a nd m or e g ra du al , w it h s om e e vi de nc e o f r ev er sa l a ft er

1993/94.

B ef or e t ur ni n g t o i nv es t ig at e t he i mp ac t o f t ru e e xp or t t ax at io n o n e xp or t s up pl y, w e

c an c o ns id er t he r el at iv e i mp or ta n ce o f a lt er na ti v e s ou rc e o f e x po rt t ax at io n o n t he dtrueT

r at e o f t ax at io n . I n Ta b le 2, w e s h o w w h a t t h e l o n g - r u n t r u e r a t e s w o u l d b e i f a p a r t i c u l a r

0

10

20

30

40

50

60

70

80

90

100

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98

P e r c e n t

Traditional exportables Non-Traditional exportables

F i g. 3 . L o ng - ru n r a te s o f t r ue e x po r t t a xa t io n : 1 97 0 –1 99 8 .

Ta b l e 1

P e rc e nt a ge r a te s o f t r ue e x po r t t a xa t io n f o r M a la w i

1970–79 1980–82 1983–86 1987–98

SR a LR a SR LR SR LR SR LR

Full transmission

All exportables 40 42 62 63 76 78 70 72

Traditional exportables 43 47 68 68 80 83 74 77

Non-traditional exportables 23 24 46 48 60 62 47 48

Partial transmission

All exportables 25 38 44 57 59 71 49 65

Traditional exportables 25 40 45 61 60 76 49 69

Non-traditional exportables 16 21 36 43 50 57 36 44

a

S R —s h or t r u n, a n d L R —l o ng r u n.




s o u r c e o f e x p o r t t a x a t i o n w e r e e l i m i n a t e d . I t i s e v i d e n t t h a t b y t h e p e r i o d 1 9 8 7 – 9 8 , i m p o r t

t ra de b ar ri er s, e sp ec ia lly Q Rs , w er e a r el at iv el y s ma ll s ou rc e o f e xp or t t ax at io n;

e li mi na ti ng i mp or t t ar if fs l ow er s t he t ru e t ax r at e f ro m 7 7% t o 7 1% a nd e li mi na ti ng

Q R s f r om 7 7 % t o 7 6 %. B y c o n tr a st , e l im i n at i ng i m pl i ci t e x po r t t a xe s w o ul d s u bs t an t i al l y

l ow er t ru e t ax at i on o f t ra di ti o na l e xp or t s ( 77 % t o 5 2% ), w hi le e li mi na t in g o nl y i mp or t

t r an s p or t c o st s o n ( t he m o re i n te r me d i at e i m po r t i n te n s iv e ) n o n -t r ad i t io n al e x po r t s e ct o r

w ou ld l ow er t ru e t ax at io n f ro m 4 8% t o 2 2% .12

5. Estimation of the export supply function

T he e xp or t s up pl y f un ct io n ( Eq . ( 1) ) w as e st im at ed u si ng 1 97 0 –1 99 8 a n nu al d at a f or

M al aw i. D at a d ef in it io ns a nd s ou rc es f or t his s ta ge o f e mp ir ic al w or k a re s et o ut i n

A p pe n d ix B. E co n om et ri c a na ly s is o f t he e xp o rt s up pl y f un ct io n s i nv ol v ed a n u mb er o f

n ow -s ta n da rd p ro ce du r es . T he se i nc lu de d e xa mi na ti o n o f t he o rd er o f i nt e gr at io n o f t he

d a ta t i me s e ri e s t o i n fo r m a p pr o pr i a te m o de l li n g t e ch n iq u e s. A u gm e n te d D i ck e y –F u ll e r

u n i t r o o t t e s t s w e r e u s e d t o t e s t t h e o r d e r o f i n t e g r a t i o n a n d t h e r e s u l t s s h o w n i n T a b l e A 3 . 1

in A p p e n d i x C (from M i c ro f i t 4 . 0 ) i n d i c a t e t h a t t h e s e r i e s a r e i n t e g r a t e d o r d e r 1 , I ( 1 ) . T h e

r es ul t t ha t t he d at a s er ie s c on ta i n u ni t r oo ts n ec es s it at es a na ly s in g w he t he r t he t re nd s

d r i v i n g t h e u n i t r o o t s e r i e s a r e l i n k e d , t h a t i s , w h e t h e r t h e i n d i v i d u a l e x p o r t s u p p l y m o d e l s

are cointegrated .To t es t f or t he p re se nc e o f c oi nt eg ra ti ng r el at io ns hi ps , w e u se d t he m ul ti va ri at e

m a x i m u m l i k e l i h o o d r e g r e s s i o n m e t h o d o l o g y a d v a n c e d b y J o h a n se n ( 1 9 8 8 ) and Johansen

a n d J u s e l i u s ( 1 9 9 2 ) . T h e J o h a n s e n m e t h o d o l o g y u s e s t h e V A R w h i c h i s a r e p r e s e n t a t i o n o f

a l a r g e c l a s s o f d y n a m i c s t r u c t u r a l m o d e l s ( H a m i l t o n , 1 9 9 4) . T h i s b e i n g t h e c a s e , i t c a n b e

u se d t o i nv es ti ga te t he l on g- ru n a nd s ho rt -r un d yn am ic s ( th ro ug h a n e rr or c or re ct io n

m od el , t he E CM ). H er e, w e r ep or t t he s te ps t ak en a nd r es ul ts o bt ai ne d i n a pp ly in g t he

methodology.

12 Note that our estimates of true export taxation do not include any direct transport costs on exports for data

r e a s on s . A l t h o u g h i n d i r e ct e f f ec t s v i a t r a ns a c t io n c o s t s o n i m p o rt e d i n t e r m e di a t e s a r e c a p tu r e d, i t m a y w e l l m e a n

t h at w e a r e u n de r es t im a ti n g t h e e f fe c ts o f t r an s po r t c o st s o n t r ue e x po r t t a xa t io n .

Ta b l e 2

I m p a c t o f e l i m i n a t i n g s o u r c e s o f i m p o r t a n d e x p o r t t a x a t i o n o n l o n g - r u n r a t e o f t r u e e x p o r t t a x a t i o n ( 1 9 8 7 – 1 9 9 8 ) a

Traditional

e x p or t s ( % )

Non-traditional

e x p or t s ( % )

Actual rate 77 48

H y p o th e t i ca l r a t es w i t h r e m o v a l o f :

Implicit export taxes 52 48

I m po r t t a ri f fs (t ) 71 36

Quantitative import restrictions 76 47

Import transport costs 64 22

a C o r r es p o nd s t o t h e f u l l t r a n s m i s si o n i n f or m a t io n i n Ta b l e 1.




A s a s ta rt in g p oi nt , w e e st ab li sh ed t he l ag l en gt h o f t he VA R u si ng t he s ta nd ar d

m o de l s e le c ti o n A k ai k e I n fo r m at i on c r it e ri o n ( A IC ) , S c hw a rz B a ye s ia n c r it e ri o n ( S B C)

a nd t he H an na n– Qu in n c ri te ri on ( HQ C) . A IC , S BC a nd H QC v al ue s e st im at ed u si ng

Microfit 4.0 t en d t o p oi nt t o a l ag l en gt h (k ) o f t he VA R o f b et we en o rd er s 1 a nd 2 a s

t he b es t r ep re s en ta ti on o f t he d at a. A h ig he r VA R o f o rd er 2 ( co ns is te n tl y f av ou r ed b y

A IC ) i s o pt ed f or t o l im it p os si bl e s er ia l c or re la ti on o f t he r es id ua ls f ro m a l ow er

o r d e r VA R .

T he n ex t t as k w as to t es t f or c oi nt eg ra ti on b as ed o n t he m a x i m al e i ge n v al u e and

t r ac e s t at i st i cs o f t he s to ch as ti c m at ri x f ro m t he J oh an se n r ed u ce d r a nk regressions;

r e su l ts ( f ro m P cF im l v er si on 9 ) are reported in Table A3.2 in Append ix C. On the

bases of both these statistics, the null of no cointegration (r = 0 ) i s r ej ec te d b ut t ha t o f a

s in gl e c oi nt e gr at in g v ec to r (r = 1 ) c an no t b e r ej ec te d a t 5 % s ig ni fi ca nc e l ev el i n b ot h

m o de l s. T h us , t h er e e x is t s o n ly o n e s t at i st i ca l l y s i gn i f ic a nt c o in t eg r at i n g r e la t i on a m on gt he f ou r v ar ia bl es i n t he t ra di ti on al e xp or t s up pl y a nd n on -t ra di ti on al e xp or t s up pl y

models.

We a l so a n al y s ed we a k e x o g e ne i t y ; t he t es t r es ul ts a re s ho wn i n Ta bl e A 3. 3. T he n ul l

h y po t he s is o f w e ak e x og e ne i t y i s r e je c te d f o r t h e d e pe n de n t v a ri a bl e ( e xp o r t v o lu m e ) b u t

c an no t b e r ej ec t ed f or a ll t he e xp la n at or y v ar ia b le s i n b ot h m od el s a t t he 5 % s ig ni fi c an ce

l ev el. T hi s s ho ws t ha t e xp or t v ol um e i s e xp la in ed w it hi n t he s ys te ms b ut t ha t t he

e x p l a na t o r y v a r i ab l e s a r e dw e a k l y e x o g e no u sT t o t h e d e te r m in a ti o n o f t h e l o n g - ru n e x po r t

s u p p l y r e l a t io n s h i p .13

O n t he b as es o f e vi de n ce o f t he e xi st en c e o f a s in gl e c oi nt e gr at i ng v ec to r a nd dweak

exogeneityT o f t he r ig ht -h an d s id e v ar ia bl es in t he m od el s, w e e st im at ed t he s in gl ee q ua t io n a u to - r eg r es s iv e d i st r ib u t iv e f u nc t io n s o f t r ad i t io n al a n d n o n- t ra d it i on a l e x po r t

s u pp l y c o nd i ti o ne d o n t h e e x og e no u s v a ri a b le s . T h e a u to - re g re s s iv e d i st r ib u t iv e f u nc t io n

i s p a r t i c u l a r l y a t t r a c t i v e a s i t a v o i d s t h e f i n i t e s a m p l e b i a s s u f f e r e d b y s t a t i c e s t i m a t o r s a n d

i s m or e e ff ic ie nt t ha n VA R m et ho ds i n s ma ll s am pl es l ik e o ur s h er e (I n de r, 1 9 93). The

l on g- ru n e xp or t s up pl y m od el s a re r ep or te d i n Ta b le 3 .14

T h e e l a s t i c i t y o f e x p o r t s u p p l y w i t h r e s p e c t t o t h e v a r i o u s e x p l a n a t o r y v a r i a b l e s h a s t h e

e xp ec te d s ig ns . T he e la st ic it ie s w it h r es pe ct t o t ru e e xp or t t ax at io n a re s ta ti st ic al ly

s ig ni fi ca nt w it h 1 % i nc re as e i n t ru e e xp or t t ax at io n r at e d ec re as in g t he v ol um e o f

t r ad i ti o na l e x po r ts s u pp l ie d b y 0 . 6 5% a n d n o n- t ra d it i o na l b y 0 . 54 % .

A n e r ro r c o rr e ct i o n m e c h an i sm ( E C M) f r om t h e e q u i l ib r iu m m o de l w a s u s e d t o m o de lt h e s h o r t - r u n d y n a m i c s . T h e d y n a m i c m o d e l e s t i m a t i o n r e s u l t s a r e r e p o r t e d i n T a b l e 4 . The

proportions of explained variation are reasonably high (nearly 70%). The models pass the

13 O t h e r t e s ti n g ( G r a ng e r -c a u sa l i t y a n d G r a n ge r b l o ck - c a us a l it y t e s t s) a c t ua l l y i n d ic a t es dstrong exogeneity.T

T he s e r e su l ts a r e a v ai l ab l e f r om t h e a u th o rs o n r e qu e st .14 E s t im a t e s u s i n g VA R m e t h od s ( i . e . , t h e c o i n t e gr a t i ng v e c t or s ) a r e r e p or t e d i n Ta b l e A 3 . 4 i n A p p e n d i x C . T h e

r e su l ts l e ad t o g e ne r al c o nc l us i on s ( e .g . , w i th r e sp e ct t o e x pe c te d s i gn s ) t h at a r e c o ns i st e nt w i th t h os e r e ac h ed

u s in g r e su l ts f r om t h e s i ng l e e q ua t io n m e th o do l og y. T h e e s ti m at e s o f e x po r t s u pp l y e l as t ic i ti e s w i th r e sp e ct t o production capacity and real effective exchange rate from the single equation method are more consistent with

t ho se f ou nd i n t he l it er at ur e. We u se t he se t he re fo re f or t he s ub se qu en t a na ly si s, t ho ug h t he q ua li ta ti ve

i m pl i ca t io n s o f t h e a n al y si s a r e n o t d e pe n de n t o n t h e u s e o f t h e s i ng l e e q ua t io n m e th o do lo g y.




u su al d ia gn o st i c t es ts . T he t es t s s ho w t ha t w e c an no t r ej ec t t he n ul l h yp ot he s es o f ( a) n o

a ut oc or re la ti on i n t he r es id ua ls u si ng r es ul ts f ro m t he L ag ra ng e M ul ti pl ie r ( AR (lags

1 k )) F - st a ti st ic t es t f or a ut oc o rr el a te d r es id ua ls ; ( b) n o a ut o- re gr es s iv e c on di t io na l

h et er os ce da st ic it y ( AR CH ) i n t he d is tu rb an ce s u si ng t he A RC H F - s ta t is t i c, W h it e

h e te r o sc e da s t ic i ty t e st s u s in g s q ua r e s ( t o t e st t h e n u ll o f u n co n di t io n al h o mo s c ed a st i ci t y )

a n d u s i ng c r o ss - pr o du c t s ( t o t e st f o r h e te r os c ed a s ti c r e si d ua l s ); ( c ) n o rm a li t y ( s ke w ne s s

a n d k u r t o s i s ) o f t h e r e s i d u a l s o n t h e b a s i s o f t h e J a r q u e – B e r a N o r m a l i t y ChiSQ t e s t r e s u l t s ,

Ta b l e 4

S h o rt - r u n ( d y n a m i c) e x p or t s u p pl y m o d e ls

Traditional exports N on-traditional exports

Coefficient (S. E.) C oefficient (S.E. )

ECM(t 1) 0 . 5 3 ( 0 . 1 7) * * * 0 . 9 2 ( 0 . 1 9) * * *

DlnTXj (t 1) 0 . 5 7 ( 0 . 2 2) * * * 0 . 4 6 ( 0 . 1 7) * * *

Dln K (t 1) 0.96 (0.35)*** 0.92 (0.47)**

DlnReer t 0 . 7 5 ( 0 . 3 1) * * *

DlnReer (t 1) 0 . 5 3 ( 0 . 2 5) * * *

R2 = 0 . 68 ; s a mp l e = 1 9 73 – 19 9 8 R2 = 0 . 69 ; s a mp l e = 1 9 74 – 19 9 8

A R 1 –2 F (2,20) = 0.86 [0. 54] A R 1–2 F ( 2 ,2 0 ) = 1 . 24 [ 0 .4 1 ]

A R C H 1 F (1, 20) = 0.30 [0.58] A RCH 1 F ( 1 ,2 0 ) = 0 . 01 [ 0 .9 6 ]

Normality v2 = 0.71 [0.70] N ormality v2 = 2 . 42 [ 0 .3 0 ]

X i2 F ( 8 ,1 3 ) = 0 . 65 [ 0 .7 3 ] X i

2 F ( 8 , 11 ) = 0 . 2 0 [ 0 . 9 8]

X i X j F ( 1 4, 7 ) = 0 . 58 [ 0 .8 2] X i X j F ( 1 4, 5 ) = 0 . 22 [ 0 .9 9 ]

RESET F (1,21) = 0.91 [0.35] R ESET F ( 1 ,1 9) = 1 . 40 [ 0 .2 5 ]

AR — F - s t a ti s t i c f r o m t h e L a g ra n g e- m u l ti p l ie r ( L M ) t e s t f o r a u t oc o r r el a t ed r e s id u a l s ( A R ) . T h e n u l l h y p o t h e si s i sn o a ut oc or r el at io n; t hi s i s r ej ec te d i f t he t es t s ta ti st i c i s t oo h ig h. A R CH —a ut or eg re ss i ve c on di ti on al

h e te r os c ed a st i ci t y ( A RC H ) i s a n L M t e st f o r a u to c or r el a te d s q ua r ed r e si d ua l s. D denotes df i r s t d i f fe r e n ceT

o p er a to r ; * * a n d * * * d e n o te s t at i st i ca l s i gn i fi c an c e a t 5 a n d 1 % , r e sp e ct i ve ly ; v a lu e s i n [!] a r e p -values.

Ta b l e 3

S o l ve d l o n g- r u n e x p or t s u p pl y m o d el s

Traditional exports N on-traditional exports

Coefficient (S.E.) C oefficient (S.E.)

Constant 0.01 (1.95) 1.78 (3.53)

lnT jt 0 . 6 5 ( 0 . 1 7) * * * 0 . 5 4 ( 0 . 1 4) * * *

ln K t 1.22 (0.24)*** 1.02 (0.35)***

lnReer t 0.70 (0.28)** 0.85 (0.40)**

R2 = 0 . 92 ; s a mp l e = 2 9 ( 1 97 0 –1 9 98 ) R2 = 0 . 90 ; s a mp l e = 2 5 ( 1 97 4 –1 99 8)

ECM: (1971–1998) ECM: (1971–1998)

A D F ( 0) , w i t h i n t er c e p t, t a u s t at . = 6 .8 34 9* * A DF (0 ) w it h i nt er ce pt , t a u s t at = 6.7580**

E C M A D F : 9 5 % = 4.9527 ECM AD F: 95% = 4.9527

T jt —true export taxation of traditional exports ( j = TX ) a n d n o n- t ra d it i on a l e x po r ts ( j = NX ), K —production

c a pa c it y p r ox i ed b y a n i n de x o f a g ri c ul t ur e o u tp u t; R e er — re a l e f fe c ti v e e x ch a ng e r a te a s a p r ox y o f e x te r na lr e l a ti v e p r i c e s ; * * a n d * * * d e n ot e s t a t is t i c al s i g ni f i c an c e a t 5 a n d 1 % , r e s pe c t i ve l y ; E C M ’s t a u s t a t is t i c s a r e f o r

u n i t r o o t t e s t s i n t h e r e s id u a l s. S t a ti s t i ca l s i g ni f i c an c e o f t a u s t a t . i m p l i e s r e j e c t i o n o f t h e n u l l o f n o c o i n t e g r a t i o n

i n t h e m o de l s.




a nd ( d) n o m is sp ec i fi ca ti on o f t he m od el s o n t he b as is o f t he R am se y R ES ET F -statistic

t e s t r e s u l ts .

T h e e s ti m a te d c o ef f ic i en t s a r e q u al i t at i ve l y s i mi l a r t o t h os e i n Ta b le 3, a nd a ga in a re

c o ns i st e nt w i th t h e h y po t he s is e d r e la t io n s hi p s. A s o n e m i g ht e x pe c t , s h or t -r u n e l as t ic i t ie s

a re l ow er t ha n t he c or re s po nd in g l on g- r un v al ue s , e xp or t s up pl y r es po nd in g l es s i n t he

s ho rt t er m t o g iv en c ha ng es i n e xp or t t ax at io n, t he r ea l e xc ha ng e r at e a nd p ro du ct iv e

c a p a c i t y . N o t e a l s o t h a t t h e c o e f f i c i e n t o n t h e e r r o r c o r r e c t i o n t e r m ( E C M ) i s h i g h e r i n t h e

c a se o f n o n- t r ad i ti o na l e x po r ts . O n e w o ul d e x pe c t n o n- t ra d it i o na l e x po r t s t o a d ju s t m o re

q u ic k ly t o l o ng - r un e q ui l i br i um .

6. Export supply response to lowering alternative trade costs

A rm ed w it h e st im at ed e xp or t s up pl y f un ct io ns a nd i nf or ma ti on a bo ut t he r el at iv e

i mp or ta nc e o f t ra de p ol ic y a nd o th er s ou rc es o f e xp or t t ax at io n, w e c an e xp lo re t he i n

a nd o ut o f s am pl e p er io d e xp or t s up pl y r es po ns es t o dassumedT c h an g es i n a l te r na t iv e

e le me nt s o f t ra de c os ts ( fo r c on ve ni en ce a do pt in g a dh ol di ng o th er t hi ng s c on st an t T

methodology).

6 . 1. C o mm o n p e rc e nt a g e r ed u ct i on s i n t r ad e c o st s ( i n- s a mp l e)

T he f ir st e xp e ri me nt i s t o i ll us t ra te i n t ur n t he e xp or t r es po n se f or t he i n- sa mp l e p er io d

f or a 1 0% r ed uc t io n only i n e a c h s o u r c e o f t r ue e x po r t t a xa t i on ( i mp o rt t a ri f f s, n o n- t a ri f f i mp or t b ar ri er s, i mp li c it e xp or t t ax es a nd n at ur al b ar ri er s) . We u se t he c oe ff ic ie nt o n t he

i n d e x o f t r u e e x p o r t t a x a t i o n f r o m t h e e s t i m a t e d l o n g - r u n s u p p l y m o d e l s (T a b l e 3 ) , h o l d i n g

t h e o t h e r v a r i a b l e s c o n s t a n t . T h e r e s u l t s f o r t h i s s i m u l a t i o n a r e r e p o r t e d i n T a b l e 5, p a r t ( a )

f or t ra di ti on al e xp or ts a nd p ar t ( b) f or n on -t ra di ti on al e xp or ts . N ot e t ha t a c om mo n

percentage reduction implies differential absolute reductions in the particular element of

Ta b l e 5

H y p ot h e t ic a l e x p or t r e s p on s e s t o 1 0 % r e d uc t i on i n a l t er n a t iv e t r a d e c o s t s

P e r ce n t ag e i n c r ea s e w i t h r e d uc t i on i n :

Import tariffs only N TBs only Natural barriers only Export taxes A ll trade costs

a ) T ra d i t i o na l e x p o r ts

1970–79 0.9 0.2 1.1 2.9 5.3

1980–82 0.9 0.2 0.9 1.6 3.8

1983–86 0.5 0.1 0.5 1.4 2.8

1987–98 0.4 0.1 0.8 2.2 3.7

b ) N o n - t ra d i t i on a l e x p o r ts

1970–79 1.9 0.4 2.2 0.0 4.61980–82 1.5 0.3 1.6 0.0 3.5

1983–86 1.1 0.3 1.1 0.0 2.7

1987–98 1.1 0.2 2.0 0.0 3.4




t ra de c os ts . T he dsimulatedT p e rc en ta ge c ha ng es i n e xp or t s up pl y a re r ep or te d f or t he

policy episodes discussed earlier.

B y c on si de ri n g a c om m on r ed uc t io n, w e a re a bl e t o i nd ic a te w he r e g re at er m ar gi na l

e ff or t m ig ht h av e b ee n p la ce d b y t he g ov er nm en t o f M al aw i ( an d th e m ul ti la ter al

a ge nc ie s) i n o rd er t o i nc re as e e xp or t s up pl y. I n t he c as e o f t ra di ti on al e xp ort s, t he

l ar ge st s im ul at ed i nc re as es i n e xp or t s up pl y a ri se f ro m a g iv en l ow er in g i n i mp li ci t

e xp or t t ax at io n, w hi le f or n on -t ra di ti on a l, i t i s n at ur al b ar ri e rs r ed uc ti on s w h ic h e xe rt

t he g re at er l ev er ag e. N ot e a ls o th at t he e xp ort s up pl y r es po ns e t o th e i mp or t t ar if f

l ib er al i sa ti on d oe s n ot e xc ee d t ha t o f t he r ed uc ti on o f n at ur al b ar ri er s i n a ny o f t he s ub -

periods. Of course this does not mean that one can advocate one form of trade cost

r ed uc t io n o ve r a no th e r, g iv en t ha t t he re m ay b e d if fe re nt i al i mp le m en ta ti on c os ts a nd

d if fe re nt ia l w el fa re a nd o th er c os ts a nd b en ef it s a ss oc ia te d w it h t he l ow er in g o f e ac h

s ou rc e o f t ra de c os t. I nd ee d, o ne m ay w el l w is h t o u se a ll f or ms o f t ra de c os t r ed uc ti ont o p ro mo te e xp or ts . O ne s ho ul d n ot e f ro m Ta bl e 5 t h at t he s im ul t an eo us r ed uc t io n o f

a ll t ra de c o st s p ro du ce s g re at e r r ed uc t io n i n t ru e t ax at io n a nd i nc re as e i n e xp o rt s up pl y

t ha n i s e vi de nt f ro m t he s im pl e a dd it io n o f e ac h o f t he c om po ne nt r ed uc ti on s. T hi s

a r is e s b e ca u se p o li c y a n d n a tu r al b a rr i er s i n t h is i n st i t ut i on a l s e tt i ng h a ve m u lt i pl i ca t i ve

e ff ec ts o n t ot al t ra de c os ts .

A n a l t e r n a t i v e w a y o f i l l u s t r a t i n g t h e r e l a t i v e i m p o r t a n c e o f a l t e r n a t i v e s o u r c e s o f t r a d e

c os ts i s t o c on si de r t he f ol lo wi ng t ho ug ht e xp er im en t: w ha t w ou ld h av e h ap pe ne d t o

e x p o r t s u p p l y i f e a c h o f t h e p o l i c y s o u r c e s o f t r a d e c o s t s h a d b e e n e l i m i n a t e d a f t e r t h e s t a r t

o f t he l ib er al is at i on p er io d i n 1 98 7 ( as su m in g e ve ry t hi ng e ls e c on st an t) , a nd h o w w ou ld

t hi s h av e m at ch ed u p t o a 7 5% r ed uc ti on i n n at ur a l b ar ri er s.T h e e l im i n at i on o f i m pl i c it e x p or t t a xe s w o ul d ( h yp o th e ti c al l y ) h a ve g e ne r at e d a 2 6 %

i nc re a se i n t ra di ti o na l e xp or t s up pl y, c om pa r ed w it h a 5 % i nc re a se f ro m t he e li mi n at io n

o f i mp or t t ar iff s a nd a n 8 % i nc re as e a ss oc ia te d w it h t he p ar ti al r em ov al o f n at ur al

barri ers. For non-t raditi onal expor ts, the import ant (hypo theti cal) expor t supply

r e sp o n se s a r e a s so c i at e d w i th i m p or t t a ri f f e l im i n at i on ( a bo u t 1 5 % i n cr e as e ) a n d n a tu r a l

barrier reduction (24% increase approximately). The story is clear, even for our

i nc om p le te c ap tu r in g o f n a tu ra l b ar ri e rs , i t i s e v id en t t ha t f or a l an dl oc ke d c ou nt ry, l ik e

M al a wi , n at ur a l b ar ri er s h av e b ee n o ve ra ll a m or e i mp o rt an t c on st ra in t o n e xp or t s up pl y

t ha n b or de r i mp o rt t ax es .

Ta b l e 6

dPredictedT o u t o f s a mp l e e x po r t s u pp l y e f fe c ts o f a c tu a l c h an g es i n t r ad e c o st s ( 1 99 8 –2 00 1)

Trade Cost C hange (% ) Percentage changes in:

Tra di ti onal ex por ts N on- tr ad it iona l ex po rt s

Import tariffs Fall: 29. 8 to 11.1 5. 2 14

NTBs Increase: 0.9 to 1.8 1 2.3 Natural barriers Fall: 54.6 to 11.2 8.5 25.2

Export taxation Fall: 58. 5 to 19.8 24.3 0

All trade costs 55.5 45.5




6 . 2. O u t o f s a mp l e s i mu l a ti o ns

F in al ly, w e c on si de r t he d predictedT o ut o f s am pl e i mp ac t o f t he a ct ua l c ha ng es i n

t ra de c os ts t ha t o cc ur r ed b et we en 1 99 8 a nd 2 001 o n e xp or t s up pl y ( ag ai n h ol di ng o th er

t hi ng s c on s ta nt ). T he se a re r ep or t ed i n Ta bl e 6, w hi ch a ls o r ec or ds t he c ha ng es i n t he

n om in al r at es o f e ac h s ou rc e o f t ra de c os t. T he p re di ct ed p er ce nt ag e c ha ng e i n e xp or t

s up pl y i s s ho wn f or e ac h t ra de c os t c om po ne nt s ep ar at el y, a nd f or t he c om bi ne d o r

o ve ra ll c ha n ge i n t ra de c os ts . T he c ha ng es i n i mp o rt p o li cy b ar ri er s w er e m or e m od es t

t ha n fo r n at ur al b ar ri er s a nd e xp or t t ax at io n, a nd a s a r es ul t, i t is t he c ha ng e i n t he

l at te r ( 58 .5 % t o 1 9. 8% ) w hi ch i s p re di ct ed t o h av e t he g re at es t i mp ac t o n t ra di ti on al

e xp or t s up pl y ( + 2 4% ) a nd t he f al l i n n at ur al b ar ri er s ( 54 .6 % t o 11 .2 %) w hi ch i mp ac ts

m os t o n n on -t ra di ti on al e xp or t s up pl y ( + 2 5% ). O ve ra ll , t he re w as a l ar ge d ec li ne i n

n om in al t ra de c os ts a nd i n tr ue e xp or t t ax at io n r at es , w hi ch dshouldT

h a ve b ro ug ht a bo ut l ar ge i nc re a se s i n e xp o rt s up pl y ; o ve r 5 5% f or t ra di ti o na l a nd o ve r 4 5% f or n on -

t ra di ti on al . T he p re di ct ed i nc re a se s a re s ub st a nt ia ll y i n e xc es s o f t he a ct ua l i nc re as es i n

M al aw i’s e xp or ts i n t hi s p er io d, w hi ch w er e s ub je ct a mo ng o th er t hi ng s t o t he e ff ec ts

o f d ro ug ht . N ot e, i n a ny c as e, t ha t a ct ua l e xp or ts w il l b e i nf lu en ce d a ls o b y e xt er na l

d e m a n d c o n d i ti o n s .

7. Conclusions

This paper has integrate d policy-in duced and other trade costs into a singlef ra me wo rk , i n o rd er t o e xa mi ne b ot h t he r el at iv e i mp or ta nc e o f p ol ic y an d n at ur al

s ou rc es o f t ru e e xp or t t ax at io n a nd t he i mp ac t o f b ot h s ou rc es o f e xp or t t ax at io n o n

r el at iv e i nc en t iv es d om es ti c al ly t o s up pl y ( tr ad it io na l a nd n on -t ra di t io na l) e x po rt s. I t

h as a pp li ed t he f ra me wo rk t o M al aw i o ve r t he p er io d 1 97 0– 98 ; a p er io d o ve r w hi ch

t hi s l an dl o ck ed , d ev el o pi ng c ou nt ry i n A fr ic a e xp er i en ce d m ar k ed c ha ng es i n b ot h i ts

t ra de p o li cy r eg im e a nd i n t he n at ur e o f t ra de c os ts a ss oc ia te d w it h t ra ns p or ti ng g oo ds

i n a nd o ut o f t he c ou nt ry. T he e vi de nc e s ho ws t ha t, f or n on -t ra di ti on al e xp ort s i n

particular, international transport costs have been a major source of true export

t ax at io n , a nd t he e xp o rt s up pl y r es po n se i s s en si t iv e t o t ra de c os t- i nd uc e d c ha n ge s i n

true export taxation. It is clearly important in eco nomies like Mala wi to seek toi n c r e a s e t h e e f f e c t i v e n e s s o f t r a d e p o l i c y r e f o r m t h r o u g h t h e a d o p t i o n o f

compleme ntary meas ures to reduce other trade costs . It is also eviden t that it is

i mp or ta nt t ha t b ot h i nt er na l a nd e xt er na l r ea l e xc ha ng e r at e e ff ec ts a re i nc or po ra te d

i nt o e xp or t s up pl y f un ct io ns , i n p ar ti cu la r, w he re p ol ic y a nd o th er t ra de c os ts c au se

m ar ke d v ar ia ti on s b et we en m ov em en ts i n t he r el at iv e i nt er na l a nd e xt er na l p ri ce s o f

t r ad e ab l e g o od s .

Acknowledgement

T h e a u t h o r s a r e g r a t e f u l t o t h e e d i t o r a n d a r e f e r e e f o r v e r y h e l p f u l c o m m e n t s o n e a r l i e r

d ra ft s o f t he p ap e r.




Appendix A. Nominal rate of trade taxation and sources of information

T he v al ue s f or t he r at es o f t ax at io n— ex pl ic it (t e) , i mp li ci t (t i) and dnaturalT (t n) for

e x po r t ab l es ( X ) a nd i mp or ta b le s ( M ) o ve r t he p er io d 1 97 0– 98 t ak en f ro m :

A n nu a l t r ad e c o st v a lu e s

t M e Nominal tariff rate. Sources: S t a t em e n t o f E x t e rn a l T ra d e (Malawi Government, 1970–1999c);

International Financial Statistics ( I M F, v a r io u s i s s u es ) .

t M i Nominal tariff equivalent rate. Source: A f r i c a n D e v e lo p m e n t I n d i c a to r s ( W or l d B a n k , v a r i ou s i s s u es ) .

t M n Nominal rate of import protection due to dnaturalT b a rr i e r s p r o x i e d b y u n i t i m p o r t e x t er n a l

t r a ns p o r t c o s ts . S o u rc e s : S t a te m e n t o f E x t e rn a l T ra d e (Malawi Government, 1970–1999c);

International Financial Statistics ( I M F, v a r io u s i s s u es ) .

t X e Nominal export tax rate.

t X i I m pl i ci t e x po r t t a x r a te ( t he r a ti o o f t h e d i ff e re n ce b e tw e en t h e w o rl d a n d d o me s ti c p r ic e r e la t iv e t o

t h e w o r l d p r i c e o f r e l e va n t c o m m od i t ie s ) . S o u rc e : F i n a nc i al a n d E c o no m ic R e vi e w ( R e s er v e B a nk o f

M a l a wi , 1 9 7 0– 1 9 99 ) , a n d I n t e r n a ti o n a l F i n a n c ia l S t a t i st i c s (IMF, various).

Year t M e t M

i t M n t M

e t M n

P M

P X = t X

i

1970 9. 5 2.2 15.6 1.5 28. 8 33.7

1971 11. 7 5.9 15.6 1.8 35. 0 22.3

1972 14.4 3.4 13.8 2.0 33. 6 32.3

1973 10.0 4.1 13.8 1.4 29. 2 24.7

1974 11. 3 4.5 13.5 1.5 30. 8 22.9

1975 12.7 0.0 13.2 1.7 27. 6 28.91976 17.5 8.0 13.5 2.4 41. 3 30.9

1977 18.9 9.3 27.0 5.1 60. 3 15.2

1978 21.5 0.0 27.0 5.8 54. 3 35.8

1979 29.6 0.0 28.2 8.3 66. 1 37.8

1980 32.1 0.0 38.3 12.3 82. 7 49.8

1981 42.7 15.3 35.4 15.1 108.5 26.5

1982 55.9 25.1 54.0 30.1 165.1 25.8

1983 66.1 24.4 55.9 37.0 183.4 52.6

1984 65.2 32.2 66.7 43.5 207.6 40.4

1985 61.7 30.8 66.7 41.1 200.2 55.3

1986 64.2 30.5 66.7 42.8 204.2 56.2

1987 30.7 14.8 66.7 20.4 132.6 41.9

1988 22.6 10.2 66.7 15.0 114. 5 31.7

1989 24.8 11.4 61.4 15.2 112. 9 55.7

1990 35.1 8.3 61.3 21.5 126.3 46.8

1991 28.5 12.4 66.7 19.0 126.5 36.6

1992 32.7 6.4 61.3 20.0 120.4 64.2

1993 31.3 16.1 66.7 20.9 134.9 66.9

1994 22.2 3.9 50.9 11.3 88. 3 76.3

1995 21.5 3.4 66.7 14.3 105.9 50.7

1996 29.5 3.8 66.7 19.7 119. 7 52.2

1997 25.6 5.2 66.7 17.1 114. 5 61.1

1998 29.8 0.0 54.6 16.3 100.7 58.51999 13.9 3.2 17.7 2.4 37. 1 40.1

2000 14.5 2.6 17.7 2.6 37. 3 36.5

2001 11. 1 1.8 11.2 1.2 25. 3 19.8




Appendix B. Variable definitions and data sources

Appendix C

X t R e al e x po r ts i n p e ri o d t , p r ox i ed b y e x po r t v o lu m e i n de x es ( 1 98 0 = 1 0 0) o f t r ad i ti o na l ( a gr i cu l tu r al )e x p or t s a n d n o n -t r a di t i on a l ( s e m i- p r oc e s se d p r i m ar y a n d m a n u fa c t ur e s ) e x p or t s . T h e s o u rc e s o f

d a ta a r e E c o n o m ic R e p o r t , a n d M o n t h l y S t a t i st i c a l B u l l e ti n , M a l a wi G o v er n m e nt ( 1 9 70 – 1 99 9 ) , a n d

Financial and Economic Review, R e se r ve B a nk o f M a la w i ( 1 97 0 –1 99 9 ).

Reer t R e al e f fe c ti v e e x ch a ng e r a t e i n d ex ( 1 9 8 0 = 1 0 0) d e fi n ed a s E . P xw/ P d . S o u rc e : I n t e r n a t io n a l F i n a n c ia l

Statistics Yearbook and I n t e r n a ti o n a l F i n a n c ia l S t a t i st i c s Ye a r b o o k ( I M F, v a r i ou s i s s u es ) .

K T h e e c on o my ’s p r od u ct i ve c a p a ci t y t o p r o d uc e e x p or t s p r ox i ed b y a r e al i n de x o f a g ri c ul t ur a l g r os s

d o m es t i c o u t p u t ( 1 9 8 0 = 1 0 0 ). D a t a s o u r c es : E c o n o m ic R e p o r t , a n d M o n t h l y S t a t i st i c a l B u l l e ti n ,

M a l a wi G o v er n m e nt ( 1 9 70 – 1 99 9 ) , a n d F i n a n ci a l a n d E c on o m ic R e vi e w, R e se r ve B a nk o f M a la w i

(1970–1999).

Ta b l e A 3 . 1

U n it r o ot t e st r e su l ts

Var iab le I nt erc ept /Tr en d i nc lu de d M ode l ( la g le ng th) Te st s tat ist ic A DF: 9 5% In fer en ce

ln X TX Intercept and trend AD F(2) 3.5577 3.5943 Random walk

ln X NX Intercept and trend AD F(1) 3.2878 3.5867 Random walk

lnT TX Intercept and trend AD F(4) 2.0283 3.6119 Random walk

lnT NX Intercept and trend AD F(3) 1.3696 3.6027 Random walk

ln K Intercept and trend AD F(1) 2.1423 3.5867 Random walk

ln Reer Intercept and trend AD F(2) 1.7469 3.5943 Random walk

Dln X TX Intercept AD F(1) 7.2550** 2 .9 798 St at ion ar y, I (1)

Dln X NX Intercept AD F(1) 5.5267** 2 .9 798 St at ion ar y, I (1)

DlnT TX Intercept AD F(0) 6.8378** 2 .9 750 St at ion ar y, I (1)

DlnT NX Intercept AD F(0) 4.3740** 2 .9 750 St at ion ar y, I (1)

Dln K Intercept AD F(0) 4.6642** 2 .9 750 St at ion ar y, I (1)

Dln Reer Intercept AD F(0) 8.2523** 2 .9 750 St at ion ar y, I (1)

D — dFirst differenceT o p e r a t o r ; A D F — a u g m e n t e d D i c k e y – F u l l e r ; o p t i m a l l a g l e n g t h i s t h e l a r g e s t o r d e r f o r w h i c h

t h e t e st s t at i st i c ( tau ) i s s i g n i f i c an t a t 1 0 % . T e st s c a r r ie d o u t u s i n g , a n d c r i t ic a l v a l u e s p r o v i d e d b y, M i c ro f i t 4 . 0

(P e s ar a n a n d P e s a r a n , 1 9 9 7).

* * I n d i c a t e s r e j e c t i o n o f t h e n u l l h y p o t h e s i s o f a u n i t f o r f i r s t d i f f e r e n c e s e r i e s a t 5 % . T h e n u l l i s f i r m l y r e j e c t e d f o r

a l l s e r i es i n f a v ou r o f d i f fe r e nc e s t a ti o n ar i t y.

Ta b l e A 3 . 2

C o i nt e g r at i o n t e s t s i n t h e e x p or t s u p pl y s y s te m s

H o: r an k = r Trace Maximal

Statistic 95% Statistic 95%

Traditional exports r = 0 23.9** 21.0 30. 0** 29.7

r p 1 5.8 14.1 5.9 15.4

r j2 0.1 3.8 0.1 3.8

Non-traditional exports r = 0 36.3*** 27.1 68. 2*** 47.2

r = 1 20.5 21.0 27. 8 29.7r p 2 8.9 14.1 11.4 15.4

r p 3 2.5 3.8 2.5 3.8

* ** a n d * * * d e no t e s i gn i fi c an c e a t 1 a n d 5 % , r e sp e ct i ve l y.




References

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D e v el o p m en t E c o n o m i cs 7 5 , 4 1 7 – 4 5 0 .

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2 0, 6 49 – 6 6 5.

Ta b l e A 3 . 3

Te s t s o f w e a k e x o ge n e i ty

Null: variable is weakly

exogenous

Traditional export

s u p pl y m o d el

Non-traditional

e x p or t s u p pl y m o d e l

v2* p -value v2* p -value

E x p or t v o l u me ( l n X ) 12. 681 0. 0004 16.001 0.0001

P r o du c t i ve c a p a ci t y ( l n K ) 0.44845 0. 5031 0.23531 0.6276

R e a l e f f ec t i v e e x c h a n ge r a t e

(lnReer)

0.80901 0. 3684 1.603 0.2055

R a te o f t r ue e x po r t t a xa t io n

(lnT TX ; lnT NX )

0.98758 0. 3203 0.199 0.6555

* 1 d e g r ee o f f r e ed o m . Te s t s t a t is t i c s c o m p u t ed u s i ng P c F im l v e rs i on 9 .

Ta b l e A 3 . 4

Cointegrating vectors

( a ) T ra d i t io n a l e x p or t s u p pl y

O r de r o f VA R = 2 ; C h os e n n u mb e r o f c o in t eg ra t in g v e ct o rs , r = 1

2 7 o b se r va t io ns f r om 1 97 2 t o 1 9 98 ; n or m al i se d o n e x po r t v o lu m e ( l n X TXt )

Vector 1 ln X TXt lnT TXt ln K t lnReer t

1.0000 0.87469 - 1.3493 - 0.72415

(0.000) (0. 27740) (0.27668) (0.11028)

Thus, ln X TX t ¼ 0:874690:27740ð Þ

lnT TX t þ 1:34930:27668ð Þ

ln K t þ 0:724150:11028ð Þ

ln Reer t

( b ) N o n - tr a d it i o na l e x p or t s u p pl y

O r de r o f VA R = 2 ; C h os e n n u mb e r o f c o in t eg ra t in g v e ct o rs , r = 1

2 7 o b se r va t io ns f r om 1 97 2 t o 1 9 98 ; n or m al i se d o n e x po r t v o lu m e ( l n X NXt )

Vector 1 ln X NXt lnT NXt ln K t lnReer t

1.0000 0.20835 0.79376 0.58619

(0.0000) (0. 079163) (0.10565) (0.064865)

Thus, ln X NX t ¼ 0:208350:079163ð Þ

lnT N X t þ 0:793760:10565ð Þ

ln K t þ 0:586190:064865ð Þ

ln Reer t




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A natural experiment for identifying the impact of natural trade barriers on exports, 2005

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