External shocks, policy reform and income distribution in Niger

This study uses a computable general equilibrium (CGE) model of Niger"s economy to perform five simulations -- three of the actual events, and two of hypothetical policy responses -- in an attempt to quantify their distributional impacts, especially upon the incomes of poorer households. (1) The decrease in foreign exchange earnings and capital inflow associated with the collapse in uranium prices, while hurting both rural and urban households, had its strongest impacts in the construction sector, and thus hurt urban wage earners more. (2) While, as might be expected, rural livestock producers were most hurt by the drought, the resulting decline in output reverberated throughout the economy, with strong negative impacts on rural households without cattle as well as urban households. (3) The appreciation of the real exchange rate between Niger"s FCFA and Nigeria"s Naira hurt rural households by raising the costs of and lowering demand for agricultural goods in the Nigerian market. (4) A hypothetical 10% devaluation in the FCFA/Naira exchange rate would significantly lower Niger"s trade deficit, reduce real output only slightly, and lower household incomes; however, the government was and is constrained in regard to this option by its membership in the West African Monetary Union. (5) A hypothetical 10% reduction in government spending would spur domestic savings and economic growth, but mainly at the expense of urban government workers, a politically powerful group. All the simulations point to the central and complex role of livestock in the Nigerien economy, as an investment good, intermediate input, source of export earnings, and consumer good. Although Niger"s policy options will continue to be constrained by external and internal factors, models like that presented here are a basic step in adding distributional considerations to policy analysis.