Structural adjustment, growth and poverty in Madagascar : a CGE [computable general equilibrium] analysis

This study uses model simulations to attempt to isolate the effects and/or interactions of specific policies adopted by the Government of Madagascar during the 1980"s and/or exogenous factors on economic indicators (such as GDP, consumption, imports and exports, sectoral production, and household income), with an emphasis on the impacts on lower income households. The simulations are used to analyze current policy options as well. Each of the 14 simulations presented models a period of 3-6 years; for each simulation, a different variable is altered, and the results are compared to a "base run" in which key variables are held constant. Base and simulation runs are made using a computable general equilibrium (CGE) model of the Malagasy economy, which is itself based on a disaggregated social accounting matrix (SAM) developed by Dorosh et al. Examples of simulations include: an increase in the quota on imports of manufactured goods; increased rice imports; trade liberalization; an increase in the world price of energy products; increases and decreases in foreign savings; etc. The simulations point to three key mechanisms in the determination of the impact of macroeconomic policies on household incomes: (1) the real exchange rate; (2) the level of investment; and (3) aggregate demand. In general, Madagascar"s policies have had an urban bias, and it has been urban households who gained the most in the investment boom which peaked in the early 1980"s, and who lost the most in the subsequent stabilization and structural adjustment period. However, policies which favor investment in rural activities would do more, in Madagascar"s case, to alleviate poverty. Appendices describe the authors" modifications to the Dorosh SAM, special features of the CGE, and the base runs.