MACROECONOMIC AND AGRCULTURAL REFORMS IN ZIMBABWE: POLICY COMPLEMENTARITIES TOWARD EQUITABLE GROWTH

Using a CGE (computable general equilibrium) model for Zimbabwe with 1991 asbase period, this paper examines quantitatively the income and equity effects ofmacroeconomic reform measures in isolation and in conjunction with potentiallycomplementary changes in agricultural sector policies. Some important features of the CGEmodel are an explicit focus on agriculture, distinction among various rural and urbanhousehold groups, and detailed specification of factor markets. Specific aspects of economicpolicy existing in the pre-reform benchmark year are taken into account in the base model,such as the administered setting of the foreign exchange rate, quantitative import restrictions,and government-determined maize prices for domestic producers and grain millers. Themodel makes use of a 1991 SAM (social accounting matrix) for Zimbabwe as database.“Policy experiments” performed on the model include trade liberalization, maize pricedecontrol, fiscal reform measures, land redistribution, and reduction in agricultural marketingmargins -- implemented in isolation and concurrently. Trade policy reform alone(dismantling of import and foreign exchange controls and reduction of import taxes to a lowuniform rate) is shown to increase aggregate household income significantly. However, theleast income gain accrues to smallholder farm households, which account for about four-fifthsof the poor in Zimbabwe, so the equity impact is unfavorable. Concurrentimplementation of two alternative land reform packages with trade liberalization, maizemarket decontrol, and income tax adjustment result in improved outcomes in aggregateincome and in the incomes of poorer household groups. Significant synergy effects arerevealed, as the income gains from policy reform packages exceed the sum of correspondinggains from component measures. The comparative results of counterfactual modelsimulations illuminate the greater effectiveness of trade policy reform in promoting overallincome growth and equity when linked to complementary fiscal and sectoral reforms aimedat reducing poverty. They also give strong support to the general argument that piecemeal orpartial reforms are inferior to more comprehensive reforms that take account of policycomplementarities.