Working Paper: NBER ID: w9117
Authors: Margaret McMillan; Dani Rodrik; Karen Horn Welch
Abstract: Mozambique liberalized its cashew sector in the early 1990s in response to pressure from the World Bank. Opponents of the reform have argued that the policy did little to benefit poor cashew farmers while bankrupting factories in urban areas. Using a welfare-theoretic framework, we analyze the available evidence and provide an accounting of the distributional and efficiency consequences of the reform. We estimate that the direct benefits from reducing restrictions on raw cashew exports were of the order $6.6 million annually, or about 0.14% of Mozambique GDP. However, these benefits were largely offset by the costs of unemployment in the urban areas. The net gain to farmers was probably no greater than $5.3 million, or $5.30 per year for the average cashew-growing household. Inadequate attention to economic structure and to political economy seems to account for these disappointing outcomes.
Keywords: Economic reform; Cashew sector; Mozambique; World Bank; Liberalization
JEL Codes: O10; O50; F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liberalization of the cashew sector (E69) | improve resource allocation (D61) |
| liberalization of the cashew sector (E69) | increase farmers' incomes (Q12) |
| liberalization of the cashew sector (E69) | rise in farmgate prices (Q11) |
| liberalization of the cashew sector (E69) | increase in raw cashew exports (Q37) |
| removal of export restrictions (F10) | efficiency gains (D61) |
| urban unemployment due to factory closures (J65) | negate benefits from liberalization (F69) |
| efficiency gains (D61) | net gain to farmers (Q12) |
| imperfections in market structures (D43) | limit pass-through of price increases to farmers (Q18) |
| monopsony power exerted by India (J42) | diminish expected gains from policy (H31) |
| failure to establish credible pricing signals (D49) | undermine long-term positive effects (E71) |
| liberalization of the cashew sector (E69) | negligible aggregate static gains (E10) |