Why is trade reform so difficult in Africa?

Abstract

This paper argues that in a typical African country, compensating the losers from trade liberalisation is impossible for all practical purposes: the amount of redistribution required will more than eat up the efficiency gains generated by the reform. Next, I will turn to a set-up where it is the government's inability to discipline itself, rather than distributional imperatives per se, that lies at the root of the problem. I will illustrate the issues using McMillan's (1997) argument about the dynamic inconsistency of export taxation. These ideas turn out to be relevant and powerful in the African context, and they also have important institutional implications. Finally, I will turn to incompleteness of information as a source of resistance to reform.