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A Firm's-Eye View of Policy and Fiscal Reforms in Cameroon

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World Bank (WB)

Abstract: After decades of heavy trade restrictions, fiscal distortions, and currency overvaluation, Cameroon implemented important commercial and fiscal policy reforms. Almost simultaneously, a major CFA devaluation cut the international price of Cameroon's currency in half. The authors examine the effects of these reforms on the incentive structure that manufacturing firms face. Did they create a coherent set of new signals? Was the net effect to stimulate the production of tradable goods? Was the dispersion of tax burdens lessened? They address each of these questions using a cost function decomposition applied to detailed firm-level panel data. They observe that Cameroon's reforms appear to have sent clear new signals to manufacturers, as the effective rate of protection fell by between 80 and 120 percentage points. Unlike trade liberalization, neither tax reforms nor the CFA devaluation had a major systemic effect on profit margins. But the CFA devaluation did twist relative prices dramatically in favor of exportable goods, so export-oriented firms exhibited rapid output growth.
Type: Publications & Research
Publications & Research :: Policy Research Working Paper
Subject: output
import prices
input prices
input use
input-output tables
intermediate goods
intermediate inputs
international prices
international trade
metal products
policy makers
political economy
preferential tariff
price comparisons
producer prices
product differentiation
product markets
production costs
productivity growth
profit margin
profit margins
protection measures
protection rates
rates of protection
real exchange rate
returns to scale
scale effects
structural adjustment
tariff data
tariff protection
tariff rate
tariff rates
tariff reductions
tax rates
tax reform
tax reforms
tax revenues
total costs
total sales
tradable goods
trade effects
trade liberalization
trade policies
trade reforms
trade restrictions
transaction costs
value of output
world prices
zero tariffs
policy reform
fiscal reforms
trade liberalization
tariff reductions
currency devaluation
tax reforms
export oriented industries
commercial policy

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