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American Economic Association

On Economic Reform, Poverty, and Nutrition in Africa


Author(s): David E. Sahn
Source: The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of the
Hundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp.
285-290
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/2117845
Accessed: 27-09-2016 20:36 UTC

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WELFARE CHANGES DURING PERIODS OF ECONOMIC
TRANSITION: THE CASE OF NUTRITIONt

On Economic Reform, Poverty, and Nutrition in Africa

By DAVID E. SAHN *

The economic crisis in Africa, manifested Bank for financing. In contrast to other
in terms of imbalances in the internal and regions that have gone through the process
external accounts, stagnant growth, and de- of economic adjustment, such as Latin
teriorating living standards, precipitated the America, the experience from Africa indi-
need for economic reform. The response cates that fiscal austerity was not a prereq-
was a combination of demand restraint, of- uisite for finding accommodation with inter-
ten referred to as stabilization, and struc- national financial institutions. Unweighted
tural adjustment, designed to foster greater averages across African countries indicate a
productivity and growth through increasing steady growth of real expenditures during
the efficiency of resource allocation. the 1980's among recipients of loans from
Despite the fact that the immediate im- the World Bank and IMF, although these
petus for such adjustment measures is to increases have barely kept pace with the
address balance of payments and budget rapid growth of the population (Sahn, 1992).
deficits, there is nonetheless a legitimate Of particular relevance to the nutritional
interest in the effect of economic reform on outcomes of reform programs is their effect
incomes and living standards. This paper on social-sector spending. On average,
will argue that economic reform has not spending on health and education increased
worsened preexisting levels of poverty and during the course of the 1980's and just
malnutrition, although, policy changes have about kept pace with a rate of population
failed to advance dramatically the objective growth. Furthermore, the share of total
of alleviating these problems. spending allocated to the social sectors did
not fall (Sahn, 1992). However, an examina-
I. Fiscal Policy tion of intrasectoral recurrent and develop-
ment health expenditures in Africa during
As a result of expansionary fiscal policy the latter half of the 1980's revealed that
and slow economic growth during the late they were systematically skewed toward
1970's and early 1980's, fiscal deficits wors- spending on hospital and curative care, ne-
ened in Africa, also contributing to the glecting the promotive and preventative care
balance-of-payments problems through in- which would protect the nutritionally vul-
creased import demand. In response, coun- nerable. A similar story applies to educa-
tries turned to the IMF and the World tion: unlike the rapidly growing Asian
economies, primary schooling in Africa was
allocated a disproportionately small share
of the total education budget. Furthermore,
wage payments were protected, while com-
tDiscussants: Debraj Ray, Boston University;
Lawrence Haddad, International Food Policy Research
plimentary inputs such as textbooks and
Institute; Per Pinstrup-Andersen, International Food pharmaceuticals were neglected. Perhaps
Policy Research Institute. of greater concern, however, is that, while
a few countries in Africa have made strides
*Cornell Food and Nutrition Policy Program, Cor-
nell University, Ithaca, NY 14853. in terms of addressing the inappropriate
285

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286 AEA PAPERS AND PROCEEDINGS MAY1994

social-sector priorities, for the most part, in rural areas, were the beneficiaries of state
economic reforms over the 1980's have contraction, owing to increased investment
showed little evidence of contributing to the and more rapid growth. The costs to growth,
restructuring of health and education expen- as well as equity, thus reinforce the impor-
ditures in most countries (Sahn and Rene tance of targeting spending to public goods
Bernier, 1993). and services that reach the poor.
The low technical efficiency of social- Finally, while most of the attention over
sector expenditures underscores a number the social impacts of adjustment, at least
of important conclusions. First is that con- with regard to fiscal policy, has been con-
cern over the impact of economic reform on centrated on the spending side, the equally
social-service delivery should henceforth be important question of who pays the taxes is
focused first on how resources already avail- often ignored. Limited empirical evidence
able are being spent, instead of concentrat- shows that the types of changes in the source
ing on the overall level of spending. Second, of revenue generally observed during ad-
to combat waste and rent-seeking, there is a justment (i.e., increasing direct taxes, in-
need to move away from the centralization cluding petrol and broad-based income
of authority and responsibility in the state. taxes, while reducing reliance on trade taxes)
In practice, this has led to resources being have been progressive (e.g., see Stephen
concentrated in central facilities, starving Younger, 1994). It is therefore likely that
regional and district health-care providers the poor are contributing relatively less to
in need of supplies, equipment, and person- the treasury now than before fiscal reforms
nel. Experience suggests that where govern- began.
ments have transferred authority back to
the regions, including cost-recovery and 11. Trade and Exchange Rates
community control of financing and expen-
ditures, improvements in management and Of all the policy changes associated with
technical efficiency have appeared. At the economic reform in Africa, none is so im-
same time, the already important role of portant, and controversial, as the efforts to
nongovernment institutions in the provision transform exchange rate regimes and trade
of social services must be encouraged as a policies. The primary objective of such
complementary role to the public provision reforms is to raise the relative price of trad-
of services (Sahn and Bernier, 1993). ables to nontradables to improve the effi-
Nonetheless, the success of efforts to im- ciency of resource utilization in the econ-
prove public institutions providing social omy. While increasing the openness is thus
services is in part predicated on a growing intended primarily as a means of increasing
economy, where the poor benefit directly exports and growth (and, unlike in Latin
through sharing in the growth of national America, not primarily to address the cur-
income. Herein, however, lies a policy rent account deficit), there will inevitably be
dilemma. In particular, using general-equi- important distribution implications.
librium models for four African economies In analyzing the impact of trade and ex-
(Cameroon, the Gambia, Madagascar, and change-rate reforms on household incomes,
Niger), Paul A. Dorosh and I ran a simula- the first question that arises is whether
tion experiment to examine what would have African economies have truly succeeded in
been the effects on the income distribution achieving a real devaluation of the exchange
of reducing government expenditures by 1 rate. Evidence indicates that, outside the
percent of GDP (Dorosh and Sahn, 1993). Communaute Financiere d'Afrique (CFA)
The results indicate that investment would zone, not only did a large number of African
have risen, although there would have also economies undertake nominal depreciations
been a decline in consumption. This decline of their exchange rates, but other policies
was concentrated among urban households. over which governments had control (e.g.,
The vast majority of the poor, concentrated tariffs, export taxes) and external conditions

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VOL. 84 NO. 2 WELFARE CHANGES DURING PERIODS OF ECONOMIC TRANSITION 287

(e.g, terms of trade) did not completely struction, who are the big losers from trade
erode the impact of nominal-exchange-rate and exchange-rate reforms. Similarly,
policies. Thus substantial real exchange-rate econometric models from a variety of coun-
depreciation was noted in most African tries all point to the rural poor benefiting
economies receiving World Bank adjust- from the decline in implicit taxation associa-
ment loans. tion with real exchange-rate depreciation
The question, therefore, is: what is the (Sahn, 1994b).
effect of real exchange rate depreciation on
the poor? In considering the question, three III. Agriculture and Food Markets
general findings suggest that the distribu-
tional implications of exchange-rate reforms Liberalizing domestic marketing arrange-
favor the poor. First, devaluation led to the ments is an important complement to trade
elimination of implicit taxes on exporters and exchange-rate reforms in generating
and thus to a corresponding loss of rents greater incentives to producers of export-
that were captured by the elite and govern- ables and import substitutes and ensuring a
ment agencies. supply of moderately priced staple food for
Second, the poor are more heavily con- all consumers. The activities of the state in
centrated in the production of tradables interfering in domestic markets, particularly
than the nonpoor. This largely reflects the for agricultural products, has generally been
high degree of tradability of the agricultural disadvantageous to producers, while con-
sector, where the poor are most intensively ferring benefits only on a small group of
engaged. The implication, therefore, is that privileged and predominately nonpoor con-
to the extent that nominal devaluation leads sumers. Market liberalization aimed at elim-
to an increase in the price of tradables to inating monopsonist parastatals and restric-
nontradables, this will benefit the incomes tions on interregional trade and milling have
of the poor more than other groups of benefited poor smallholders (see e.g.,
households. Third, in terms of the pattern Alexander H. Sarris and Rogier van den
of expenditures, the poor tend to consume a Brink, 1993; Dorosh, 1994). While there
larger share of home-produced and non- have been occasions when state disengage-
tradable goods, particularly food, insulating ment from providing agricultural inputs,
them somewhat from the prospect of higher particularly fertilizer, have had adverse con-
prices of tradable staple foods. This reflects sequences for some low-income farmers, for
the poor's greater reliance on roots, tubers, the most part the income loss has been
and coarse grains and the fact that own- minimal, owing to a lack of access to ra-
production still represents an important tioned inputs and the inefficiency of public
source of consumption. enterprises (Sahn, 1994a).
General-equilibrium analysis bears out While a large share of countries have
these three stylized facts which would in- made progress in liberalizing domestic mar-
dicate that the poor are well served by kets, there has been more movement in the
exchange-rate realignment. In particular, food crop than in the export-crop sector. As
responding to a balance-of-payments dis- a consequence, export-crop taxation, while
equilibrium through exchange-rate devalua- it has fallen, still remains high in many
tion, instead of the pre-reform practice of cases. This adversely affects the poor, who
imposing import quotas to conserve foreign along with the larger farmers are engaged in
exchange, has large beneficial impacts for export-crop production. Likewise, relative
the poor. This is particularly so in rural prices of agricultural exports to food crops
areas where low-income households are have generally not increased, thus indicat-
concentrated (Dorosh and Sahn, 1993). ing that the incentives to produce the latter
Conversely, it is the urban nonpoor, both have not diminished. This fact tempers the
those who received the rents and those en- concern, regardless of its legitimacy, that
gaged in non-tradable sectors such as con- adjustment programs in Africa contribute to

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288 AEA PAPERS AND PROCEEDINGS MAY 1994

food insecurity through a large shift away IV. The Impact on Nutrition
from food-crop production, toward export
crops. The above discussion has concentrated on
The improved terms of trade facing agri- the effect of economic reforms on house-
culture that accompanied most serious ef- hold incomes. Moving beyond this, to ex-
forts at reform have had positive distribu- plore the relationship between incomes and
tional effects. Nonetheless, most of the nutrition, is difficult. First, even during re-
increase in incomes has been a consequence cessionary periods, improvements in health
of higher farm-gate prices, instead of output outcomes have been observed in Africa
increases, which have been relatively mod- (Althea Hill, 1991). This likely reflects the
est. This reflects the importance of non-priceprevious investments in health infrastruc-
constraints, such as decayed infrastructure, ture, as well as the success of efforts such as
financial market failures, stagnant technol- immunization programs and diarrheal dis-
ogy, and information asymmetries. The les- ease control that are relatively isolated from
son here is that, while adjustment programs the broader macroeconomic environment
are necessary conditions to restore agricul- and comprise only a small share of the
ture to a healthy state, large efficiency gains budgets of the Ministry of Health. Regard-
are not immediate, as there are constraints less of the macroeconomic situation, and
that prevent producers from rapidly reallo- regardless of whether or not a country is
cating resources to efficient sectors. Thus, undertaking major policy reforms, there is
policy reforms need to be complemented ample latitude for governments to bring
with an array of other investments in physi- about improvements in child nutrition.
cal infrastructure, institutions, and human At the household level, research from
resources to make agriculture a leading sec- Africa shows that raising incomes will im-
tor for growth and poverty alleviation (Sahn, prove child nutrition (see e.g., Sahn, 1990;
1994a). Sahn et al., 1994), despite the fact that the
While in many cases agricultural restruc- income-calorie link may be weak (Harold
turing has improved incentives for produc- Alderman, 1993). The role of income in
ers, the concern arises that this is at the cost raising the utilization of health services and
of consumers, particularly the poor who are in improving the social infrastructure is
often net consumers of food products. In likely to be at least as important as the link
practice, much of this concern is unwar- between incomes and food consumption.
ranted. In fact, there are few instances of As incentives to engage in the labor mar-
real food prices increasing during the 1980's ket increase with economic reforms, and to
in Africa, while moderating prices were the extent that this reduces the quality and
noted in a number of countries. This re- quantity of time inputs into a variety of
flects that most of the transactions of the non-market activities among women, con-
poor have been in open or parallel markets. cern has also been raised that children will
Even when goods were subsidized, either suffer. Another related set of factors through
implicitly through the overvaluation of the which economic reform may affect nutrition
exchange rate or through explicit rationing revolves around the issue of income control.
schemes, access was almost always limited Adjustment measures, such as increasing in-
to the cities, and even there, the poor were centives for export crops, in some instances
less likely to get access to official sources will put greater income in the hands of men,
than the nonpoor. Another factor that seems which may also represent a nutritional risk.
to have contributed to liberalization not While the evidence on these issues is mixed,
posing a food security risk is the evidence, there has been a conspicuous absence of
albeit limited, that improvements in market- rigor in researching these questions, partic-
ing efficiency have lowered margins to the ularly in terms of dealing with econometric
benefit of consumers and producers (Sahn, problems of identification and individual
1994a, b). heterogeneity.

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VOL. 84 NO. 2 WELFARE CHANGES DURING PERIODS OF ECONOMIC TRANSITION 289

In the final analysis, there is considerable addition to the slow pace of policy changes
complexity involved in assessing the gender-, in many cases, the response to policy change,
time- and income-source-mediated impacts where it has occurred, has been limited by
of changing incentive structure and factor nonprice and other institutional constraints
pricing on nutrition. That these elements that impede the reallocation of resources in
matter is likely, but so too, their net effects the economy. Prominent among them is the
on nutrition are likely to be highly variable underinvestment in human capital and the
in different environments, making general- absence of physical infrastructure.
izations difficult. While the impact of economic reform on
incomes is important, it is only part of the
V. Conclusions story when it comes to the effect on nutri-
tion. For example, changes in incentive
Unlike other regions of the world, eco- structures and labor-market possibilities that
nomic reform policies in Africa have not result from economic reforms will alter time
been focused so much on demand contrac- allocation and the earning and income con-
tion and austerity measures, but instead on trol of household members, as well as the
restructuring institutions and incentives to demand for goods and leisure. These house-
increase the efficiency of resource alloca- hold-level adjustments are perhaps the least
tion. The fact that adjustment has focused well understood and most difficult to model
on expenditure-switching, instead of expen- among those that mediate between policy
diture-reducing, has mitigated the potential reform and nutritional outcomes.
deleterious human consequences of reform,
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