What happens to investment under structural adjustment: Results from a simulation model
Year: 1992
Type: article
Abstract: This paper considers frameworks traditionally used to analyze structural adjustment issues and notes the lack of an endogenous investment response. This response is important because it can reverse standard structural results and can alter the long-term growth effects of contractionary shocks and policy. This study includes both the structural and aggregate investment dimensions by incorporating two-period optimization in a multisectoral computable general equilibrium (CGE) model for Cameroon. Unlike other CGE models, the composition of aggregate demand responds to factor prices driving investment decisions. The structure of output and trade similarly respond to both macroeconomic forces and relative prices. Unlike other studies of investment during adjustment, this model emphasizes the role of the structure of the economy in the level and sectoral distribution of investment. Model simulations of foreign capital outflow show that the pattern of investment reflects both sectoral interest rate sensitivity and relative price changes. Tariff protection for manufacturers raises the price of investment goods and interest rates, affecting all investment trends. Reductions in the budget deficit tend to “crowd-in” private investment.
Source: World Development
Author: Nancy C. Benjamin
Institutions: International Monetary Fund, Syracuse University
Language: English
Topic: Economic Theory and Policy
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $5,895
OpenAlex ID: W2085953973