Journal Article

The Credibility Problem in Trade Liberalisation: Empirical Evidence from Kenya

Ritva Reinikka

in Journal of African Economies

Volume 5, issue 3, pages 444-468
Published in print October 1996 | ISSN: 0963-8024
Published online October 1996 | e-ISSN: 1464-3723 | DOI: https://dx.doi.org/10.1093/oxfordjournals.jae.a020914
The Credibility Problem in Trade Liberalisation: Empirical Evidence from Kenya

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This paper quantifies the welfare cost created by speculative accumulation of imports in Kenya during four trade reforms between 1976–92. These episodes suffered from a lack of credibility because they were perceived to be either time-inconsistent or incompatible with the exchange rate, fiscal or monetary policy. Kenyan data confirms that the private sector was able to anticipate the fate of the reforms and that it hedged against their reversal by accumulating foreign exchange licences and bonded and actual imports. There are some indications of deferral of investment and increased liquidity during the abortive reforms. The speculative response seems to be self-fulfilling, as rapidly declining external reserves usually forced the government to abandon the reforms. The 1980 import liberalisation was the most costly attempt.

Journal Article.  0 words. 

Subjects: Development Studies ; Economic Development ; African Studies

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