Неолиберальная траектория в Гамбии Neoliberal Trajectory in The Gambia
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INTRODUCTION 1
CHAPTER 1: A THEORETICAL OVERVIEW OF NEOLIBERALISM 12
1.1. Background 12
1.2. Definition and Usage of Neo-Liberalism 14
1.3. Role of IMF 22
CHAPTER 2: BACKGROUND OF ECONOMIC REFORMS IN THE GAMBIA 33
2.1. During the First Republic 1970-1994 33
2.3. During the Second Republic 1994-2016 44
CHAPTER 3: METHODOLOGY AND EMPIRICAL RESULTS 56
3.1. Methodological Framework 56
3.2. Analysis of Empirical Results 60
CONCLUSION AND POLICY RECOMMENDATION
vii
References
Appendix
CHAPTER 1: A THEORETICAL OVERVIEW OF NEOLIBERALISM 12
1.1. Background 12
1.2. Definition and Usage of Neo-Liberalism 14
1.3. Role of IMF 22
CHAPTER 2: BACKGROUND OF ECONOMIC REFORMS IN THE GAMBIA 33
2.1. During the First Republic 1970-1994 33
2.3. During the Second Republic 1994-2016 44
CHAPTER 3: METHODOLOGY AND EMPIRICAL RESULTS 56
3.1. Methodological Framework 56
3.2. Analysis of Empirical Results 60
CONCLUSION AND POLICY RECOMMENDATION
vii
References
Appendix
The policy reforms attempted in developing countries over the past three decades have yielded varied results, with some, such as in East Asia, leading to very good outcomes in terms of economic growth. However, there are many others where it has not been possible to implement reforms or where reforms have achieved poor outcomes. The record in Africa has been similar, with good responses to reform attempts in very few countries such as Rwanda, Mauritius and Botswana and disappointing results in almost the rest of Africa.
Neoliberal discourse is not a new phenomenon about the Gambia for it is among the first countries that experimented International Monetary Fund structural adjustment programs in the 1980s. Since 1980s until this date, the Gambia continues to rely heavily on loans, grants and aids to stabilise her economy. However, what has changed and why poverty alleviation continue to be a major issue in the country? This research try to answer these and other questions to fill this research gap. This study is significant because poverty alleviation and economic development is the most salient issue to the post-authoritarian government of the Gambia; hence, the research could be policy manual for policy maker in the current and future government to shape the socio-economic development of the country. The study could be used as a literature for future young researchers.
Research Objective
The main objective of this study is to construct a comprehensive presentation and analysis of IMF structural adjustment programs on the economic growth and poverty in the Gambia from 1970 to 2016. The study chose period 1970 to 2016 because The Gambia became republic in 1970 and the 22 years authoritarian regime ended in December 2016.
The specific objectives are:
1. Examining the theoretical concept.
2. Descriptive analysis of the economic reforms in the Gambia.
3. Analysis of the impact of structural adjustment programs on growth and poverty.
Research Question
1. What are the impacts of the IMF structural adjustment programs on growth and poverty in the Gambia?
2. Should the transition government persist on neoliberal trajectory, change, or both?
Research Hypothesis
i. Hi Structural adjustment programs of IMF is the best way to increase economic growth of developing countries.
ii. H2 Privatization of state-owned enterprises, goods and services leads to the achievement of greater efficiency.
iii. H3 IMF structural adjustment programs alleviates poverty and increases the rate of middle-income earners.
Neoliberal discourse is not a new phenomenon about the Gambia for it is among the first countries that experimented International Monetary Fund structural adjustment programs in the 1980s. Since 1980s until this date, the Gambia continues to rely heavily on loans, grants and aids to stabilise her economy. However, what has changed and why poverty alleviation continue to be a major issue in the country? This research try to answer these and other questions to fill this research gap. This study is significant because poverty alleviation and economic development is the most salient issue to the post-authoritarian government of the Gambia; hence, the research could be policy manual for policy maker in the current and future government to shape the socio-economic development of the country. The study could be used as a literature for future young researchers.
Research Objective
The main objective of this study is to construct a comprehensive presentation and analysis of IMF structural adjustment programs on the economic growth and poverty in the Gambia from 1970 to 2016. The study chose period 1970 to 2016 because The Gambia became republic in 1970 and the 22 years authoritarian regime ended in December 2016.
The specific objectives are:
1. Examining the theoretical concept.
2. Descriptive analysis of the economic reforms in the Gambia.
3. Analysis of the impact of structural adjustment programs on growth and poverty.
Research Question
1. What are the impacts of the IMF structural adjustment programs on growth and poverty in the Gambia?
2. Should the transition government persist on neoliberal trajectory, change, or both?
Research Hypothesis
i. Hi Structural adjustment programs of IMF is the best way to increase economic growth of developing countries.
ii. H2 Privatization of state-owned enterprises, goods and services leads to the achievement of greater efficiency.
iii. H3 IMF structural adjustment programs alleviates poverty and increases the rate of middle-income earners.
The research is a comprehensive presentation and analysis of the impact of IMF structural adjustment programs on the economic growth and poverty in the Gambia. This study examines the short term and long-term link between IMF’s structural adjustment programs and economic growth and poverty. This study reviews theoretical concept of neoliberalism and IMF structural adjustment programs, the economic reforms in the Gambia and analyse the impact of structural adjustment programs on growth and poverty in the Gambia. The study summarised structural policy effect by employing time series Vector Error Correction Model in the period 1970-2016.
It is evident that structural adjustment has stabilized the economy of The Gambia during the first and second ERP, however, a group of the population tend to be on the disadvantaged side. In the first two years of the ERP, increases in agricultural (groundnut) prices relative to the prices of consumer goods helped to stimulate production of groundnuts and export earnings from groundnuts. This temporarily shifted the rural-urban terms of trade in favour of the agricultural sector. This shift helped to reduce the disparity between urban and rural incomes as most of the poor in The Gambia live in rural areas. The second ERP favours the urban population while the rural farmers were hurt, although overall economy received a positive outcome.
It is evident that IMF structural adjustment programs often put attention on a long-run effect, as well as the general structure such as real GDP growth as the focal focus of achievement. It is evident that many a times, the policies have short-term adverse effects on the population struggling with abject poverty.
There is no clear finding on the achievements of IMF structural adjustment during the Jammeh era since many unmeasurable factors are involved such as hostile political environment, corruption, financial mismanagement and authoritarian distortion of policies single-handedly. It 67
was hard to capture clearly the effect of the policies through descriptive review during this era because of poor data and record system.
The study applied VECM to test the effect of structural adjustment program determinants on economic growth and poverty. In the short run, none of the determinants of structural adjustment programs is significant except error correction term that is negative and has significant effect on economic growth. The result shows that the other variables do not have short-run effect on economic growth; hence structural adjustment program has no short-run effect on economic growth in the Gambia. This finding is in conformity with the descriptive analysis of the economic reform. The impact of structural adjustment is not felt on the economic growth in the short-run. Similarly, in poverty model, in the short-run, all the variables are insignificant except the error correction term and lagged gross national income per capita (gnipc) which have effect on poverty in the short run.
Inflation rate is negatively related to growth and significant at 1 percent significant level in growth model. The result is as expected in hypothesis that higher inflation discourages investment and growth in less developed and import-oriented countries like Gambia. Hence, in the long-run, reduction in inflation rate leads to higher growth in the Gambia, holding other factors constant. Inflation is also strongly significant at 1 percent significant level in poverty model. The result indicates that in the long-run an increase in inflation rates increases poverty, this is in conformity with the hypothesis that inflation reduces real wages and level of poverty.
Government spending is negatively related to growth and statistically significant at 5 percent significant level in growth model. However, government spending is positively related to poverty and statistically significant at 10 percent significant level. As stated in literature, the most common fiscal policy is cutting government spending such as subsidies. The result shows that, in the long-run, higher government spending leads to higher poverty holding other factors constant.
Current account balance in long-run is positively related to economic growth and statistically significant at 5 percent significant level in growth model but found to be insignificant in poverty model.
Exchange rate in long run is statistically significant at 5 percent level in poverty model. Which means exchange rate has positive relationship with poverty in the Gambia. If harvest were good, currency devaluation is favourable for the poor rural farmers producing goods for export, unfortunately, Gambian farmers have been facing poor harvests due to many external factors, hence, they do not benefit from devaluation. Since most of the population rely on imported goods, devaluation raises prices of imported goods.
This research is constrained to capture certain important household variables to assess the link between structural adjustment policy and poverty. We intended to choose household survey variables such as poverty gap and poverty headcount ratio to measure poverty model but we experienced data constraint since Gambia like many underdeveloped countries has problems of collecting and keeping data. Because of data limitation, we also dropped a third model to record the link between structural adjustment programs and income distribution with GINI index as the independent variable. Another limitation to the research is the inability to make a survey and interview in the Gambia; this will be interesting to do in the future research. As data becomes available on these variables, it would be interesting to cover them in future research. Applying panel model in future research will solve this data omission problem. Another constraint is misspecification issue during estimation process. The measurement of reforms has been controversial and hard to capture some important factors without misspecification.
As you can see, this study is just a tip of an interesting field of study. There is a much left for further research. This research focuses only on the so-called first generation structural adjustment programs such as liberalisation since most of the existing researches covered these components and they are the variables with data available on Gambia. However, it would be interesting to evaluate the effects of second-generation reforms (e.g. institutional change, governance, and competitiveness). Such study could properly evaluate the link between corruption and structural reforms.
The technocrats and policymakers may use this study to show if the policies implemented brought the desired outcomes. This could also help both the international institutions and the government of the Gambia the incentive to think about changes in policies and approaches that may lead to better long-term results.
It is evident that structural adjustment has stabilized the economy of The Gambia during the first and second ERP, however, a group of the population tend to be on the disadvantaged side. In the first two years of the ERP, increases in agricultural (groundnut) prices relative to the prices of consumer goods helped to stimulate production of groundnuts and export earnings from groundnuts. This temporarily shifted the rural-urban terms of trade in favour of the agricultural sector. This shift helped to reduce the disparity between urban and rural incomes as most of the poor in The Gambia live in rural areas. The second ERP favours the urban population while the rural farmers were hurt, although overall economy received a positive outcome.
It is evident that IMF structural adjustment programs often put attention on a long-run effect, as well as the general structure such as real GDP growth as the focal focus of achievement. It is evident that many a times, the policies have short-term adverse effects on the population struggling with abject poverty.
There is no clear finding on the achievements of IMF structural adjustment during the Jammeh era since many unmeasurable factors are involved such as hostile political environment, corruption, financial mismanagement and authoritarian distortion of policies single-handedly. It 67
was hard to capture clearly the effect of the policies through descriptive review during this era because of poor data and record system.
The study applied VECM to test the effect of structural adjustment program determinants on economic growth and poverty. In the short run, none of the determinants of structural adjustment programs is significant except error correction term that is negative and has significant effect on economic growth. The result shows that the other variables do not have short-run effect on economic growth; hence structural adjustment program has no short-run effect on economic growth in the Gambia. This finding is in conformity with the descriptive analysis of the economic reform. The impact of structural adjustment is not felt on the economic growth in the short-run. Similarly, in poverty model, in the short-run, all the variables are insignificant except the error correction term and lagged gross national income per capita (gnipc) which have effect on poverty in the short run.
Inflation rate is negatively related to growth and significant at 1 percent significant level in growth model. The result is as expected in hypothesis that higher inflation discourages investment and growth in less developed and import-oriented countries like Gambia. Hence, in the long-run, reduction in inflation rate leads to higher growth in the Gambia, holding other factors constant. Inflation is also strongly significant at 1 percent significant level in poverty model. The result indicates that in the long-run an increase in inflation rates increases poverty, this is in conformity with the hypothesis that inflation reduces real wages and level of poverty.
Government spending is negatively related to growth and statistically significant at 5 percent significant level in growth model. However, government spending is positively related to poverty and statistically significant at 10 percent significant level. As stated in literature, the most common fiscal policy is cutting government spending such as subsidies. The result shows that, in the long-run, higher government spending leads to higher poverty holding other factors constant.
Current account balance in long-run is positively related to economic growth and statistically significant at 5 percent significant level in growth model but found to be insignificant in poverty model.
Exchange rate in long run is statistically significant at 5 percent level in poverty model. Which means exchange rate has positive relationship with poverty in the Gambia. If harvest were good, currency devaluation is favourable for the poor rural farmers producing goods for export, unfortunately, Gambian farmers have been facing poor harvests due to many external factors, hence, they do not benefit from devaluation. Since most of the population rely on imported goods, devaluation raises prices of imported goods.
This research is constrained to capture certain important household variables to assess the link between structural adjustment policy and poverty. We intended to choose household survey variables such as poverty gap and poverty headcount ratio to measure poverty model but we experienced data constraint since Gambia like many underdeveloped countries has problems of collecting and keeping data. Because of data limitation, we also dropped a third model to record the link between structural adjustment programs and income distribution with GINI index as the independent variable. Another limitation to the research is the inability to make a survey and interview in the Gambia; this will be interesting to do in the future research. As data becomes available on these variables, it would be interesting to cover them in future research. Applying panel model in future research will solve this data omission problem. Another constraint is misspecification issue during estimation process. The measurement of reforms has been controversial and hard to capture some important factors without misspecification.
As you can see, this study is just a tip of an interesting field of study. There is a much left for further research. This research focuses only on the so-called first generation structural adjustment programs such as liberalisation since most of the existing researches covered these components and they are the variables with data available on Gambia. However, it would be interesting to evaluate the effects of second-generation reforms (e.g. institutional change, governance, and competitiveness). Such study could properly evaluate the link between corruption and structural reforms.
The technocrats and policymakers may use this study to show if the policies implemented brought the desired outcomes. This could also help both the international institutions and the government of the Gambia the incentive to think about changes in policies and approaches that may lead to better long-term results.