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2004-09-01 | Peer Reviewed

The HIPC initiative and free trade in tobacco – a comparison of effects on the Malawi economy using a CGE model

Stage, Jesper, Andrea Andersson and Erik Holmgren. 2004. “The HIPC initiative and free trade in tobacco – a comparison of effects on the Malawi economy using a CGE model.” Journal of Development Alternatives and Area Studies 23:3-4: 66-83.
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The Highly Indebted Poor Countries (HIPC) initiative is intended to improve the situation of the poorest developing countries by reducing their debt burden and by permitting increased spending on education and health services. However, at the same time the developed countries funding the HIPC initiative retain agricultural policies that hinder exports form the developing countries in those sectors where they have comparative advantages.

 

Malawi is currently approaching its completion point within the HIPC initiative. The effects of the HIPC initiative for the Malawi economy are evaluated using a computable general equilibrium (CGE) model, and compared to the effects that would occur if reduced developed country support for tobacco production were to increase the word market price to tobacco, Malawi’s major export crop. We find that even a relatively small (twenty per cent) increase in the world market price of tobacco would have larger short term effects that the HIPC initiative in terms of increase income.

Co-authors:

Andréa Andersson and Erik Holmgren