Zimbabwe: Investments, credibility, and the dynamics following trade liberalization
A CGE model for Zimbabwe is used to analyse the short and medium-run dynamics following trade liberalisation. Special focus is on the investment response and on the possibility of reform reversal. When the reform is credible the export sector will invest, while investments will be withheld if reform is not credible. The strength of the investment response proves to be of significance both in the short and the medium run. In the short run increased investments implies a worsening of the trade balance. In the medium run there are gains as increased investments in the exportables sector implies growth and improved trade balance. Finally, the model illustrates inconsistency problems and the possibility of self-fulfilling failure of reform. Both are factors that conceivably have contributed to the failure of Zimbabwe’s trade reform.
Trade reform, credibility, Zimbabwe, CGE model
Research Council of Norway