Development Discussion Paper:

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1 MASURING TH ORIGN XCHANG PRMIUM AN TH PRMIUM OR NON-TRAABL OUTLAYS OR TWNTY COUNTRIS IN ARICA Glnn P. Jnkn * Chun-Yan Kuo an Snr Salc vlopmn cuon Papr: ABSTRACT In h papr w vlop an analycal gnral qulbrum framwork o maur h forgn xchang prmum an h prmum for non-raabl oulay for a counry. Th framwork allow u o capur n a conn mannr h mpac of h ourcng of fun an hr xpnur on raabl an non-raabl goo an rvc of nvmn projc. An applcaon of h mol carr ou for 20 counr n Afrca. Th rul how ha h forgn xchang prmum rang from 4.00% o 9.50% an h prmum for non-raabl oulay from 1.75% o 1.50%. Th mprcal valu pn on a numbr of facor nclung h nrc ax proucon ub an nrnaonal ra oron of a counry. Th prmum houl b ncorpora no h conomc valuaon of nvmn projc. Rv papr publh a: Salc S. (2013). Maurng Th orgn xchang Prmum An Th Prmum or Non-Traabl Oulay or Twny Counr In Afrca. Souh Afrcan Journal of conomc. Kywor: oron ax ub forgn xchang prmum prmum for nonraabl oulay raabl goo Afrca JL Clafcaon: 58 H23 H43 O55 P45 R13 * Corrponng auhor: parmn of conomc un Unvry Canaa; an arn Mrranan Unvry Mrn10 Turky. -mal: Jnkn@con.qunu.ca parmn of conomc un Unvry Canaa parmn of conomc Unvry of Brmngham UK

2 MASURING TH ORIGN XCHANG PRMIUM AN TH PRMIUM OR NON-TRAABL OUTLAYS OR TWNTY COUNTRIS IN ARICA 1. INTROUCTION Th objcv of h papr ar fr o vlop an analycal framwork o facla h maurmn of h forgn xchang prmum (P) an h prmum for non-raabl oulay (NTP) an con o mprcally ma h paramr for 20 counr n Afrca. Th varabl along wh h conomc coun ra ar h ky naonal paramr rqur for complng accura an conn conomc analy of nvmn projc. Th P of a counry fn a h prcnag or proporon by whch h conomc valu of forgn xchang xc h mark xchang ra of ha counry. Smlarly hr ofn a gap bwn conomc co of h rourc u o purcha nonraabl goo an rvc mploy by a projc an hr fnancal valu. Th ffrnc ar u o h xnc of ra ax non-ax barrr an ohr nrc ax an ub n h conomy. Th oron ar ofn ubanal an can b crcal n rmnng h conomc fably of a propcv nvmn projc. 2. BACKGROUN Th haow prcng of forgn xchang u o maur h conomc valu of raabl goo ha bn much cu n co bnf analy lraur. Som of h mo mporan vlopmn n h arly lraur can b foun n Harbrgr (1967) UNIO (1972) Balaa (1974) an Blzr al. (1981). Wh xcpon of Blzr al. (1981) Jnkn an Kuo (1985) an Harbrgr an Jnkn (2002) h u wr carr ou ung a framwork for analy ha no ak no conraon h ourc of funng ha nabl h projc o purcha h forgn xchang u o fnanc h 1

3 xpnur on raabl goo an rvc. Blzr al. (1981) conclu ha accounng prc for h raabl goo ar hr borr prc unl hr a vrgnc bwn h margnal co an margnal valu of omc ncom n rm of forgn xchang. Thy a ha n prcng ra goo rlav o non-ra goo a haow xchang ra mu b u ha h nomnal xchang ra mulpl by on plu h wgh avrag ra of oal nrc ax an ub. Th wgh avrag ra of nrc ax an ub quvaln o h P xplor n h papr. Jnkn an Kuo (1985) vlop a mul-cor gnral qulbrum mol o maur h ocal co of forgn xchang for h Canaan conomy akng no accoun boh proucon an capal ub along wh mpor arff an commoy ax. Thy how ha h haow prc of forgn xchang can b valua a h um of h chang n h valu of h quan man n all cor of h conomy wh h combn mpac of h fnancng an purcha of raabl goo. A major problm wh ha uy h aumpon ha h projc fnanc nrly from ncom ax. Unr h conon Jnkn an Kuo fn ha hr a 6.5% ffrnc bwn h conomc valu an h mark prc of forgn xchang n Canaa. an (1991) focu on h horcal u urrounng h paral vru gnral qulbrum maon of h haow prc of forgn xchang. H conclu ha h haow prc of forgn xchang ha a ffrn manng n h ca of a clo conomy han o for a mall opn conomy. an ugg ha h haow prc of forgn xchang h mo convnn numrar for haow prcng n a mall opn 2

4 conomy. H alo ugg ha Harbrgr wgh avrag rul (Harbrgr 1967) can b nrpr a h maon of rlav haow prc ung h lac of compna man an upply curv. Harbrgr an Jnkn (2002) vlop a hr-cor gnral qulbrum framwork n whch projc fun ar ourc n h capal mark an hn u o purcha hr raabl or non-raabl. Th go byon h raonal paral qulbrum analy by conrng h combn capal mark borrowng opraon an h purcha of goo an rvc for h projc. Th approach allow on o accoun for mo of h mpac on conomc wlfar ha ar from h hf n man an upply of h raabl an non-raabl cor nga by h combnaon of h fnancng an purchang opraon. Harbrgr al. (2003) mol an mprcally ma a hrcor gnral qulbrum analy framwork for Souh Afrca. Th oron hy conr nclu cuom mpor u xpor ax proucon ub valu-a ax an ohr nrc ax. Bcau of h oron prvalng n h mark a wg cra bwn h conomc an h fnancal valu of raabl or nonraabl projc npu acqur or projc oupu prouc by h projc. Th P ma a 6% an h NTP 1% n ANALYTICAL RAMWORK Th concpual framwork mploy n h papr h hr-cor gnral qulbrum mol vlop by Harbrgr an Jnkn (2002). W organz h mpac of h ourcng of fun an hr pnng on raabl an non-raabl n a mpl mulaon mol o ha h ffc can b accoun for an ngra n a conn mannr. Whl h mol may b aggrga n naur nvrhl al nough 3

5 o capur h man oron aoca wh chang n man an upply bwn h raabl an non-raabl cor afr h wo mark opraon ak plac. Th fr mark opraon h ourcng of fun from h capal mark o fnanc h purcha of h projc npu. Th fun can b ourc hr omcally or abroa. Whn fun ar rawn n h omc mark h purcha ha woul hav bn ma ung h fun wll b uppr n rm of ruc conumpon an nvmn xpnur. Th cra an xc upply of raabl an non-raabl n h conomy. Th wll no b h ca howvr f h fun ar ra abroa nc no placmn of omc nvmn an conumpon wll nally ak plac. Th con mark opraon h pnng of h fun ra n hr h omc or forgn capal mark. If fun ar all pn on raabl h haow prc of forgn xchang or h P can b maur by akng no accoun all h conomc wlfar ffc cau by h mark oron nracng wh h movmn n man an uppl of h raabl an non-raabl cor. Th ffc on h conomy pn on boh h ourc of h fun an h parn of h oron n h mark for goo an rvc. Th n mpac of wo mark opraon oghr cra h P whch xpr a h xc of h conomc valu ovr h mark xchang ra: P W W f f (1) whr: h proporon of fun ourc omcally f h proporon of fun ourc abroa 4

6 h chang n h conomc wlfar from h wn acon of ourcng W fun from h omc capal mark an pnng h fun on raabl an h chang n h wlfar co ha u o h ourcng of fun from W f h forgn capal mark an pnng h fun on raabl. Lkw whn fun ar pn on non-raabl goo h NTP can b maur by chang n conomc wlfar rla o h hf n man an upply bwn raabl an non-raabl goo an rvc n h prnc of mark oron cau by ax. Tha NTP W W n f n f (2) whr: h amoun of h chang n conomc wlfar ha u o combn W n acon of ourcng of fun va h omc capal mark an pnng h fun on non-raabl an W n f h chang n conomc wlfar ffc ha u o h ourcng of fun va h forgn capal mark an hn pnng h fun on nonraabl. To rmn h oal mpac w n o ma h proporon of h fun ourc omcally an abroa a wll a h conomc wlfar mpac of pnng h fun on raabl an non-raabl. 1 Gvn h xng ax rucur an ohr quanfabl 1 In ach ca h wlfar ffc ar compo of wo lmn namly h mpac on h omc nrc ax an h ffc on xrnal ax. Th formr rv from Appnx A whl h lar oban from Appnx B. 5

7 mark oron n a counry any movmn n h man an uppl of raabl an non-raabl wll alr h lvl of conomc wlfar. Th wlfar chang can b valua a h mark mov from hr nal qulbrum o h nw on afr h complon of h mark opraon. Th hr-cor mol of an conomy allow u o pcfy mo of h ax an uby mark oron an o valua h chang n conomc wlfar cau by h wo ac mnon arlr. Th hr cor ar h mporabl xporabl an non-raabl goo an rvc. Imporabl an xporabl ar raabl n h n ha for h counry n quon hr om nrnaonal ra n h m. Whn h mporabl or xporabl ar man omcally h rvnu from h valu-a ax xc ax an ra ax lv on hm wll b alr a any chang n hr omc man n urn alr h quan mpor or xpor. Snc h mpac on h conomy ffr n ach ca hr woul b ffrn conomc wlfar co mplcaon. In h followng con w wll fr crb h mpac of ach ca an hn ummarz h oal ffc on h conomy pnng on h ourc of h fun. 3.1 maon of h P Th P capur h oron n chang n conomc wlfar cra by h ax an ub lv n h mark n whch forgn xchang u or gnra. or a projc ha u forgn xchang h fun can b ourc hr omcally or abroa. W bgn wh h ca n whch fun ar ourc n h omc mark o 6

8 purcha h forgn xchang an hn al wh h ca n whch fun ar ourc abroa. A. un Sourc omcally ar Spn on Traabl Goo Whn fun ar xrac from h omc capal mark o fnanc h purcha of raabl goo h wll ruc h xpnur ma by ohr bun an conumr on raabl an non-raabl goo an rvc. Th cra n h man for raabl goo or rvc wll ruc h amoun of valu-a ax (VAT) an xc ax collc. In h ca of VAT bun wll b cr for all h ax pa on purcha of bun npu o off h VAT labl from hr al. 2 A a ( 1 conqunc only ) of h plac xpnur from h capal mark opraon wll affc VAT paymn whr rfr o h proporon of xpnur urng h capal mark xracon ha xclu from VAT bcau of h npu ax cr. Th hown n h fr wo m of quaon (3). Ung h omc currncy a a numrar h ral xchang ra rflc h rlav prc of raabl o nonraabl goo. In h ca of xc uy or ax mo of h ar on conumr goo uch a alcoholc bvrag obacco prouc an comc whch ar raabl an alo axabl. vn n h ca of xc uy on ful purcha by bun h ar no uually crabl. Th ffc on non-raabl goo capur n h hr m of quaon (3). Thu W 1 capur h oal mpac on h wlfar co ha u o chang n h omc 2 An xplanaon can b foun n for xampl Br an Gnron (2005). 7

9 nrc ax ncluv of VAT an xc ax collc ovr h proc of h xracon of fun from h omc capal mark. 3 W v n (3) n n 1 v 1 n 1 whr: v h ffcv VAT ra on h man for raabl v n h ffcv VAT ra on h man for non-raabl n h ffcv xc ax or uy ra on non-raabl h amoun of fun ra hrough h omc capal mark h rucon n h man for raabl ha u o h omc capal mark xracon an n h rucon n h man for non-raabl ha u o h omc capal mark xracon. A h ourc fun ar oally pn on raabl h wll cra a n xc man for raabl an a n xc upply of non-raabl n h conomy. Th qulbrum uaon wll cau a r n h rlav prc of raabl o nonraabl. A a conqunc hr wll b a cra n h quany of raabl man bu an ncra n h man for non-raabl. Th upplr of raabl wll fn profabl o prouc mor whl upplr of non-raabl wll prouc l. Th proc wll connu unl a nw qulbrum rach n whch no xc upply x n h raabl cor owng o ajumn hrough h flxbl xchang ra. 3 Th mpac on raabl xc ax capur n quaon (10) blow. 8

10 Th rourc rqur o prouc h aonal raabl wll com from h rucon n h proucon of non-raabl. qulbrum agan ablh whn h um of h oal man for raabl an non-raabl ( non-raabl ( ). ) qual h upply of raabl an = + n = + n = (4) whr: an n ar h man for raabl an non-raabl rpcvly an an n ar h upply of raabl an non-raabl rpcvly. Gvn h rourc conran rman unchang bfor an afr ourcng of fun n h capal mark an pnng on hr raabl or non-raabl. Howvr h qulbrum n h conomy urb on h man by h projc ncra man for hr raabl P P or non-raabl n whl a h am m hr a fall n man for raabl an non-raabl cau by h xracon of fun from h capal mark. Th n chang wll b an xc man for raabl goo f h projc pn all h fun on raabl goo. Alrnavly hr wll b an xc upply of raabl goo f h fun ar all pn on non-raabl goo. In h n h oal man an upply of goo an rvc mu b qual a h ral xchang ra ac o facla ajumn. Thu quaon (4) mof a follow: P P n n n (5) 9

11 A a conqunc of h ang-up propr of man n a wo-goo conomy h followng quaon wh rpc o h ral xchang ra mu hol: n 0 (6) Ung h compna own-prc lacy of man for raabl 4 an h compna cro-prc lacy of man for non-raabl wh rpc o a chang n h forgn xchang ra h abov rlaonhp can b rv a follow: n n n (7) Th conon prov u wh a conncy chck n h mark opraon. By h am okn h rlaonhp hol for h upply. 5 n n (8) Th ubuon ffc on h wlfar co a hown n quaon (9) can b maur by h n mpac on h omc nrc ax an proucon ub aoca wh h chang n quan of raabl an non-raabl man an uppl. Th fr 4 Th raabl man brokn own no man for mporabl an man for xporabl. Th compna man lacy for raabl can hn b hown by h wgh avrag of h lac of man for mporabl an xporabl wh rpc o h ral xchang ra. Tha whr an xporabl n oal raabl rpcvly. 5 Smlarly h upply lacy of raabl upply of mporabl an xporabl an for h har of h man for mporabl an qual o h wgh avrag of h lac of. Tha for h har of h upply of mporabl an xporabl n oal raabl rpcvly. whr an an 10

12 rm rfr o chang n h amoun of VAT collc an uby prov o h proucon of raabl whl h con rm compo of chang n VAT an xc ax/uy collc an uby prov for h proucon of non-raabl. W v 1 k v 1 n n k n n n n n 2 1 (9) whr: an ar h own-upply lacy of raabl an h cro-upply n lacy of non-raabl wh rpc o chang n h ral xchang ra rpcvly k an k n ar h proucon ub on raabl an non-raabl rpcvly an h proporon of h chang n man rulng from h xchang ra ajumn ha ar xclu from VAT bcau hy ar chang n crabl bun npu. In aon o h omc VAT an xc ax hr ar ohr oron uch a mpor u xc an xpor ax aoca wh chang n h qulbrum quan of man an upply of raabl goo whl crong borr.. mpor an xpor. In orr o a h mpac w n o para h man an upply of raabl no mporabl an xporabl componn ha an. I houl b no ha o long a h prc of mpor rman unchang an ncra n h man for h mporabl wll ulmaly ncra h quany of mpor nc h omc upply of h goo wll no b affc. Th 11

13 12 ffc of h chang on wlfar co ovr h capal xracon ar maur by W 3 : 6 x m m W 3 1 (10) whr: m h ffcv mpor uy ra x h ffcv xpor ax ra an h ffcv xc ax or uy on raabl goo. Th fourh componn W 4 accoun for wlfar co cau by mpor u xc ax on raabl an xpor ax aoca wh chang n quan of mpor an xpor ha ar u o chang n h ral xchang ra (or ubuon ffc). Gvn ha a ra fc n a counry mu rflc an xc man of qual z for h counry oal raabl 7 4 W can b maur a follow: X X M M m M M m W (11) whr: X h own-prc upply lacy of xpor M h own-prc man lacy of mpor 6 Th mpac xpr n quaon (10) an (11) ar rv from Appnx B. 7 Tha =. Th can b ranla no h followng rlaonhp: M M X X. S for xampl Jnkn al. (2013). X M

14 X M h amoun of xpor an h amoun of mpor. B. orgn un ar Spn on Traabl Goo Whn fun ourc abroa ar pn on raabl goo hr no xc omc man for forgn currncy nor hr an xc man for omc currncy. Thu hr no mpac on h man an upply of raabl or non-raabl n h omc conomy an no aonal wlfar co wll occur ha. W 0 f Aumng h amoun of fun ra n h conomy on un of forgn currncy P can hn b maur by ubung h um of h wlfar co calcula from quaon (3) (9) (10) an (11) no quaon (1): P W 1 W W W f 2 f W 3 W 4 (12) 3.2 maon of h NTP Th NTP a prmum quvaln o h P ha aoca wh non-raabl oulay whr fun ar ra n h capal mark o fnanc h purcha of non-raabl. I h amoun by whch h conomc oulay xc h fnancal oulay. Agan w hall fr maur h oron rla o ach of h fun ourc hr omcally or abroa. 13

15 C. omc un ar Spn on Non-raabl Goo In h ca h mpac of h capal xracon wll hav h am ffc a prn n ca A a xpr n quaon (3) an (10). Whn h fun ar pn on non-raabl hr wll b an xc man for nonraabl an an xc upply of raabl. Th wll cau h rlav prc of nonraabl o raabl o ncra (or h ral xchang ra o cln) nucng upplr n h non-raabl cor o xpan n whch aonal rourc mu b mov from raabl cor o non-raabl cor. Th proc wll connu unl h xc man for non-raabl mnh an qulbrum r-ablh. Th ajumn proc h rvr o ha prn n ca A. Th mpac of h ajumn on h conomy ar wo-fol. Th fr ffc h chang n wlfar co W 5 aoca wh chang n omc ax nclung VAT xc ax an proucon ub ha ar u o h chang n h ral xchang ra. Th can b maur a follow: 8 W 5 v 1 k v 1 n n k n n n n n (13) Th con ffc ( W 6 ) h chang n wlfar co aoca wh chang n mpor u xc ax an xpor ax a a rul of chang n h ral xchang ra. Th componn can b calcula a follow: 8 Th rvaon of quaon (13) an (14) can b foun n Appnx B. 14

16 15 X X M M m M M m W 6 1 (14) Th oal wlfar co n h ca can b maur by h um of W W W an. W 6. orgn un ar Spn on Non-raabl Goo Whn forgn fun ar ourc hr no mpac on h omc conomy a a rul of h fun bng xrac abroa. Unl h fun ar pn on non-raabl an aonal man for non-raabl wll cau an ncra n h prc of non-raabl goo rlav o ha of raabl goo. Th mpac n h ca grar han ha crb n ca C nc hr no nal placmn of omc nvmn an conumpon n non-raabl goo o b off. A a conqunc h upply of nonraabl wll n o xpan much mor manng grar rourc n h cor ha mu b rla from h raabl cor. Proucon n h raabl cor wll conrac bcau of h pr mark prc for raabl. Thr only a ubuon ffc n h ca. Th ffc can b para no wo par. Th fr h chang n wlfar co W 7 aoca wh chang n VAT xc ax an proucon ub. I can b calcula a follow: n n n n n n n k v k v W (15)

17 Th con par W 8 h chang n cuom u xc ax an xpor ax aoca wh h chang n man an upply of raabl goo whn h goo cro borr. Th can b hown a follow: W (16) 8 m M M 1 m M M X X Thu h oal conomc wlfar ffc n h ca mply h um of W7 an W 8. Snc fun u for h projc ar ourc omcally a wll a abroa h NTP houl b ma a a wgh avrag of h wlfar co aoca wh ach ourc of fun. Th can b on by ubung h wlfar co calcula from quaon (3) (9) (13) (14) (15) an (16) no quaon (2): NTP W n W W W W W W 1 W f 3 n f 5 6 f 7 8 (17) 4. MPIRICAL STIMATION 4.1 Aumpon an Paramr u n h Mol Th analycal framwork for maurng h P an h NTP wa prn n h prvou con. To maur h prmum w n o ma all h paramr prn n h varou formula. Th fr h proporon of fun ourc omcally an abroa n orr o fnanc h purcha of raabl or non-raabl. Th con h rlav z of raabl an non-raabl goo n h conomy h bng u o maur h nrrla mpac bwn h raabl an non-raabl 16

18 cor. Th hr h man an upply lac of mpor xpor an nonraabl goo wh rpc o h ral xchang ra. Th la paramr h ffcv ax ra for ach of h major nrc ax an h ffcv proucon uby ra. ach counry n Afrca may b unqu n rm of conomc rucur an varou oron prvalng n h conomy. Thr ar alo u rgarng h avalably of aa an whhr hy ar al nough o calcula paramr rqur for h uy. W wll prn h ma for Souh Afrca o llura how h paramr can b rv. Th nformaon for Souh Afrca gnrally al nough o b u o maur h P an NTP publcly avalabl an may rv a a gnral gu whn carryng ou h ma for ohr counr Alrnav Sourc of un Whch ourc of fun u o fnanc projc ha a gnfcan mpac on h maurmn of h P an h NTP. Th u o h fac ha f ourc n h omc capal mark h fun wll plac xpnur on nvmn an fnal conumpon whra no uch placmn xpnur occur f fun ar ourc abroa. Th paramr b ma from h margnal ourc of fun for nvmn whn fun ar ra n h capal mark. or a mall an opn conomy whn fun ar ra n h capal mark h nr ra wll b ra lghly whch wll mula omc avng for houhol rla fun from plac nvmn an nuc aonal forgn capal nflow. 9 Th fr wo of h ar omc mark ourc 9 S Harbrgr (1972) an Jnkn al. ( 2013) Chapr 8. 17

19 ( / whl h hr from forgn avr. Thr har ) ma a h margnal ourcng a follow: an / can b S / S I / S / S / S S / S I / S / h h h h f f (18) S / S / S / S S / S I S (19) / / f f h h f f whr: h h upply lacy of houhol avng f h upply lacy of forgn fun h man lacy for prva-cor omc nvmn wh rpc o chang n h ra of nr S h /S h har of houhol avng n oal prva-cor avng S f /S h har of forgn avng n oal prva-cor avng an I /S h rao of oal prva-cor nvmn o oal avng. Th avrag har of houhol avng can b approxmaly ma by h rao of avng by naonal o nvmn xpnur. 10 In h abnc of al aa h arng pon o aum ha oal prva omc nvmn oally fnanc by oal prva avng ncluv of forgn capal nflow whch mpl ha h rao of I o S wll b Th can b oban from Worl Bank (2011). 18

20 Th rponvn of houhol avng forgn avng an prva nvmn o nr ra a mar of conrabl ba. Howvr h gnral connu from h lraur nca ha h upply lac of fun ar approxmaly 0.4 for houhol avr an 2.0 for forgn avr 11 whl h man lacy of nvmn abou 1.0. Gvn h aumpon w ar abl o ma h proporon of fun ourc omcally an abroa a margn. or Souh Afrca ma ha h proporon of fun ourc from h omc mark 74% an from forgn avr 26%. 12 Th xn o whch ach ourc conrbu o h fun pn upon h rpon of ach cor of h conomy o h ral nr ra Traabl vru Non-raabl Mo of h Afrcan counr hav bn n a ra fc poon for yar. Th har of h man for mporabl much grar han ha of xporabl an hu h mporabl man aum o rprn a much grar har of oal raabl han xporabl man. or h purpo of h uy h man for mporabl aum o accoun for 80% of h oal raabl man n an conomy. On h ohr han h upply of mporabl aum o b 40% of h oal upply of raabl. or Souh Afrca w hav calcula ha h upply of mporabl wa abou 30% of h oal upply of raabl Th aumpon hav bn wly u lwhr. S.g. Bokn (1978) Lpzgr (1974) Burg (1981) an Jnkn (1981). 12 S.g. Kuo al. (2003). Naurally nvy analy houl b prform for om ky varabl uch a h upply lacy of forgn avng. 13 Th calcula ba on Sac Souh Afrca (1998). 19

21 Wh rgar o ang h mpac on h conomy of h capal xracon alon h proporon of mporabl can b mor han h 80% ha aum for h conomy a a whol bcau raabl goo mak up a largr har of oal nvmn nclung machnry qupmn l c. In h ca of Souh Afrca ma ha abou 85% of fun ar ourc from h placmn of nvmn an 15% from conumpon forgon n rpon o mula houhol avng. 14 Of h plac nvmn abou wo-hr wr raabl goo uch a machnry qupmn moor vhcl an rucural mal prouc n Th rmanr wa bulng an nfrarucur whch ar conr non-raabl. A a conqunc h plac man for raabl ha u o borrowng omcally 68.95% for Souh Afrca ovr h capal mark xracon. 16 xamnng omc capal xracon plac raabl goo uch a machnry qupmn an moor vhcl ar manly mporabl. Accorngly h man for mporabl a a proporon of h oal man for raabl capal formaon coul b a hgh a 95% or 85% a a conrvav ma. A rgar raabl conumpon 80% aum o b mporabl h am proporon a for h conomy a a whol. Wh h aumpon h plac mporabl a a proporon of oal raabl ma o b a hgh a 84% for Souh Afrca urng h nal capal mark xracon. 14 Whn fun ar ra n h capal mark o fnanc a projc or program h ulma ourc of h fun ar 62.5% from ho ha woul hav bn nv n ohr omc acv 11.5% from mula houhol avng an 26.0% from aonal forgn capal nflow. Th mpl ha of h omc ourc 84.5% com from placmn nvmn an 15.5% from houhol conumpon forgon. S Kuo al. ( 2003). 15 S al by commoy for fx capal formaon n Sac Souh Afrca (1998) Tabl 4: U of Prouc a Purchar Prc. 16 Th ma by h um of 15%* %*0.85 wh h aumpon ha houhol man for conumpon 80% raabl. 20

22 4.1.3 man an Supply lac Th man an upply lac of raabl or non-raabl goo ar mporan for quanfyng h rpon of hr man an upply o h rlav prc of raabl o non-raabl goo. A chang n h rlav prc quvaln o h chang n h ral xchang ra. If h ral xchang ncra h man for mporabl goo wll cra a wll h amoun of mpor uy collcon. Such an ncra wll alo ruc h amoun of VAT an ohr nrc ax aoca wh h man for hr mporabl or xporabl. Prc ma of man (or upply) lac of raabl an non-raabl ar no raly avalabl n h lraur. Th formr can b ma a a wgh avrag of man (or upply) of mporabl an xporabl. In h uy h compna ownprc lac of man for mporabl an xporabl ar aum o b 1.0 an h compna own-prc lacy of man for raabl wll alo b 1.0. On h upply h prc lac of upply of xporabl an mporabl ar aum o b +1.0 whl h own-prc upply lacy of raabl wll alo b Gvn h rourc avalabl n h conomy n orr o nur h mark qulbrum h rv compna own-prc lacy of man for raabl mu b qual o h compna cro-prc lacy of man for non-raabl mulpl by h rao of h man for non-raabl o h man for raabl n n a hown n quaon (4). Th upply lacy of raabl alo qual h cro-prc lacy of 21

23 upply of non-raabl mulpl by h rao of h upply of non-raabl ovr h upply raabl. n n Tha bng a n orr o quanfy h ffc on h amoun of mpor u an xpor ax w mu ma h compna own-prc lacy of man for mpor an h upply lacy of xpor M X. Th formr calcula a h compna own-prc lacy of man for mporabl mulpl by h rao of h man for mporabl o h amoun of mpor mnu h prc lacy of upply of mporabl mulpl by h rao of upply of mporabl o h amoun of mpor. Th lar calcula by h prc lacy of upply of xporabl mulpl by h rao of h upply of xporabl o h amoun of xpor mnu h compna ownprc lacy of man for xporabl mulpl by h rao of h man for xporabl o h amoun of xpor. Gvn h conomc rucur of Souh Afrca n 1998 (Sac Souh Afrca 1998) h rao of h man an upply of mporabl o mpor ar ma o b abou 1.6 an 0.6 rpcvly. I follow ha h man lacy for mpor woul b Lkw h rao of upply an man M for xporabl o xpor ar ma o b approxmaly 1.4 an 0.4 whl h upply lacy of xpor woul b X Th ffcv Tax an Suby Ra Th major oron nvolv n h maon of h P an h NTP nclu mpor u xpor ax VAT xc ax an ub prov by govrnmn o proucr. Ina of auory ax ra h rao of acual ax collc or h amoun of ub prov rprn h ffcv ra of h oron n h conomy an ar hu u o maur hr mpac on wlfar co. 22

24 Impor Tarff Th ffcv mpor arff ra calcula by vng h oal mpor uy collcon by h amoun of mpor a CI (co nuranc an frgh) valu a prn n Scon 3.1 an 3.2. Th ax ra nclu arff an any ohr urcharg aoca wh mpor commo or u-up of forgn xchang rla o mpor of ho commo. or xampl h avrag ffcv ax ra ( m ) for Souh Afrca rang from 2.48% o 4.16% urng h vn-yar pro or h purpo of valuang projc n h fuur w conr h avrag ra of h la wo yar whch wa 2.66%. Thr no ax mpo on xpor goo ol n worl mark for Souh Afrca. Valu-A Tax Th ffcv ax ra for VAT calcula a h amoun of VAT collc a a prcnag of oal houhol fnal conumpon xpnur. 17 Th u o h naur of a conumpon-yp VAT whch h ym commonly opra aroun h worl. Alhough VAT a mul-ag al ax h nvoc-cr mho allow bun full cr for h ax pa on bun npu nclung capal a. A a rul h fnal conumr bar h burn of h ax. or ocal halh or chncal raon om goo an rvc ar ax xmp n vrually all VAT jurcon. Small bun who urnovr ar l han h hrhol ar alo xclu from h ax ym for amnrav raon. Unr h crcumanc bun canno clam npu ax 17 Houhol fnal conumpon xpnur fn a h mark valu of all goo an rvc purcha by houhol. Th amoun xclu purcha of nwly conruc wllng bu nclu mpu rn for ownr-occup wllng. I alo nclu paymn an f o govrnmn n orr o oban prm an lcn. 23

25 cr agan h ax collc from al. or all nn an purpo w aum ha h ax woul b fully hf forwar o h fnal conumpon n hghr prc an bcom par of h avrag ffcv ax ra. In aon h ffcv ax ra of raabl an non-raabl goo ar ubanally ffrn. or counr covr n h uy mo raabl goo ar all lv a h anar ra wh h xcpon of bac foo whch ar manly unproc an largly prouc n h agrculural cor. In Souh Afrca a conumpon-yp VAT a 14% wa nrouc n 1991 o rplac h Gnral Sal Tax. Th bac foo ha ar ax xmp accoun for approxmaly 15% of houhol raabl conumpon xpnur. 18 A ubanal poron of non-raabl goo an rvc nclung mcal rvc ucaon an ocal rvc an mpu rvc prov by ownr-occup hou ar xmp. 19 A a conqunc npu ax pa on h acv ar no crabl an hnc ar pa forwar o fnal conumr n hghr prc. Th ax n fac hn an vnually rflc n h ffcv ax ra of non-raabl goo an rvc. Thu h avrag ffcv VAT ra xpc o b lowr for non-raabl goo han for raabl goo. I houl alo b no ha ma of h abov wgh avrag of h ffcv VAT ra for raabl an non-raabl may ll b lowr han h avrag ffcv VAT ra calcula from h acual ax collcon. Th u o h fac ha w hav no akn no accoun h nformal conomy h lack of amnrav capacy o hanl 18 Th ba on 1998 Souh Afrcan Houhol xpnur Survy. Howvr h rao ha cln o 8.8% (Sac Souh Afrca 2008). 19 Th only axabl rvc nclu rauran hol an ohr accommoaon lcommuncaon rvc om ral rvc an profonal f prov by lawyr accounan ngnr archc c. Th axabl rvc conu abou 20% of all non-raabl houhol conumpon xpnur. 24

26 larg volum of ax rurn xmpon from compulory VAT rgraon an vaon by axpayr. Th mpl a low complanc ra n many vlopng counr 20 an a ponal ax complanc rao mu b accoun for. Gvn h rlav z of raabl an non-raabl a 67% an 33% a prvouly prn w can xpr h avrag ffcv VAT ra for a counry a h wgh avrag of h ffcv ax ra for raabl an non-raabl by ncorporang h ponal complanc ra for h ax ym. Wh h auory ra of 14% n Souh Afrca h ffcv VAT ra ma a abou 12.88% (v ) for raabl an 8.40% (v n ) for non-raabl. In aon w ar alng wh wo opraon n h gnral qulbrum analy ng: fun xrac from h capal mark an h ubuon ffc on h quan man an uppl n rpon o h ral xchang ra. Th ncnc of a conumpon-yp VAT wll b born hrough h conumpon poron of h man for goo bcau ax pa on nrma npu an capal goo purcha by bun ar all rfunabl. or Souh Afrca w ma ha h proporon of h chang n man ha xclu from VAT a a conqunc of h capal xracon opraon ( ) approxmaly 85%. In h ca of h ubuon ffc h coffcn ( ) ma a 60% ba on h rao of h um of nrma npu plu capal nvmn o h oal oupu for S..g. Jnkn an Kuo (2000). 21 Th wa abou 59.2% ma from Sac Souh Afrca (1998) Tabl 4: U of Prouc a Purchar Prc. 25

27 xc Tax or uy In mo counr covr by h uy hr a of xc ax or u ha ar lv on lcv commo a a ngl ag wh a valorm ra or pcfc un ra. Th prouc gnrally nclu of rnk bol war alcoholc bvrag cgar an obacco prouc moor vhcl prolum prouc an comc. Th l can b long pnng upon h ax law n pcfc counr. Th lcv commo ar all raabl an manly purcha for houhol fnal conumpon. 22 Th xc ax or uy gnrally lv on mpor uy-pa valu f mpor or a h facory ga f prouc locally. Howvr for om prouc n cran counr mpo a wholal or ral lvl. Wh h gnral hypoh of fully hf forwar al ax w ma h ffcv xc ax or uy ( ) for Souh Afrca o b 6.06% ba on h houhol fnal conumpon xpnur. Th ramn quvaln o h ax ba on mpor uy-pa valu. 23 xpor Tax or om counr xpor ax ar mpo on a fw commo n orr o gnra mor ax rvnu or o proc cran procng nur. 24 Th ffcv xpor ax ra calcula a h rao of h oal xpor ax rvnu o h oal OB (fr on boar) valu of xpor. No xpor ax mpo on xpor goo n Souh Afrca. 22 vn f hy ar purcha for bun purpo.g. moor vhcl or ful hy ar gnrally no crabl lk h VAT ym. Howvr f hy ar hy houl b ra n h am fahon a n h VAT ym. 23 A h lcv xcabl commo ar all raabl h ffcv xc ax ra ma hr ba on raabl conumpon xpnur alon. Th ffcv xc ax ra on non-raabl goo an rvc vrually zro. 24 or xampl Ivory Coa h larg cocoa-proucng counry n h glob. I mpo xpor ax on cocoa. Th ax gnra a ubanal amoun of h govrnmn rvnu. 26

28 Proucon Suby In om counr ub ar prov o nrpr rn proucr or mporr (Afrcan vlopmn Bank 2010). Sub u up aonal rourc o nabl proucr o comp n omc or nrnaonal mark. Th ffcv uby ra calcula by akng h oal amoun of ub an vng by GP (gro omc prouc) a facor co wh h aumpon ha ub ar prov qually bwn raabl an non-raabl goo cor. or Souh Afrca wa ma a abou 0.40%. 4.2 Th P an h NTP for Souh Afrca Gvn h ma for h ourcng of fun h proporon of raabl an nonraabl goo man lac for raabl an mpor an h upply lac of raabl an xpor oghr wh h ffcv ax an uby ra prn n h prvou con w can ubu h paramr no h quaon prn n Scon 3.1 an 3.2 o gnra h P an h NTP for Souh Afrca. Thr valu woul b approxmaly 6.41% an 0.63% rpcvly a hown n Tabl 1. Tabl 1: Summary of xrnal for Souh Afrca (%) un pn on raabl goo un pn on non-raabl goo omc capal ourc orgn capal ourc Capal mark wgh

29 Hr a nvy analy prform. A prvouly cu h ourcng of fun a h margn lkly o b nv o h upply lacy of h ock of forgn capal wh rpc o h nr ra. If h upply lacy of forgn capal ncra from 1.5 o 2.0 h proporon of fun ourc abroa woul ncra from 26% o 32% an from h omc capal mark woul cln from 74% o 68%. Ohr hng bng qual of h 68% ourc from omc avng 10.6% woul com from mula houhol avng an 57.5% from plac nvmn. Th ugg ha h P an h NTP woul b lowr o 5.89% an 0.11% rpcvly. rom h abov analy w conclu ha h P for Souh Afrca woul b approxmaly 6.25% an h NTP woul b 0.50%. Th ma ar lghly hghr han h prvou ma owng o a numbr of facor nclung h lvl of h ffcv VAT ra for raabl an non-raabl goo h xc uy ra for raabl goo h lac of man an upply of mporabl an xporabl goo an h prcnag xcluon from VAT urng h xchang ra ffc Th P an NTP for Ohr Afrcan Counr wh a VAT Sym W follow h gnral procur ablh n h prvou con for Souh Afrca o ma h ky paramr or aumpon u o maur h P an h NTP for a numbr of counr ha hav a conumpon-yp VAT. or xampl mang h ourcng of fun a margn woul rqur h avrag proporon of avng rao for omc an forgn avr h rao of h prva-cor nvmn o oal avng an h man an upply lac of fun wh rpc o h co of capal ra 25 On of h raon for h ffrnc ha n h prvou uy h ffcv xc uy ra for raabl goo wa n fac ba on h oal houhol conumpon xpnur nclung raabl a wll a non-raabl goo. I wa ba ownwar n rm of h oron aoca wh h raabl goo cor. S Harbrgr al. (2003). 28

30 n h capal mark of ach counry. W calcula h avrag rao of gro avng from naonal o gro fx capal formaon a a proxy for h rao of omc avng o oal prva-cor avng. Th avrag prva-cor nvmn avng rao woul pn on h fnancal uaon n ach counry. In h ca of ourc of fun rqur for projc aum ha h upply lacy of fun for houhol avr 0.4 for forgn avr 2.0 an for h man lacy of nvmn 1.0. Th rul ( of h paramr ) for ach counry ma an hown n h con column of Tabl 2. Scon w hav aum ha for ach counry n h uy h plac man for ( raabl goo by borrowng fun omcally ) for nvmn projc 67% an for non-raabl goo 33%. Th man for mporabl a a har of oal man for raabl n an conomy aum o b 80% whl h upply of mporabl a a har of oal upply of raabl 40%. Th mpl ha h compna own-prc lacy of man for mpor mu b 3.00 an h ownprc upply lacy of xpor 2.00 f h compna own-prc lac of man for mporabl an xporabl ar 1.00 an h prc lac of mporabl an xporabl ar In h ca of ang h plac mporabl a a har of oal man for raabl urng h proc of xracng capal omcally w ak no conraon h ffrn capacy for manufacurng urabl goo uch a machnry ranporaon an lcrc qupmn moor vhcl an ron 29

31 ( an l n ach counry. Th paramr ) prn n h hr column of Tabl A n h ca of Souh Afrca w hav aum ha h proporon of xcluon from h VAT for nvmn purpo 85% n h proc of capal mark xracon. In h ca of gnral bun ha u o h ubuon ffc h xcluon from VAT aum o b 60%. 27 Th mo mporan oron affcng h P an h NTP nclu h ra of mpor uy xpor ax VAT xc ax an ub prov by govrnmn o proucr. Th vary conrably acro counr. Annual ffcv ax an uby ra ar calcula for h pa fw yar for ach counry an h mpl avrag ra n h la wo o hr yar for whch aa ar avalabl ar hown n column 4 o 9 of Tabl 2. Subung h paramr no h quaon prn n Scon 3.1 an 3.2 nabl u o gnra ma of h P an h NTP for ach counry. Th ma ar prn n h la wo column of Tabl or xampl h paramr for Knya 0.92 calcula a a wgh avrag of mporabl a a har of oal man for raabl of boh houhol conumpon xpnur an bun nvmn (.. 15%* %*0.95). 27 I can b argu ha h xcluon from VAT houl b lowr a ay 55% owng o a hghr conrbuon of capal o proucon n counr ha ar l vlop han Souh Afrca. Th woul ra h ma P margnally by 0.5 o 0.75%. or xampl h P for Knya woul b 8.70% na of 8.65%. 30

32 Tabl 2: Paramr an ffcv Tax Ra for Counr wh a VAT Sym (%) Counr Paramr ffcv ax an uby ra Prmum un Capal ourcng xracon P NTP (1) / (2) / (3) m (4) x (5) v (6) v n (7) (8) k (9) (10) (11) hopa Ghana Ivory Coa Knya Maagacar Mal Mauru Morocco Ngra Rwana Sngal Tanzana Togo Tuna Ugana Zamba TH P AN TH NTP OR COUNTRIS WITH A GNRAL SALS TAX SYSTM Th con concrn wh counr ha o no hav a VAT ym. Unlk VAT jurcon h counr mplmn a gnral al ax ym wh no cr prov o vnor on hr bun npu. Howvr om counr uch a gyp prov a paral ax cr o cran cor. Th ncnc of h ax ym wll 31

33 ffr from ha whch wa crb n h prvou con. In h con w wll al wh hr counr gyp Sychll an mocrac Rpublc of Congo. gyp Th Gnral Sal Tax n gyp wa fr nrouc n 1991 o rplac Conumpon Tax. I wa hn xn from h manufacur al ax o wholal an ral lvl. Par of h ax pa on nrma npu allow a a ax cr an h zro-rang of xpor alo prm. Howvr no cr allow for h purcha of capal a. I on p hor of bcomng a conumpon-yp VAT. A a rul om axcacang ffc prval n h ym an h mu b akn no accoun whn maurng h P an NTP. Morovr h Gnral Sal Tax n gyp ha mulpl ra. Th anar ra lv on axabl goo 10%. A ruc ra of 5% appl o foouff an frlzr; a hghr ra of 25% lv on lvon rao jwllry an om vhcl; an a ll hghr ra of 30% mpo on luxury m uch a comc vo camra an xpnv vhcl. A n VAT jurcon xmpon from h Gnral Sal Tx nclu bac foo an mcn qupmn for naonal fnc an cury an cnfc ucaonal an culural prouc mpor for u by cnfc rarch nuon. Gvn h gnral aumpon of a fully forwar hfng of h al ax o fnal conumr all cacang ffc ha ar h rul of h abnc of cr prov o bun purcha of capal goo or ax xmpon ar aum o b pra ovr h fnal houhol conumpon xpnur n h form of hghr prc of goo an 32

34 rvc. 28 Ung h aumpon pobl o ma h ffcv Gnral Sal Tax ra for raabl an non-raabl goo. Wh a paral cr unr h Gnral Sal Tax h proporon of xcluon from h Gnral Sal Tax urng h capal mark xracon an for gnral bun purpo ar ma o b approxmaly 74% an 52% whch ar lowr han h 85% an 60% u for h prvou mulaon wh a VAT ym. Sychll Sychll a counry pannng an archplago of 115 lan n h Inan Ocan. I prvouly opra a Goo an Srvc Tax ha wa lv on locally manufacur goo an rvc a 15% wh om ruc ra on pcfc rvc. 29 Howvr on Spmbr h Mnr of nanc Tra an Invmn announc ha on January VAT woul b nrouc o rplac h Goo an Srvc Tax. or h purpo of h uy w aum h counry wll mplmn a VAT ym. Snc Sychll an lan conomy havly pnn upon ourm. I wa lkly ha goo an rvc rla o h ourm cor woul b ax unr a propo VAT ym. xmpon may b lm o unproc foo ucaon an halh an ocal wlfar rvc. W aum ha h raabl goo cor n h lan conomy accoun for 75% rahr han h 67% aum for h ohr Afrcan counr prvouly mnon. urhrmor aum ha only 10% of raabl goo ar ax xmp 28 Th cacang aum o b abou 15% of h oal ax burn on fnal conumr. Th ba on a uy rlang o a ax ym mlar o h Gnral Sal Tax n gyp. In Canaa formr fral al ax ym h ax prov o b a hn nrc manufacurr al ax mbo n h valu of fnal conumpon an xpor goo. S.g. Kuo al. (1988). 29 or xampl 5% mpo on rvc prov by n an opcan whl h rvc of propry managmn bun an our opraor ar ubjc o 6%. 33

35 bcau of h ffcv conrol a cuom whl n h ca of non-raabl h fgur aum o b 40%. or h purpo of h uy w aum ha h al ax rform n Sychll wll b a rvnu-nural cnaro an hu ha wll b opra a a ngl ax ra of 15%. Th ffcv ax ra can hn b ma o b aroun 13.5% for raabl goo (g ) an 9.0% for non-raabl goo (g n ). mocrac Rpublc of Congo A Turnovr Sal Tax appl o mpor goo an locally prouc goo n h mocrac Rpublc of Congo. Th currn gnral ax ra 13%. Aumng ha h Turnovr Sal Tax woul b hf forwar o fnal conumr hr woul b a axcacang ffc owng o h abnc of ax cr prov o vnor for bun u. Th ffcv ax ra wa 3.94% n W aum ha h cacang ffc abou 30% mbo n h ffcv ax ra. 30 Th mpl ha a ax of 0.91% bng hn n h ym or mbo n hghr prc of fnal conumpon of goo an rvc. Wh h maur w can ma h ffcv al ax ra a 4.96% for raabl goo (g ) an 1.86% for non-raabl goo an rvc (g n ). Snc no cr prov o vnor for bun u hr no xcluon from h Turnovr Sal Tax urng h nal capal xracon or ohr bun purpo. 30 Th ba on h ma xprnc n h manufacurng al ax ym n Canaa whch ha h am faur a h ax ym n h mocrac Rpublc of Congo (Kuo al. 1988). 34

36 Th ffcv gnral al ax ra crb abov for h hr counr oghr wh ma of ohr ffcv xc ax an uby ra an paramr ar hown n Tabl 3. In orr o maur h P an h NTP w ubu h ax ra an paramr no h quaon n Scon 3.1 an 3.2. Th rul ar prn n h la wo column of Tabl 3. Tabl 3: Paramr an ffcv Tax Ra for Counr wh h Gnral Sal Tax Sym (%) Counr Paramr ffcv ax an uby ra Prmum un ourcng / Capal xracon P NTP m x g g n K / gyp Sychll mocrac Rpublc of Congo CONCLUING RMARKS Th papr ha vlop an analycal framwork an a praccal approach o h maurmn of h P an h NTP for an conomy. Owng o h xnc of nrc ax an proucon ub nvolv n boh omc an xrnal ranacon h P rflc h ffrnc bwn h conomc valu of forgn xchang an h mark xchang ra. Lkw an NTP gnra bcau of h of ax an ub ha cau h haow prc of non-raabl goo o b grar or l han hr fnancal valu. To maur h prmum h conomc wlfar ffc of h 35

37 ourcng of h fun from h capal mark o fnanc h purcha of projc npu a wll a h conomc wlfar ffc ha ar u o chang n h parn of conumpon an proucon cau by h ajumn of h ral xchang ra ar akn no accoun n a gnral qulbrum ng. Gvn h rourc conran facng h counr of Afrca a gnral qulbrum analy h mo appropra approach for mang h prmum. Scurng h aa for h maon a challng. Mo of h Afrcan counr hav focu hr aa collcon ffor on h upply of h conomy no on h man or xpnur parn. Nvrhl w hav vlop al aa for Souh Afrca ha prov a gnral gu for ohr counr for oron uch a mpor uy VAT or ohr gnral al ax xc ax xpor ax an proucon ub ha ar pcfc o ach nvual counry. A br nformaon bcom avalabl u of h horcal framwork an h xcl-ba mulaon mol 31 houl facla h calculaon of mor accura ma. Th ma of h P an h NTP of 20 counr carr ou by h uy ar ummarz n Tabl 4. Th P rang from 2.5% o 9.50%. If w xclu Ngra h rang bcom 4.00% o 9.5%. Th NTP rang from 1.75% o 1.50%. Th magnu of h prmum pn upon h ky oron prvalng n h varou nrc ax an proucon ub prov o proucr. Thy alo pn no only on h conumpon parn an h conomc rucur of h conomy bu alo on h rpon of man an upply of raabl an non-raabl goo o chang n h ral xchang ra. 31 Th mulaon mol avalabl from h auhor on rqu. 36

38 On of h ohr mo mporan facor affcng h z of h prmum h gr of opnn of an conomy wh rpc o h movmn of capal acro borr. To nur h robun of h ma nvy analy gnrally carr ou. In any vn h P an h NTP ma n h papr ar robu an houl b u n h conomc valuaon of nvmn projc n h counr concrn. Tabl 4: ma of h P an h NTP n Afrcan Counr (%) Counry P NTP mocrac Rpublc of Congo gyp hopa Ghana Ivory Coa Knya Maagacar Mal Mauru Morocco Ngra Rwana Sngal Sychll Souh Afrca Tanzana Togo Tuna Ugana Zamba

39 38 APPNIX A Th Impac of un Sourc n h omc Mark To Purcha Traabl Subjc o omc Inrc Taxaon Gvn h rourc conran an h naonal xpnur n an conomy quaon (A1) whch h am a quaon (5) mu hol n qulbrum nclung aonal pnng by h projc n quon. Tha n P n P n (A1) ffrnang quaon (A1) wh rpc o fun ( ) bng ra n h omc capal mark an pn oally on raabl goo 1.. P yl: 0 1 n n n n (A2) Th z of h chang n h ral xchang ra ha u o h omc borrowng an pnng on h projc rmn by h z of h gap bwn h man an upply of raabl goo (G ) ha ha bn cra by h wo opraon. Thu h la rm of quaon (A2) can b xpr a: G G (A3)

40 39 whr G 1. Th mpac on h ral xchang ra from an ncra n h gap (G ) or h xc man for raabl goo can b xpr a a funcon of h prc man an upply lacy of raabl goo a follow: G (A4) Subung quaon (A3) an (A4) no quaon (A2) yl: n n n G (A5) xprng h man an upply funcon varabl n quaon (A5) n rm of h man an upply lac of raabl an non-raabl goo quaon (A5) can b xpr a follow: n n n n n G (A6) Snc 1 G rarrangng quaon (A6) gv:

41 n n n n (A7) Th rm n quaon (A7) can b u o quanfy h hf n h qulbrum quan of raabl an non-raabl goo an h mpac of h hf on h omc nrc ax ha ar u o boh h mpac of h borrowng n h omc capal mark an h ajumn of h ral xchang ra. A a conqunc h wlfar ffc ha ar u o oron n omc nrc ax from h wo opraon can b maur a xpr by quaon (3) an (9). APPNIX B Th Impac of un Sourc n h omc Mark To Purcha Traabl Goo on Impor an xpor Tax Thr wll b chang n h qulbrum quan of mpor an xpor n h conomy ha ar u o h omc borrowng an purcha of raabl goo. Snc h xrnal cor nvolv a nc of oron chang n conomc wlfar co from h ourc houl alo b accoun for whl maurng h oal chang n h conomc wlfar n h conomy. In orr o a h mpac of ourcng h fun omcally an pnng hm on raabl ncary o para h man for an upply of ra goo no mporabl an xporabl componn. Hnc quaon (A1) can b xpr a follow:

42 41 n P n P P n (B1) ffrnang quaon (B1) wh rpc o ( ) h fun bng ra n h omc capal mark an pn oally on mporabl an xporabl goo yl: 0 1 n n n G G (B2) quaon (B2) xacly h am a quaon (A2) xcp for h fac ha raabl goo now brokn own no man for an upply of mporabl an xporabl goo. Ung h man an upply lac of mporabl goo xporabl goo an non-raabl goo quaon (B2) can b xpr a follow: n n n n n (B3) Snc 1 an ubung h man lacy of mpor for h man an upply lacy of mporabl goo a wll a h upply lacy of xpor of h upply an man lacy for xporabl goo no quaon (B3) yl:

43 1 n n n n M n M X X 1 n 1 (B4) quaon (B4) can b u o quanfy h hf n h qulbrum quan of man for mporabl an xporabl goo a wll a non-raabl goo ha ar u o boh h mpac of h borrowng an h ajumn on h ral xchang ra. A a conqunc h wlfar ffc rulng from oron n mpor uy xc ax on mpor goo an xpor ax from h wo opraon can b maur a prn n quaon (10) an (11). I houl b no ha chang n h man an upply of non-raabl goo wll no rggr any ax n h xrnal cor. RRNCS ARICAN VLOPMNT BANK (2010). Afrcan vlopmn Incaor ARICAN VLOPMNT BANK/OC (2008). Afrcan conomc Oulook BALASSA B. (1974). mang h Shaow Prc of orgn xchang n Projc Appraal. Oxfor conomc Papr 26(2): BATRA R. an GUISINGR S. (1974). A Nw Approach o h maon of h Shaow xchang Ra n valuang vlopmn Projc n L vlop Counr. Oxfor conomc Papr 26(2): BRTRAN T. J. (1974). Th Shaow xchang Ra n an conomy wh Tra Rrcon. Oxfor conomc Papr 26(2): BIR R. M. an Gnron P. P. (2005). VAT Rv: A Nw Look a h Valu A Tax n vlopng an Tranonal Counr. Papr prpar for USAI Ocobr BLITZR C. ASGUPTA P. an STIGLITZ J. (1981). Projc Appraal an orgn xchang Conran. conomc Journal 91(361): BOAR R. (1978). A No on h Tramn of orgn xchang n Projc valuaon. conomca 45(180): BOSKIN M. J. (1978). Taxaon Savng an h Ra of Inr. Journal of Polcal conomy 86(2/2): S3-S27. 42

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