Financial Economics

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The effects of exchange rate policy on Cameroon’s agricultural competitiveness
(aerc, 1996-03) AMIN, ALOYSIUS AJAB
The paper analyses the effects of trade and exchange rate policies on Cameroon's agriculture. Theoretical models and formulas are developed for empirical analysis. The calculated relative prices and indexes estimates of the degree of over-valuation of the real exchange rate and regression analysis including elasticity estimates show that these policies have been the major cause of the deterioration of Cameroon's agricultural competitiveness. The paper demonstrates the link between real exchange rates and agricultural performance. Besides poor price incentives due to government's intervention — and failure to intervene when appropriate the lack of non-price incentives is found to hinder the development of the agricultural sector. The paper concludes by recommending the removal of these constraints, and intervention through devaluation and the maintenance of a realistic exchange rate, export tax elimination, reduction of import taxes and increase in public expenditure in the agricultural sector. It also suggests alternative ways of raising government revenue.