The Macroeconomics of Africa: Import Compression and External Finance

This chapter will examine some of the main features which might usefully be included in a macro model for Africa. It is hoped that this discussion will help in formulating an actual prototype African macro model, which might form a working component of the North-South model developed in Chapter 6. Although the relevant African macroeconomic framework for this should broadly be similar to that outlined in Trap (1993), there are, nevertheless, a number of other specific features not properly dealt with in Trap (1993), which an African macroeconomic framework might usefully include. The first such feature is an ‘import compression argument’, as discussed in Ndulu (1986, 1991) and Rattsø (1992b). Two other features, which I will argue should also be incorporated into macro models of Africa, are the ‘fiscal response to external finance’ and ‘Dutch disease’ phenomena. Hence, an attempt will be made to integrate these features into the prototype African macro component of the North-South model developed in Chapter 6.