| dc.description.abstract | Trade liberalisation has been a prescription for all countries performing poorly and is
seen to be necessary in all economies that have grown (Krueger, 1997). Cameroon
initiated trade liberalisation in the late 1980s; however, the implementation was not
sustained because the government used tariffs to correct trade deficit and raise revenue.
By the early 1990s, the government was pressured by external factors, such as
participation in the World Trade Organisation (WTO), the imposition of a Structural
Adjustment Programme (SAP), membership of the Regional Trade Agreement (RTA),
the debt crisis, and internal factors, such as demands to promote competitiveness. The
tariff rates were reduced along with other quantitative restrictions.
The aim of this research is to measure the impact of trade liberalisation on the
manufacturing sector. The main hypothesis is that trade liberalisation based on theory
should have a positive impact on the manufacturing sector. To test this hypothesis,
appropriate methodologies were used to empirically determine the hypothesis.
Two periods were selected, 1980 to 1991 (pre–liberalisation period) and 1992 to 2006
(post–liberalisation period). The use of the period 1980 to 1991 allows for the capture of
the status quo ante policy, while the period 1992 to 2006 allows for the capture of postliberalisation
impacts (ex poste). The performance variables were regressed with trade
policy variables and other control variables that can influence performance. The
Ordinary Least Squares was used. The result of the study shows that reduction in
protection rates (tariff) did not affect manufacturing positively, as measured by the
export performance. The result from the estimation of the single equation supply model
reveals that the relative price variable proxied for by the exchange rate and imported inputs is an important determinant of the performance of the manufacturing sector, as
measured by export performance, though not significant statistically. The gravity model
is used to complement the results from the estimation of the single equation supply
model. The main manufacturing performance indicator is bilateral trade. Bilateral trade
was regressed with trade and other control variables such as the Gross Domestic Product
(GDP) of the two countries, distance, tariffs, membership of RTA, common language
and border and colonial ties, which can all have an impact on the performance of the
manufacturing sector. The results show that bilateral trade did not improve as a result of
liberalisation. The results further reveal that the membership in RTA and the reduction
in tariffs (all indications of liberalisation) did not positively influence bilateral trade in
manufacturing. The distance variable and GDP variables equally did not influence
bilateral trade in manufacturing.
Overall, support for the hypothesis that trade liberalisation in the early 1990s has had
positive impacts on the manufacturing sector in Cameroon has not been obtained. The
evidence indicates that liberalisation has negatively affected the manufacturing sector in
Cameroon. The findings show that the long–term relationship between trade opening and
industrialisation of the manufacturing sector is not stable and that trade opening
negatively affects the manufacturing sector of Cameroon. This result is explained by the
fact that importation of some inputs cannot be reduced. Moreover, Cameroon
manufacturing enterprises are apparently unable to satisfy domestic demand and are
uncompetitive. Given the evidence that, under Import Substitution Industrialisation
policy, Cameroon established manufacturing firms not on the basis of revealed or latent
comparative advantage, the seeming failure of ISI might be a consequence of these
wrong decisions that were based on political needs rather than sound economics (Bhagwati, 1978). It is recommended that Cameroon should develop an industrial
policy, which should be based on the identification of the revealed and latent
comparative advantage in addition to the progressive and systemic acquisition of
acquired comparative advantage as prescribe in the new trade theories. Government’s
role should be an enabling one relying on market determination of resource allocation,
and intervention should only take place when there is market failure. Clustering and
agglomeration should be encouraged using the suggested tools, which should avoid rent
seeking at all cost. Rigorous research at the microeconomic level is needed to identify
the comparative advantage of Cameroon. Despite the findings of the research, intuitive
reasoning and analysis of the various policies and actions indicate that trade
liberalisation and market–economic decision–making, through government’s support
(Lin & Monga, 2010) of the private sector (in a public–private partnership), through an
overarching vision, is the way to go.
The results from this research contribute towards policy–making that is grounded on
sound and rigorous research and not rhetorical or political exigencies, which will ensure
and guarantee a sound industrial policy reaffirming the importance of trade liberalisation
despite the criticism and an industrial policy based on revealed and latent comparative
advantages, which will lead to competitiveness with scientifically justified potentials for
the manufacturing sector (GESP, 2010:35). | en_US |
