Zimbabwe: Investments, credibility, and the dynamics following trade liberalization

A CGE model for Zimbabwe has been used to analyse the short and medium-term 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 term. In the short term, increased investments imply a worsening of the trade balance. In the medium term, 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. (C) 2002 Elsevier Science B.V. All rights reserved.