ABSTRACT
Mozambique has carried out significant trade liberalization in the last twenty years and is currently engaged in a process of tariff phase-down with its main trade partners under the SADC agreement. The main objective of this liberalization process is to increase Mozambique’s economic integration with its regional partners and with the global economy. But are the potential gains from this trade liberalization process accruing to the Mozambican economy? Is the Mozambican economy becoming more integrated regionally and globally? Obviously the answer depends on a large number of factors, such as the elim-
ination of non-tariff barriers, the business and investment climate or the elimination of the significant constraints on domestic supply capacity. In this chapter, however, we focus on another, perhaps more simple, but equally important, factor for economic integration: the degree of border price transmission. The degree of economic integration between countries depends on how
well markets function and how well price signals are transmitted from one country to the other. Thus two countries are well integrated if price signals are correctly transmitted. This implies that producers and consumers adjust production and consumption decisions in response to existing excess supply/ demand conditions in other locations of the integrated area. As a result, integration is potentially welfare improving, since it implies a more efficient allocation of resources and higher consumption possibilities. Trade reform, multilateral or regional, aims to eliminate restrictions to
trade flows. In the absence of good price transmission from the border, price signals after trade reform may be imperfectly transmitted to the economy, jeopardizing the potential benefits in terms of resource allocation and higher consumption possibilities described above. For example, in the case of no border price transmission due to a monopolistic distribution sector, the price of imports may not be significantly reduced and the economy may not experience any significant increase in competition following trade reform. The aim of this chapter is to assess the degree of price transmission from
border to consumer prices for a sample of homogeneous products in three main urban markets in Mozambique. We do so by exploiting a unique
dataset from the Mozambican Customs Authority that registers all import processes by border post in the country. This allows us to estimate the shortrun elasticity between these import unit values and consumer prices at the specific market level. Furthermore, it allows the decomposition of price transmission into three different components: changes in the exchange rate, changes in border taxes and changes in import unit values. The chapter is organized as follows. Section 2 briefly describes the theory
behind price transmission and price equalization. Section 3 describes the methodology employed in the chapter. Section 4 summarizes the main data used in the estimations. Section 5 describes the main results and Section 6 concludes. The main finding of the chapter suggests a large and robust degree of exchange rate pass-through (ERPT) to consumer prices, while the degree of transmission of border price and trade tax changes seems to be low.
