Operational Manual for “A Macroeconomic Framework for Quantifying Growth … · 2006. 3. 16. · 3 I. INTRODUCTION, BACKGROUND, and OBJECTIVES Pinto Moreira and Bayraktar (2005)

Operational Manual for “A Macroeconomic Framework

for Quantifying Growth and Poverty Reduction Strategies in Niger”

Nihal Bayraktar* and Emmanuel Pinto Moreira**

First complete draft: February 2, 2005 This version: October 09, 2005

Abstract

This operational manual provides detailed information on the simulation of a macroeconomic model linking aid, public investment (disaggregated into education, health, and infrastructure), and growth, developed by Agénor, Bayraktar, and El Aynaoui (2005) and applied to Niger by Pinto Moreira and Bayraktar (2005). The manual explains how the model is specified, the parameters are calibrated, and the program is run. It also explains the different steps to follow to introduce policy shocks, analyze the output table, and derives policy implications. In order to help readers not familiar with Eviews to get started, we provide some basic information on EViews 4.0.

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*Penn State University - Harrisburg and World Bank. E-mail address: [email protected]. **World Bank.

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Table of Contents I. INTRODUCTION

II. INPUT DATA FILE

III. PARAMETERS 1. Econometric Estimation of Some Parameters

2. Given Parameter Values

3. The Parameter Calibration Part of the Program

IV. EXOGENOUS VARIABLES PROJECTED WITHIN THE PROGRAM

V. CALCULATION OF RESIDUALS TO EQUATE ESTIMATED VARIABLES WITH THEIR

ACTUAL VALUES

VI. PARTIALLY ADJUSTED VARIABLES

VII. THE SIMULATION PROGRAM

1. How to Install the Simulation Package

2. The Setup of the Simulation Package

3. Details about the EViews Simulation Program

3.1. The Basic Information about Running the Program in EViews

3.2 EViews Commands Used in the Program

4. Details about the Excel Output Files

5. Details about the Summary Table File

VIII. Simulating Shocks

SHOCK 1 - Increase in Foreign Aid

SHOCK 2 - Reallocation of Public Investment

SHOCK 3 - Reduction in Tariffs

The Non-Neutral Case – Shock 3a

The Neutral Case: Adjustment in Direct Taxation – Shock 3b

The Neutral Case: Adjustment in Indirect Taxation – Shock 3c

IX. SENSITIVITY ANALYSIS

X. LINKING THE MODEL WITH THE MILLENNIUM DEVELOPMENT GOALS XI. LINKING THE MODEL WITH THE DECOMPOSITION OF PUBLIC CAPITAL EXPENDITURE TABLE APPENDIX A – Definitions APPENDIX B – List of Variables and Parameter Estimates APPENDIX C – Estimation Results APPENDIX D – EViews Commands Used in the Program and Their Meanings APPENDIX E – List of Equations APPENDIX F – Simple Example Model APPENDIX G – Tables of Simulation Results APPENDIX H – Calculation of Variables and Projection of Exogenous Variables

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I. INTRODUCTION, BACKGROUND, and OBJECTIVES

Pinto Moreira and Bayraktar (2005) applied a macroeconomic model which

analyzes the linkages between aid, public investment, and growth developed by

Agénor, Bayraktar, and El Aynaoui (2005) to Niger.1 The macroeconomic model has

been simulated using the software Eviews 4.0. The simulation program has been

used to create the baseline results and to investigate the effects of alternative policy

shocks on the economy, including an increase in aid/GDP ratio, a reallocation of

public investment toward investment in infrastructure, and neutral and non-neutral

reduction in effective tariff rate.

The objectives of this operational manual is twofold: (i) help the user of the

Niger’s model understand the technical aspects of the modeling exercise carried out

in Niger and, (ii) familiarize a reader interested in macro-modeling with some basics,

including modeling procedure, methods, and requirements using the Niger’s model

as an example.

The remainder of the manual is organized as follows. Section II presents

information on the input data file. Section III describes the calculation procedures and

methods used to compute the parameters used in the model. Section IV, presents

the methods used to project exogenous variables within the model. Section V

explains how the residuals are defined. Section VI describes the procedure of

introducing partially adjusted variables in the model. Section VII presents detailed

information about the simulation program written in Eviews 4.0. Section VIII describes

how shocks are run in the model. Section IX concludes.

PRELIMINARY REMARKS TO GET STARTING

Required Programs and the Files in the Package

• Two software programs are required to run this simulation program:

1 This paper applies the dynamic macroeconomic framework developed originally by Agénor, Bayraktar, and El Aynaoui (2005) to Niger.

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(a) EViews Version 4 or higher2.

(b) Microsoft Excel.

• Four different files are used to simulate the model. .

a. “Niger-Data.xls” Excel data file: This is the input data file. It contains

initial values of both exogenous and endogenous variables, and

projections for exogenous variables.

b. “Niger-Simulation.prg” EViews program file: This file is used to run the

simulation program.

c. “Niger-output.xls” Excel data file: It reports the simulation results

created by “Niger-Simulation.prg”. The names of the output files are

“OUTPUT-NIGER.xls” for the baseline output data; “OUTPUT-NIGER-

SHOCK1.xls” presenting the “Shock 1” output data; “OUTPUT-NIGER-

SHOCK2.xls” presenting the “Shock 2” output data; “OUTPUT-NIGER-

SHOCK3A.xls” presenting the “Shock 3A” output data; “OUTPUT-

NIGER-SHOCK3B.xls” presenting the “Shock 3B” output data;

“OUTPUT-NIGER-SHOCK3C.xls” presenting the “Shock 3C” output

data.

d. “Niger-table.xls” Excel data file: This table summarizes the simulation

results. The names of the output files are “NIGER-Output Table -

BASELINE.xls” for the baseline summary table; “Niger-Output Table-

SHOCK1.xls” for “Shock 1” summary table; “Niger-output-Aid-Shock-

Table 4.xls” presenting the deviation of the “Shock 1” values from the

baseline values; “Niger-Output Table-SHOCK2.xls” for “Shock 2”

summary table; “Niger-output-Aid-Shock-Table 5.xls” presenting the

deviation of the “Shock 2” values from the baseline values; “Niger-

Output Table-SHOCK3A.xls” for “Shock 3A” summary table; “Niger-

output-Aid-Shock-Table 6.xls” presenting the deviation of the “Shock

3A” values from the baseline values; “Niger-Output Table-

SHOCK3B.xls” for “Shock 3B” summary table; “Niger-output-Aid-Shock-

2 This software is created by Quantitative Micro Software. The new versions of EViews have tools for programming and solving simulation models.

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Table 7.xls” presenting the deviation of the “Shock 3B” values from the

baseline values; “Niger-Output Table-SHOCK3C.xls” for “Shock 3C”

summary table; “Niger-output-Aid-Shock-Table 8.xls” presenting the

deviation of the “Shock 3C” values from the baseline values; “NIGER-

Output Table – BASELINE-table 9.xls” for the baseline summary table

in case of lower public investment efficiency; “Niger-Output Table-

SHOCK4.xls” for “Shock 4” summary table (aid shock with lower public

investment efficiency parameter); “Niger-output-Aid-Shock-Table 10.xls”

presenting the deviation of the “Shock 4” values from the baseline

values.

II. INPUT DATA FILE Data entry and Location • The input file is named as “Niger-Data.xls” (an Excel file). Variables in the model

are separated into two groups: exogenous and endogenous variables. While the

exogenous variables are determined outside the model, the endogenous

variables are determined inside the model.3 The values of these variables and

parameters are presented in the input file.

• The location of the endogenous variables is on “ENDO” sheet, the exogenous

variables on “EXO” sheet, and the parameters on “PARAM” sheet. Data sources

of the variables are given in Appendix H.

• While the names of the variables are reported in column A, their definitions are

given in column B. In the following columns, the data points are presented starting

from 1999. The base year is 2004 in the model. But the data file starts in 1999

due to the presence of lagged variables in the model. All data points between

1999 and 2004 are actual numbers.

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Base year and Simulation period

• The base year is 2004 in the model. But the data file starts in 1999 due to the

presence of lagged variables in the model. All data points between 1999 and 2004

are actual numbers.

• The model is simulated for the years starting from 2004 until 2015. As

specified above, the simulated values of endogenous variables for this period are

determined within the model. But we have to project the values of exogenous

variables for these years since they are determined outside the model.4 The

projected values of exogenous variables are also reported on “EXO” sheet for the

years starting from 2005 until 2015. Detailed information on projections is reported in

Appendix H.

III. PARAMETERS

Three types of procedures have been used to determine the values of the

parameters in the model:

• Estimation running regression equations;

• Use of parameters provided in various studies as given; or,

• Calibration within the model5.

1. Econometric Estimation of Some Parameters

• The parameters of the three “fiscal” equations and private investment equation

(IP), which are listed below, are obtained by running econometric regressions. The

estimation technique is the ordinary least squares. But in order to correct for serial

correlation, the equations are estimated with autoregressive processes of order one

3 Exogenous and endogenous variables are listed in Appendix B and the list of equations is given in Appendix E. 4 It should be noted that some exogenous variables (DB, FP, ERROR_OMM, AID, LE_G, and WG) are projected within the model since they are projected as a constant share of endogenous variables. 5 Different types of parameters are used in Pinto Moreira and Bayraktar (2005). Their definitions are given in Appendix A. In this appendix, we also define the production and transformation functions used in the model.

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and/or two, denoted AR(1) and AR(2) below, where needed. All regressions are

based on annual data for the period 1982-2002. The E-views program used to run

the regression equations are given in “niger-regression-ig-indtxr-ip.prg”. The input file

is “Niger-dataset-regression-IG-IP-INDTXR.xls”

• The estimated equations are

INDTAX = INDTXR(INDTXR-1, AID/NGDP)·PQ·Q (1)

PQT·IG/NGDP = IG[(TAX/NGDP)-1, AID/NGDP, (AID/NGDP)2] (2)

PQT·IP/NGDP = IP((∆Y/Y-1) -2, PQT*KGINF/NGDP, ER·FP/NGDP). (3)

• The definitions of variables and equations are given in Appendix B and E,

successively. The estimation results are reported in Appendix C. It should be noted

that the coefficient of (TAX/NGDP)-1 in the PQT·IG/NGDP equation in the model is

adjusted downward since the high value of the coefficient was causing the simulated

value of government investment, IG, to be extremely sensitive to changes in the tax

rate. Similarly, the coefficient of (AID/GDP)2 in the same equation is adjusted

downward since the higher value of the coefficient was leading IG to be less

responsive to changes in aid. The estimated coefficient of PQT*KGINF/NGDP in the

PQT·IP/NGDP equation is adjusted upward to make changes in the level of public

capital stock in infrastructure more effective on private investment.

• The regression results are:

INDTXR = 0.008 + 0.706*INDTXR-1 - 0.029*AID/NGDP

(2.865) (7.717) (-2.068)

Adjusted R2 = 0.742; Durbin-Watson statistic = 1.861

AR(1) = -0.350 (-1.347)

PQT·IG/NGDP = -0.174 + 0.649*(TAX/NGDP)-1 + 1.549*AID/NGDP

(-2.333) (3.380) (2.363)

-3.261*(AID/NGDP)^2

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(-2.175)


AR(1) = 0.527 (1.762); AR(2) = -0.420 (-1.679)

PQT·IP/NGDP = 0.001 + 0.056*(∆Y/Y-1) -2 + 0.15*PQT*KGinf/NGDP

(0.058) (2.099) (1.413)

+ 0.033* ER·FP/NGDP -0.028* Dummy87 -0.027*Dummy92_95

(0.186) (-3.871) (-4.042)


AR(1) = 0.829 (2.723); AR(2) = -0.353 (-1.271)

2. Imposed Parameter Values

Some of the parameters in the model are determined either by dwelling on the

scant literature for Niger, or by using plausible values for low-income developing

countries in general—including the estimates used by Agénor, Bayraktar, and El

Aynaoui (2005) for Ethiopia in a similar framework. The values of these parameters

are reported in the “GIVEN PARAMETER VALUES” section of the simulation

program.

• In Eviews, all parameters must be specified as scalars. For this purpose, the

“scalar” command is used. The general Eviews syntax is the following:

scalar name of the parameter = its value

Example. The value of the parameter σDE is introduced in the program as

follows:

scalar sigma_DE = 0.3

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• Some of the parameters need to be calculated using the values of other

parameters as it is the case for ρDE, which is a function of σDE. In the program, it is

coded as follows:

scalar rho_DE = 1+(1/sigma_DE)

Elasticity of substitution

• The elasticities of substitution on the production side were kept at relatively low

values. For instance, the elasticity of substitution between T and KP, σJ, was set to

0.3; the elasticity of substitution between LE and Kghea/POPθH, σT, to 0.3; and the

elasticity of substitution between J and KGinf, σY, to 0.4. σZ is taken as 0.2. The

corresponding substitution parameters are calculated by using these values of

elasticity of substitution. How they are calculated is presented in the “Substitution and

Transformation Parameters” section of the simulation program.

Elasticity of transformation

• The elasticity of transformation in domestic production was set at 0.3, whereas

the elasticity of transformation between domestic and imported goods at 0.7. The

corresponding transformation parameters are calculated in a similar way (see the

“Substitution and Transformation Parameters” section of the simulation program).

Shift parameter

• Most of the shift parameters are calibrated within the model as explained in

detail below. However, three of them are given, including AJ, AT, AZ, and AKGZ

which are taken 1. The reason is that we need to calibrate J, T, and Z variables,

which are not empirically observable, by assigning some values to their shift

parameters.

Share parameters

• βZ is taken as 0.5. βE has been initially calibrated, but since the calibrated

value was not proper, it is taken as 0.3. βT and βY are taken as 0.85. βJ is

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0.6. βDM, which is equal to 0.75, is calculated as the share of DOM in the sum

of DOM and M. βDE, which is equal to 0.15, is calculated as the share of X in

the sum of DOM and X.

Depreciation rates

• For lack accurate information on the depreciation rate of capital stocks are

taken, the values used were taken from Agénor, Bayraktar, and El Aynaoui (2005).

The rate of depreciation of public capital (education, health, infrastructure, and other),

delta_h, is set at 0.035. The depreciation rate of the private capital stock, delta_P, is

0.06.

Congestion parameters

• Parameters capturing congestion effects were difficult to estimate, given the

lack of information for developing countries in general. Since congestion effects seem

to be quite significant in Niger, we have chosen relatively high parameter values

compared to the values of congestion parameters chosen for Ethiopia in Agénor,

Bayraktar, and El Aynaoui (2005). The parameter capturing congestion effects in the

education system, theta_KGE and theta_KGI, are set at 0.9; that determining the

strength of congestion effects in the provision of health services, theta_H, at 0.4; and

for the parameter capturing congestion effects in infrastructure capital, theta_I, we

chose a value of 0.3.

• The savings rate is taken as 10 percent.

3. The Parameter Calibration Part of the Program

• The remaining parameters are calibrated within the model. One important

advantage of our simulation program is that this calibration is coded within our

simulation program. In this way, as the values of variables or parameters change, the

calibration of the remaining parameters will be done automatically. Thus we do not

need to use any other program. The related section in the simulation program is

“PARAMETERS CALIBRATED WITHIN THE MODEL”. Most of the share and shift

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parameters are calibrated in this section. First of all, we calibrated the share

parameters, and then the shift parameters are calibrated using these values of the

share parameters.

• It is worth noting that the variables that are used in calibrating parameters need

to be specified as series. In order to declare series, we use the “series” command

in EViews, which is followed by the name of the variable. The reason for this

transformation is that the calibrated parameters are scalar and in order to calculate a

scalar in EViews, all variables must be specified as “series”. The general form of this

command is

series variable name

For example, output, Y, is defined as series using the following command:

series Y

After variables are defined as series, we can refer to specific data points more

easily. For example, Y(5) means the value of Y in period 5, which corresponds to

year 2003.

• βKGZ is calibrated as a share of KGinf in the sum of KGinf and KGedu.

Calibration of the shift parameters

• We calibrated some of the share and shift parameters of the following constant

elasticity of substitution functions.

Y(J, KGinf-1,Y-1) = AY·[βY·J-ρY + (1 - βY)(KGinf-1/Y-1θI) -ρY]-1/ρY

∆LEN = AE·[βE·(LR-1)-ρE + (1 - βE)(Z)-ρE]-1/ρE

In these equations, the calibrated shift parameters are AY and AE.

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The shift parameters of the following equations are obtained by solving them for ADE

and ADM, using the given values of βDE and βDM.

Y = ADE·[βDE·XρDE + (1 - βDE)DOMρDE]1/ρDE

Q = ADM[βDM·DOM-ρDM + (1 - βDM)M-ρDM]-1/ρDM.

• The last parameter calibrated within the model is APQ, which is the shift

parameter of the composite price level, PQ.

IV. EXOGENOUS VARIABLES PROJECTED WITHIN THE PROGRAM

Projections of variables

• Most of the exogenous variables are projected outside of the model using

different techniques (See Appendix H). Some exogenous variables, including the

number of educated workers in the public sector, LE_G, the wage rate in the public

sector, WG, domestic borrowing, DB, errors and omissions, ERROR_OMM, and

private capital flow, FP, are projected within the model by taking them as a constant

share of other endogenous or exogenous variables. For example, the government’s

domestic borrowing, DB, is projected as a constant share of NGDP (1 % of NGDP)

within the model using the following code

niger.append DB = NGDP*0.01

The “niger.append” command is defined below.

• Some of these constant shares are calculated using 2004 values of the

variables. For instance, errors and omissions are projected as a constant share of

GDP, where this constant share is named as ERRORGDP_const. Using this share,

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ERROR_OMM is calculated as ERROR_OMM = ERRORGDP_const*(NGDP/ER).

Foreign aid is also projected within the model. The ratio of AID to NGDP (AID_const),

which was 0.1067 in 2004, is multiplied by NGDP to construct the aid series between

2005 and 2015. The number of educated labor in the public sector is defined as a

constant share of total number of educated labor. This ratio (LE_G_const) was equal

to 0.0191 in 2004. The share of FP in % of GDP in 2004 is 0.49 percent. V. CALCULATION OF RESIDUALS TO EQUATE ESTIMATED VARIABLES WITH

THEIR ACTUAL VALUES Calculation of residuals

• As mentioned earlier, some of the parameters are obtained running regression

equations. The simulated values of variables such as IG are defined using these

regression results. Since it is required that all identities must hold in the base year,

we constructed residuals to equate the estimated values of variables to their actual

values in 2004. These residuals are defined for IG, INDTXR, and IP. IG regression

equation is taken as an example. While the actual value of IG in 2004 is

83,631,764,436 in LCU, the estimated value of IG is equal to

Estimated IG = (-0.174921+0.649353*(TAX(-1)/(NGDP(-

1)))+1.549799*(AID/NGDP)-3.26115*(AID/NGDP)^2)*NGDP/PQ.

• This estimated IG is defined using 2004 values of the right hand side

variables, which is equal to 27,679,573,152 in LCU. The difference between the

actual and estimated IG is defined as residual which is equal to 55,952,191,283 in

LCU. IG_RES is the name of this residual.

• The residual for INDTXR (INDTXR_RES = 0.005) is calculated by taking the

difference between the actual and estimated values of INDTXR in 2004:

INDTXR_RES = Actual value of INDTXR – [0.00792+0.706572*INDTXR(-1)-

0.029834*(AID/NGDP)]

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• Another residual is calculated for private investment, IP, using regression

results. IP_REGRES is equal to 110,380,533,916 in LCU and calculated as

IP_REGRES = Actual value of IP – [(0.001554 + 0.056452*((Y(-2)-Y(-3))/Y(-

3))+0.15304*(PQT*KGINF/NGDP)+0.033393*(ER*FP/NGDP))*NGDP/PQT]

• In addition to these residuals, we also defined one more residuals for AID

variable in order to make identities hold in the base year.

• The data source of foreign aid is OECD, which can be considered a reliable

source. But the values of this series are different from the one reported in the balance

of payment table prepared by IMF. For the balance of payments to hold, we define a

residual which equates the values of foreign aid from these two sources. This

residual is obtained by subtracting the values of AID from the balance of payment

tables from the values of AID taken from OECD sources. AID_RES is equal to -

$225,407,778. This residual is used to calculate the change in net foreign assets of

the central bank, delta_NFA, in the simulation program:

delta_NFA = PXstar*X - PMstar*M - RGstar*FdebtG(-1) - RPstar*FdebtP(-1) +

UTR$ + (AID$ + AID_RES) + FG + FP + ERROR_OMM

• In the model, a residual for private consumption, CP, is also calculated. The

historical CP series is calibrated as Qd – CG – IG – IP. In the model, CP is supposed

to be equal to Ydisp*(1-s). Thus, in order to make CP equal to Ydisp*(1-s), we

introduce a residual, which is equal to CP*PQT – Ydisp*(1-s). The residual is

calculated using the data points in 2004.

• A residual for NGDP is calculated as well. In the model, NGDP =

PQT*Qd+PX*X-PM*M +PMstar*tm*ER*M. In order to equate the right hand side of

the equation to the historical value of NGDP in 2004, we calculate the NGDP residual

which is equal to NGDP in 2004 – (PQT*Qd+PX*X-PM*M +PMstar*tm*ER*M).

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VI. PARTIALLY ADJUSTED VARIABLES

We assumed that some endogenous variables are adjusted gradually. This

means that they follow a partial adjustment process. For example, total output, Y, is

simulated following a partial adjustment process. In this case, the total output

equation can be written as

Y(J, KGinf, Y-1) = λY.[AY·[βY·J-ρY + (1 - βY)(KGinf/Y-1θI) -ρY]-1/ρY] + (1- λY).Y-1,

where λY (lambdaY in the simulation program) is the adjustment parameter. This

parameter captures a low propensity to adjust total output in the short run. Its value is

0.4, which means that the adjustment rate is 40 percent per year.

Similarly, real imports, M, and domestic sales, DOM, are assumed to follow a

partial adjustment process. These equations are redefined as follows

DOM = λDOM*(X/(((PX/PD)*((1 - βDE)/ βDE))σDE)) + (1-λDOM)*DOM-1,

M = λM*(DOM*(((1 - βDM)/ βDM)*(PD/PM))σDM) + (1-λM)*M-1,

where λM=0.9 and λDOM=0.2 are the partial adjustment parameters.

It is assumed that PD exhibits a disequilibrium price mechanism, adjusting

partially towards its equilibrium value, EQPD:

PD = λPD.EQPD + (1-λPD).PD-1, (43)

where λPD is a parameter measuring the speed of price adjustment towards its

equlibrium value. λPD is taken as 0.4.

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VII. THE SIMULATION PROGRAM

The simulation program is written and run in EViews and it is connected to

outside input and output Excel files. This section describes: (i) how the simulation

package is installed; (ii) how it is coded; and (iii) how it is run.

1. How to Install the Simulation Package

There are 4 files in the package: “Niger-data.xls”, “Niger-Simulation.prg”,

“Niger-Output.xls”, and “Niger-Output-Table.xls”. The package is installed following

these two steps.

a. Create a directory named “Niger” on the C drive of your computer.

b. Copy all these files into the newly created directory.

2. The Setup of the Simulation Package The execution of the simulation program consists of the following steps:

Step 1: The data for the variables are put in the excel file named “Niger-

Data.xls”. When we run the simulation program, the values of exogenous and

endogenous variables will be imported into the program. The details about the input

file are given in Section II.

Step 2: Running of the simulation program is the second phase of the

simulation process. It is executed in EViews.

Step 3: When the simulation program is completed, the output file, in which

the simulated variables are stored, will be created. It is named as “Niger-Output.xls”.

It should be noted that this output file is automatically generated by EViews and after

each execution, the program overwrites the existing output file.

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Step 4: In this stage, the simulated variables stored in “Niger-Output.xls” will

be used to generate tables summarizing the simulation output. This excel file is

named as “Niger-Output-Table.xls”. When you open this file, you are asked whether

you want to update the information in the file. If you choose “update”, the summary

table will be updated by using newly created values of the simulated variables from

“Niger-Output.xls”.

These steps are presented in Figure 1.

3. Details about the EViews Simulation Program

• Before explaining the setup of the simulation program, the following points

must be emphasized related to programming in EViews.6 EViews can work with

square systems. It means that each equation in the model must have only one

endogenous variable assigned to it. Thus the number of independent equations

excluding exogenous variables which are projected within the model must be equal

to the number of endogenous variables in the model. The solution provided by an

EViews program consists of values for endogenous variables given exogenous

variables.

• EViews is a quite user friendly program. If your only aim is to investigate the

effects of shocks on the economy or to recalibrate the model with new values of

variables and parameters, it is not necessary for you to be familiar with Eviews

programming. But if you want to make any structural change, you may need to have

more experience with Eviews programming.

• Our EViews program is executed by double-clicking on the “Niger-

simulation.prg” file. It will be automatically launched and the simulation starts

immediately. After the completion of running of the program, EViews generates a

workfile named “Niger-Simulation.wk1”, in which simulated variables are stored.

5 A simple example model is presented in Appendix F.

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3.1. The Basic Information about Running the Program in EViews

This subsection provides basic information on how we can run our simulation

program in EViews.

FIGURE 8

Figure 8 shows how the simulation program looks like when you open the

simulation program file in EViews. In order to run the program, you click on the “run”

bottom (shown in a black circle in Figure 8). When you click on this bottom, the

following window opens. After you click on “OK” bottom, the program starts running.

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• If there is no error in the program, the workfile of our program will be opened

automatically right after the program stops. The name of this work file is “Niger-

Simulation.wf1”. A sample workfile created by the simulation program is presented in

Figure 9.

FIGURE 9

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• In this file, one can see the list of all variables and parameters. Baseline

variables (exogenous or endogenous) which are simulated within the program are

named with “_0” extension. Our model, which is named as “Niger” also appears in the

list. When you double click on “Niger”, you can see the details about our model. First

of all, the list of equations appears as default. This is shown in Figure 10. By clicking

on the “solve” icon (shown in a black circle in Figure 10), you can change your

solution method. Figure 11 shows the “solve” window. Our model is solved by using

the deterministic simulation technique.7

FIGURE 10

7 See the EViews Help Manual for details.

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FIGURE 11

• As specified in the EViews Help Manual, the following steps are taken while

running a deterministic simulation model in EViews:

a) The block structure of the model is analyzed.

b) The variables in the model are restricted to series in the workfile.

c) The equations of the model are solved for each observation in the solution

sample. During this process, an iterative algorithm is used to compute

endogenous variables.

d) The results will be rounded to their final values.

• As it can be seen in Figure 11, “Dynamics” option is used to specify how the

values of the lagged endogenous variables are determined. This means that the

lagged endogenous variables in the model are calculated using the solutions

calculated in previous periods, not from actual historical values.

• If you change the simulation type or the options related to dynamics, the

model will be simulated again by clicking on “OK” bottom in Figure 11. The old values

of the simulated variables will be replaced by the new values of them and these new

values will be stored in the workfile. If you want to store new values, you should save

the workfile by clicking on “save” bottom as shown in a black circle in Figure 9.

22

• You may want to run our program using different parameter values. In this

case, you need to specify these new values in the simulation program file. If you

make any changes in the program, you should save it before you run it again. In

order to save a file, you need to click on the “save” icon (shown in a red circle in

Figure 8).

3.2 EViews Commands Used in the Program

• We use different EViews commands in the simulation program. These

commands and their meanings are given below. Detailed information is presented in

Appendix D. It should be noted that since Eviews reads codes only in the text format,

the program can be written either in the Eviews environment directly or in Microsoft

Word but then saved as a text file with a “prg” extension, which stands for EViews

program.

a. The Create Command

• Whenever one runs an EViews program, a workfile will be created, which

contains data we used and all results created by the program. Detailed information

on workfiles is given in Appendix D. In order to create this workfile, one uses the

create command. The general syntax for this command is as follows:

create workfile_name frequency start end

• Any workfile name can be chosen. The frequency of data can be annual,

monthly, etc or undated. While “start” specifies the starting date of the data, “end” is

the last year in our data file. In the program, this command is coded as follows create Niger-simulation U 17

• Here “Niger-simulation” is chosen as name of our workfile, which will be

created by our simulation program after we run it. “U” stands for undated data

23

frequency. Since our data file and the simulation program covers the years starting in

1999 up to 2015, the number of observations is 17.

b. The smpl Command

• The “smpl”, which stands for sample, command specifies the time period that

we are working on. It is generally used after the “create” command. The general

syntax of this command:

smpl sample_name start end

• It is optional to name your sample. The sample range must be given using the

starting and ending dates. One example of “smpl” command in our code is

smpl 1 17

• Note that we have not given any sample name. This code specifies that we will

work with the sample covering the periods from 1 to 17. This means that all the

following calculations and simulations will be done for this period as far as we do not

change our sample range. Some of our calculations require a smaller sample range.

In this case, we redefine our sample range such as “smpl 3 17”.

c. The Read Command

• As it is specified before, we need to use an external data file. When this is the

case, we use the “read” command to import data from an external file. The general

syntax is:

read(options) path\file_name variable names

• After the “read” command, we have to specify our options. Our external data

file is an Excel file. Thus the options are defined in a way that the program is

24

importing data from an Excel file. We explain these options below. Then we have to

specify the location of our data file and its name. At the end, we write the names of

the variables that we want to import. The order of the names of the variables must

match with their order in the Excel file.

The “read” command, which imports exogenous variables in the program, is

specified as follows:

read(ae4, t, s=EXO) C:\Niger\Niger-Data.xls AID$ CG DB ER ERROR_OMM FP kappa kappa_edu kappa_hea kappa_inf kappa_oth LAND LE_G n PMstar PXstar RD RGstar RPstar tm UTR$ WG tmnew

• We want to import data from an excel file; thus we need to specify our options

accordingly. Options will be presented within the parenthesis.

a) Provide information about the coordinates of the upper left cell of the data

matrix (excluding names and other definitions) in the Excel spreadsheet. In our

example, c4 stands for the cell number, at which point data that we want to import

starts.

b) Write “t ” when our data series are in rows rather than in columns. In this

columns. In this way, the observations will be read in rows. s=sheet_name option

shows the sheet in the Excel workbook from which data is to be read. Thus, s=EXO

means that we want to import data from the sheet named “EXO”. The location of the

data file is “C:\Niger\” and the name of the file is “Niger-Data.xls”.

c) List the name of variables that will be imported. These will be the names

that will be used if we need to refer to them in our program. It should be noted that

the order of the variables must follow that of the listing of the variables in the Excel

file. Figure 3 shows how the EXO sheet of our data file looks like. The projected data

are highlighted in blue.

• We follow exactly the same procedure to import endogenous variables using

this command: read(ae4, t, s=ENDO) C:\Niger\Niger-Data.xls AID CP DdebtG delta_LE_N Delta_NFA DITAX DITXR DOM FdebtG FdebtP FdebtTot FG GBAL GTOT IG IGedu IGhea IGinf IGoth INDTAX INDTXR IP J KGedu KGhea KGinf KGoth KP LE LE_P LR M NGDP PD PM POP PQ PQT PX PY Q Qd SP T TAX X Y Ydisp YTOT Z KGZ

25

• Now, we refer to the sheet name “ENDO” and we have a new list of variables.

Figure 4 shows how the ENDO sheet of our data file looks like. Since these variables

will be determined within the model after 2004, we do not project them.

d. The Write Command

• The “write” command exports variables from EViews into an external file. The

way it is coded is quite similar to the “read” command. The general syntax:

write(options) path\file_name variable names

This command appears in our code as follows

smpl 3 17 'baseline' write(t=xls,b4,t) C:\Niger\output-niger.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• Here we want to export variables for the period 3 to 17 corresponding to the

years from 2001 to 2015. The first of the options specified in the code is t=xls, which

means that the type of file, in which we want to write the outcome, is an Excel file.

Then we write the coordinate of the cell, at which the exported series will start in the

output file. If we want to export our series in rows, we have to include “t” while

defining our options. Then we specify the desired location of the file that will be

created and the name of the file. If this file does not exist, the program is going to

create it automatically. On the other hand, if it already exists, the program is going to

overwrite it. At the end, we list the names of the series that we want to export. Figure

4 shows an output file.

e. The Model Command

26

• The “model” command creates a model. We have to declare our model before

we start coding our equations. The general syntax:

model model_name

In our simulation program, the name of our model is “Niger” and it is declared

as follows

model Niger

f. The Append Command

• We use the “append” command to specify our equations. The general syntax

is:

model_ name.append equation

• For instance, population is defined by the following equation in the program:

niger.append POP = (1+n)*POP(-1)

• It specifies that the equation POP = (1+n)*POP(-1) is going to be added to the

model “Niger”.

g. The Solve Command

• The “solve” command triggers Eviews to solve a model. While running this

command, the Eviews will find a solution to a simultaneous equation model using

available data. This command needs to be placed after equations are listed. The

general syntax is:

solve(options) model_name

27

• There are many options that we can use within the “solve” command. Details

are given in Appendix D. In our simulation program, we use the default solution,

which is dynamic simulation.

• The name of the model that will be solved must be specified. The solution

method may be modified by changing the options. The code in the program is:

smpl 7 17

solve(m=100000, c=.001) niger

• We set our sample range between 7 and 17. This means that the model will be

solved for the years 2005 to 2015. “m = integer ” indicates the maximum number of

iterations to be executed. “c = number ” specifies the convergence criterion for the

solution of the dynamic simulation. “Niger” is the name of our model.

h. The Statusline Command

• This command enables a message to be displayed on the status line at the

bottom of the Eviews window. The general syntax is:

statusline message

We use this command as follows

Statusline iteration number: !IDX

• This means that the current iteration number for the current period will be

written as Eviews runs the simulation program.

i. The genr Command

• This command generates new series, which are calculated using available

series. The general syntax is:

28

genr ser_name = expression

• For instance, the following statement generates the T series using different

series and parameters:

genr T = AT*(beta_T*(LE_P^(-rho_T)) + (1 - beta_T)*((Kghea/(POP^theta_H))^(-rho_T)))^(-(1/rho_T))

4. Details about the Excel Output File

• All simulated endogenous variables and exogenous variables projected within

the program are named with “_0” extension. For example, AID_0 is the simulated AID

series. All exogenous variables and historical endogenous variables preserve their

original names; they do not take any extension. The output file is created for the

period from 3 to 17. This corresponds to the years from 2001 to 2015. The historical

values of the variables will be reported between 2001 and 2004. After these years,

the simulated values of endogenous variables and the projected values of the

exogenous variables will be presented.

5. Details about the Summary Table File

• This table is directly linked to the “Niger-Output.xls” file. It has to be updated if

we have a new output file. In order to update this table, the file must be opened and

then the “update” option must be chosen when the Excel program asks whether you

want to update this file or not. In this table, variables are presented either in levels (in

millions of LCU) or in percent of other variables, especially in percent of NGDP.

VIII. Simulating Shocks

29

• This section explains how we can implement shock in the simulation program.

In Pinto Moreira and Bayraktar (2005), there are three different types of shocks

introduced:

1. Shock 1: Permanent increase in the ratio of foreign aid to GDP by 5

percent.

2. Shock 2: 12 percentage point reduction in investment in “other”

category, which is fully reallocated to investment in infrastructure.

3. Shock 3: Permanent cut of 10 percentage point in the effective tariff

rate.

a. Case 1 - The Non-Neutral Case: No change in the indirect and

direct tax rates.

b. Case 2 - The Neutral Case (Adjustment in Direct Taxation): the

effect of the tariff cut on revenue is offset, ex ante (that is, at

initial baseline values), by an increase in direct taxation.

c. Case 3 - The Neutral Case (Adjustment in Indirect Taxation): the

effect of the tariff cut on revenue is offset, ex ante (that is, at

initial baseline values), by an increase in indirect domestic

taxation.

• In order to run these shocks we have to make some simple changes in the

simulation program. All we need to do is to open some of the lines in the program,

which need to be closed during the baseline simulation, and to close some of the

lines if they will not be used while running the program to investigate the effects of

the shocks. In order to open a line in EViews, all we need to do is to remove the “ ' ” sign at the beginning of the line. We do the opposite to close a line: add “ ' ” at the

beginning of the line. In this way, the program is not going to read these lines when it

is executed.

SHOCK 1 - Increase in Foreign Aid

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• Our first shock on the economy is a permanent increase in the aid-to-GDP

ratio by 5 percentage points (i.e. 0.05). The original value of the ratio of aid to GDP

was 10.67 %. Its value will increase to 10.67% + 5% = 15.67% after the shock to aid

is introduced. In order to apply this shock:

a) Open the line named as “line1shock1” in the simulation program under the

SHOCKS section. When we open this line, EViews reads this line. The following

example shows how we can open this line.

A CLOSED Line 'line1shock1'scalar AID_const = 0.1067 + 0.05 How to OPEN the line 'line1shock1' scalar AID_const = 0.1067 + 0.05

How to re-close the line 'line1shock1'scalar AID_const = 0.1067 + 0.05

• In order to prevent the program from overwriting on the existing output file, we

assign a new name to the output file that will be generated after we run the program.

In order to do this, we need to open the following line:

'line2shock1'write(t=xls,b4,t) C:\Niger\output-niger-shock1.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

The solution to our model will be stored in the “output-niger-shock1.xls” output file.

• Since we will create a new output file, we have to close the line containing the

original “write” command. In EViews, lines are closed adding “ ‘ ” at the beginning of

the line. After you close this line, it looks like as follows:

‘write(t=xls,b4,t) C:\Niger\output-niger.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0

31

Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• After these changes are made, the simulation program must be saved before

we run it. A new output file will be created which will store the new values of

simulated variables after the shock. The results are shown in Table 4 in Appendix G.

In this file, the results are displayed as percentage changes (for variables in levels) or

absolute differences (for variables already in percentage form) from the baseline

scenario.

Note: The lines that we had opened or closed to run the shocks have to be re-closed

or re-opened again after the output file is created.

• Percentage change = 100*(new value – original value)/original value.

Example: From the baseline table (See Table 3 in Appendix G), gross

domestic product at market prices is simulated as 5246.2 billion CFA Franc in

2015 and it is equal to 8116.3 billion CFA Franc in 2015 when there is a 5%

increase in aid to GDP ratio, the first shock.

Percentage change = 100*(8116.3 -5246.2)/ 5246.2 = 54.71%

• Absolute Deviation from the baseline = absolute value of (New value –

Original value).

Example: From the baseline table, the current account balance is simulated as

2.4% (in percent of GDP) in 2015 and it is equal to 5.8% (in percent of GDP) in

2015 when there is a 5% increase in aid to GDP ratio, the first shock.

Absolute deviation from the baseline = absolute value of (5.8%-2.4%) = 3.39%

32

SHOCK 2 - Reallocation of Public Investment

• The second shock is a 20 percentage point reduction in investment in “other”

categories, which is fully reallocated to investment in infrastructure. In order to run

this shock, all we need to do is to open some of the lines in the simulation program.

The lines that need to be opened in the program are:

'line1shock2'smpl 6 17 'line2shock2'genr kappa_oth = kappa_oth - 0.20 'line3shock2'genr kappa_inf = kappa_inf + 0.20

'line4shock2'write(t=xls,b4,t) C:\Niger\output-niger-shock2.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• The new values of the capital shares will be used only during the period that we

simulate the model. It corresponds to the sample period from 7 to 17 (the years

between 2004 and 2015). “genr kappa_oth = kappa_oth - 0.20” generates the new

public investment share in “other” capital, which is 20% less than the original level.

This drop in the share of public investment in “other” will be allocated to public

investment in infrastructure. Thus its value will be 20% higher. The new share

parameter is defined as “genr kappa_inf = kappa_inf + 0.20”.

• The location of the last line is at the end of the program. The output file that

will be created after we run the program will be “output-niger-shock2.xls”. The results

of this shock are presented in Table 5 in Appendix G. Since the output will be

exported to a new output file, we must close the line containing the original write

command. This can be achieved by adding “ ‘ ” at the beginning of the line which

writes the output in “output-niger.xls” file.

When opening these lines, the code will look like as follows:

'line1shock2' smpl 6 17

33

'line2shock2' genr kappa_oth = kappa_oth - 0.20 'line3shock2' genr kappa_inf = kappa_inf + 0.20

'line4shock2' write(t=xls,b4,t) C:\Niger\output-niger-shock2.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• After the program is run, we need to close the lines that we had opened, and

open the lines that we had closed.

SHOCK 3 - Reduction in Tariffs

• In this section, the aim is to study the impact of a permanent cut of 12

percentage point in Niger’s effective tariff rate. We first examine the case where the

cut is non-neutral. We then study the case where the authorities offset the adverse

revenue effect of lower tariffs by either an increase in direct or indirect taxes.

The Non-Neutral Case – Shock 3a

• The purpose is to investigate the response of the economy to a drop in tariff

rate. In the non-neutral case, we keep the direct and indirect tax rates at their year

2004 values throughout the simulation process. We need to slightly change the

simulation program to run this shock. First of all, the following lines in the program

must be opened:

'---------------------------------------------------------------------------------------------------------- 'Shock to tm (DITXR and INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'line1shock3a'smpl 7 17 'line2shock3a'genr tm = tmnew 'line3shock3a'scalar DITXR_ALT = 0.019826305 'for tm shock 'line4shock3a'scalar INDTXR_ALT = 0.023180876 'for tm shock '---------------------------------------------------------------------------------------------------------- 'Shock to tm (DITXR and INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: Before running this shock, don't forget to close the DITXR and INDTXR equations above.

34

'line5shock3a'niger.append DITXR = DITXR_ALT 'line6shock3a'niger.append INDTXR = INDTXR_ALT 'line7shock3a'write(t=xls,b4,t) C:\Niger\output-niger-shock3a.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• Since the shock is applied only during the simulation period, we set the sample

range between 7 and 17. “genr tm = tmnew” defines our new tariff rate, which is equal to

the half of the old tariff rate. “scalar DITXR_ALT = 0.019826305” and “scalar INDTXR_ALT =

0.023180876” guarantee that the direct and indirect tax rates will be kept at their original

levels in 2004.

• We add two new equations to our model: “niger.append DITXR = DITXR_ALT” and

“niger.append INDTXR = INDTXR_ALT”. These equations specify that the direct and

indirect tax rates will be kept constant at their original levels throughout the

simulation process.

• The last line in the set writes the results into the “output-Niger-shock3a.xls” file.

It should be noted that the locations of the lines in this set are different. The first set

of lines is located in the “shocks” section of the program. The ones in the middle are

located in the section we define the equations. The last line is at the end of the

program. After we open these lines, they will look like as follows

'---------------------------------------------------------------------------------------------------------- 'Shock to tm (DITXR and INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'line1shock3a' smpl 7 17 'line2shock3a' genr tm = tmnew 'line3shock3a' scalar DITXR_ALT = 0.019826305 'for tm shock 'line4shock3a' scalar INDTXR_ALT = 0.023180876 'for tm shock '---------------------------------------------------------------------------------------------------------- 'Shock to tm (DITXR and INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: Before running this shock, don't forget to close the DITXR and INDTXR equations above.

35

'line5shock3a' niger.append DITXR = DITXR_ALT 'line6shock3a' niger.append INDTXR = INDTXR_ALT 'line7shock3a' write(t=xls,b4,t) C:\Niger\output-niger-shock3a.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• In addition to these changes, the line containing the original “write” command

must be closed, as we did before, since we will create a new output file to study the

effects of the shock. This can be achieved by adding “ ‘ ” at the beginning of the line.

• The results are presented in Table 6 in Appendix G. After we obtain this output

file, we need to close the lines that we had opened and open the lines that we had

closed.

The Neutral Case: Adjustment in Direct Taxation – Shock 3b

• In this scenario, we consider the case where the effect of the tariff cut on

revenue is offset by an increase in direct taxation. Given the magnitude of the

reduction in the effective tariff rate, this requires an increase in the direct tax rate of

4.89 percentage points.

• The aim is to keep the total tax revenue and total indirect tax revenue fixed

and to adjust the indirect tax rate in a way to compensate any tax loss caused by the

lower tariff rate. The new direct tax rate is calculated using the following equation:

New direct tax rate = (TAX – INDTAX – (tm/2).ER.M.PM*)/YTOT

The values of the variables are giving in the following table.

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2004TAX 1.717E+11INDTAX 42670999624tm 0.239834512ER 528.2848PMstar 0.000713135M 1.06446E+12YTOT 1.65688E+12

Alternative direct tax rate 0.049

• The preparation of the program to run this shock is quite similar to the

changes that we made to run the previous shocks.

• In the “Shocks to tm and DITXR” section (given below), the last two lines must

be opened. The first line helps us reduce the value of the tariff rate to half of its

original value. The last line increases the direct tax rate to 4.89% in order to

compensate the reduction in tax revenue caused by decreased tariff rates.

'---------------------------------------------------------------------------------------------------------- 'Shock to tm and DITXR (INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: When tm drops to tmnew, the new value of DITXR must be equal 'to 0.048850383, keeping total tax revenue and INDTXR fixed. 'It is calculated for 2004. 'line1shock3b'genr tm = tmnew 'line2shock3b'scalar DITXR_ALT = 0.048850383

• We also need to open the last line of the following section. This line equates

the value of DITXR to its new higher value.

'---------------------------------------------------------------------------------------------------------- 'Shock to tm and DITXR (INDTXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: Before running this shock, don't forget to close the DITXR equation above. 'line3shock3b'niger.append DITXR = DITXR_ALT

• Since DITXR is defined using the new equation specified above, we need to

close the line containing the original equation determining DITXR. The line that we

need to close is:

37

niger.append DITXR = DITXR_const

• Its location is the section, in which we list the equations. In addition to these

changes, we must also open the line that generates our new output file, which is

named as “output-Niger-shock3b.xls”.

'line4shock3b'write(t=xls,b4,t) C:\Niger\output-niger-shock3b.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

As we did before, we have to close the line containing our original “write” command in

order to prevent the program from overwriting the baseline output file.

• The results are presented in Table 7 in Appendix G.

After we obtain our results, all the changes that we have done must be adjusted

to their original setup.

The Neutral Case: Adjustment in Indirect Taxation – Shock 3c

• In this final shock scenario, we consider the case where the effect of the tariff

cut on revenue is offset by an increase in indirect domestic taxation. Given the

magnitude of the reduction in the effective tariff rate, this requires a 4.93 percentage

point increase in the indirect tax rate on domestic sales of goods and services.

• The aim is to keep the total tax revenue and total direct tax revenue fixed and

to adjust the direct tax rate in a way to compensate any tax loss caused by the lower

tariff rate. The new indirect tax rate is calculated using the following equation:

New indirect tax rate = (TAX – DITAX – (tm/2).ER.M.PM*)/(PQ.Q)

38

The values of the variables are giving in the following table.

2004

TAX 1.717E+11DITAX 32849901454tm 0.239834512ER 528.2848PMstar 0.000713135M 1.06446E+12YTOT 1.65688E+12

Alternative indirect tax rate 0.049

• The preparation of the program to run this shock is quite similar to the

changes that we made in the model to run the previous shocks.

• In the “Shocks to tm and INDTXR” section (given below), the last two lines

must be opened. These two lines help us reduce the value of the tariff rate to the half

of its original value. The last line increases the indirect tax rate to 4.93% in order to

compensate the reduction in tax revenue caused by decreased tariff rates.

'---------------------------------------------------------------------------------------------------------- 'Shock to tm and INDTXR (DITXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: When tm drops to tmnew, the new value of INDTXR must be equal 'to 0.049305362, keeping total tax revenue and DITXR fixed. 'It is calculated for 2004. 'line1shock3c'genr tm = tmnew 'line2shock3c'scalar INDTXR_ALT = 0.049305362

• We also need to open the last line of the following section. This line equates

INDTXR to its original value.

'---------------------------------------------------------------------------------------------------------- 'Shock to tm and INDTXR (DITXR fixed) '---------------------------------------------------------------------------------------------------------- 'NOTE: Before running this shock, don't forget to close the INDTXR equation above. 'line3shock3c'niger.append INDTXR = INDTXR_ALT

39

• Since INDTXR is redefined using this new equation, we have to close the line

containing the original equation determining INDTXR. The line that we need to

close is:

niger.append INDTXR = 0.00792+0.706572*INDTXR(-1)-0.029834*(AID/NGDP)+ INDTXR_RES

The location of this line is the section in which we list the equations.

In addition to these changes, we must also open the line that creates our new

output file (“output-Niger-shock3c.xls”).

'line4shock3c''write(t=xls,b4,t) C:\Niger\output-niger-shock3c.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGoth_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

One should not forget to close the line containing the original write command.


As it is noted before, after the new output file is created, all the changes that

we have done must be turned back to their original setup.

IX. SENSITIVITY ANALYSIS

In this case, we assume that public investment is partially efficient such that αh

is equal to 0.5. In order to obtain the baseline results, open the following lines in the

program:

'line1baseline 2'scalar alpha_h = 0.5 'line2baseline2'write(t=xls,b4,t) C:\Niger\OUTPUT-NIGER4.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0

40

kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0



Similarly, in order to run a aid shock (5 percent increase in aid to GDP)

together with partially efficient IG, one needs to open the following lines in the

program:

'line1shock4'scalar alpha_h = 0.5 'line2shock4'scalar AID_const = 0.1067 + 0.05 'line3shock4'write(t=xls,b4,t) C:\Niger\output-niger-shock4.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0



As it is noted before, after the new output file is created, all the changes that

we have done must be turned back to their original setup.

X. LINKING THE MODEL WITH THE MILLENNIUM DEVELOPMENT GOALS (MDGS)

This section explains how we can link the macroeconomic framework to the

MDGs.8 It is also shown how we can run the simulation program to create simulated

data files which are used to construct the MDG tables.

8 Details are given in Agenor, Bayraktar, Pinto Moreira, and El Aynaoui (2005).

41

Six of the MDG indicators are integrated: the poverty rate, the literacy rate,

infant mortality, malnutrition, life expectancy, and access to safe water. Because the

model can directly calculate values for the poverty and the literacy rates, we only ran

regressions to estimate the equations for infant mortality, malnutrition, life

expectancy, and access to safe water. The estimation method is ordinary least

squares. We use cross-section data, obtained by taking average values of variables

for each country for the period 1965-2003, depending on the availability of data

series. Our sample consists of Sub-Saharan countries. The regression results are

presented in the following table.

42

Cross-Section Regression Results(All sub-Saharan countries are included unless otherwise indicated)

Dependent variables MALNUTRITION ln(MORTALITY) ln(LIFE_EXP) WATER 2/ Constant term 75.415

(6.055) 5.485 (10.761)

3.428 (27.187)

6.711 (0.299)

HEA_P_GDP 1/ -4.790 (-3.961)

-0.091 (-1.949)

0.048 (2.802)

…

ln(CPPC2003$) -7.951 (-4.126)

… … …

POVERTY 0.144 (1.635)

0.011 (3.247)

-0.002 (-2.771)

…

ln(GDPPC2003$) … -0.191 (-2.820)

0.078 (4.189)

6.921 (2.458)

INF_GDP … … … 1.702 (1.718)

ln(POP_DENSITY) … … … 4.076 (1.551)

Number of observations

28 31 20 31

Adjusted R2 0.552 0.479 0.739 0.292 Note: The estimation technique is OLS. Data points of independent variables in each country correspond exactly to the years in which dependent variables are available. First, averages at the country level are calculated, then the regression equations are run using these cross sectional data. t-statistics are reported in parenthesis. MALNUTRITION is malnutrition prevalence, weight for age (% of children under 5); HEA_P_GDP is public health expenditure in % of GDP; CPPC2003$ is private consumption per capita (in constant 2003 dollars); POVERTY is the percent of population living under $2 per day; MORTALITY is infant mortality rate (per 1000 live births); GDPPC2003$ is GDP per capita (in constant 2003 dollars); LIFE_EXP is life expectancy at birth, total, years; INF_GDP is public infrastructure expenditure in percent of GDP; WATER is percentage of population with access to safe water; POPDEN is population density (people per km square). 1/ While the data source of public heath expenditure is Government Financial Statistics in the life-expectancy regression, the data source of public heath expenditure is World Bank African Database in other regressions. 2/ Due to insufficient number of data points for sub-Saharan African countries, all developing countries are included depending on data availability.

After estimating these coefficients, we calculate the residuals of each

regression equation for Niger, which are going to be used in calculating predicted

values of the MDG indicators. For example, in case of malnutrition prevalence, the

estimated equation is:

ACTUAL value of MALNUTRITION = - 4.79*(HEA_P_GDP) -

7.951*LN(CPPC2003$) + 0.144* POVERTY + MALNUTRITION RESIDUAL

43

where MALNUTRITION is malnutrition prevalence, weight for age (% of children

under 5); HEA_P_GDP is public health expenditure in % of GDP; CPPC2003$ is

private consumption per capita (in constant 2003 dollars); POVERTY is the percent

of population living under $2 per day. MALNUTRITION was 40.1 percent in Niger in

2000 (the latest available data point); HEA_P_GDP was 1.28; CPPC2003$ was

$175; and POVERTY was 63 percent. Plugging these numbers in the equation given

above, we can calculate the residual as

MALNUTRITION RESIDUAL =40.1+4.79*(1.2801)+7.951*LN(175.0706)-0.144*63

Then, we can calculate the predicted values of MALNUTRITION by using the

simulated data as follows:

PREDICTED VALUE OF MALNUTRITION = -4.79*(100*IGhea*PQT/NGDP) -

7.951*LN([CP/(ER in 2003)]/POP) + 0.144*POVERTY + MALNUTRITION RESIDUAL

where POVERTY is defined with the partial elasticity of -1.0.

Similarly, we calculate the residual of infant mortality for Niger by using the

following equation:

LN(ACTUAL value of INFANT MORTALITY) = - 0.091*(HEA_P_GDP) -

0.191*LN(GDPPC2003$) - 0.011* POVERTY + INFANT MORTALITY RESIDUAL

where MORTALITY is infant mortality rate (per 1000 live births) and GDPPC2003$ is

GDP per capita (in constant 2003 dollars). INFANT MORTALITY was 155 in Niger in

2002 (the latest available data point); HEA_P_GDP was 0.84; GDPPC2003$ was

$220; and POVERTY was 63 percent. Plugging these numbers in the equation given

above, we can calculate the residual as

44

INFANT MORTALITY RESIDUAL=LN(155) +0.091*0.84+0.191*LN(220)-0.011*63

Then, we can calculate the predicted values of INFANT MORTALITY by using the

simulated data series. For example in 2005

PREDICTED VALUE OF INFANT MORTALITY = EXP(-

0.091*(100*IGhea*PQT/NGDP) -0.191*LN([(NGDP/PQT)/(ER in 2003)]/POP) +

0.011*POVERTY + INFANT MORTALITY RESIDUAL)


Similarly, the residual of life expectancy for Niger is:

LN(ACTUAL value of LIFE EXPECTANCY) = 0.048*(HEA_P_GDP) +

0.078*LN(GDPPC2003$) – 0.002*POVERTY + LIFE EXPECTANCY RESIDUAL

where LIFE_EXP is life expectancy at birth (total, years). LIFE EXPECTANCY was

46.19 in Niger in 2002 (the latest available data point); HEA_P_GDP was 0.84;

GDPPC2003$ was $220; and POVERTY was 63 percent. Plugging these numbers in

the equation given above, we can calculate the residual as

45

LIFE EXPECTANCY RESIDUAL= LN(46.19)-0.048*(0.84227)-

0.078*LN(219.6256)+0.002*63

Then, we can calculate the predicted values of LIFE EXPECTANCY by using the

simulated data as follows:

PREDICTED VALUE OF LIFE EXPECTANCY =

EXP(0.84227*(100*IGhea*PQT/NGDP)

+0.078*LN([(NGDP/PQT)/(ER in 2003)]/POP)

+ 0.002*POVERTY + LIFE EXPECTANCY RESIDUAL)


Access to safe water is calculated as follows. The residual of access to safe

water for Niger is:

(ACTUAL value of WATER) = 4.0767*LN(POPDEN) +

6.9219*LN(GDPPC2003$) + 1.7024*(INF_GDP) + WATER RESIDUAL

where INF_GDP is public infrastructure expenditure in percent of GDP, WATER is

percentage of population with access to safe water, and POPDEN is population

density (people per km square). WATER was 59 in Niger in 2000 (the latest available

data point); INF_GDP was 1.712; GDPPC2003$ was $212; and POPDEN was 8.48

per km square. Plugging these numbers in the equation given above, we can

calculate the residual as

46

WATER RESIDUAL= =59-4.0767*LN(8.48)-6.9219*LN(212)-1.7024*1.712

Then, we can calculate the predicted values of WATER by using the simulated

data as follows:

PREDICTED VALUE OF WATER =

1.7024*(100*IGinf*PQT/NGDP)

+6.9219*LN([(NGDP/PQT)/(ER in 2003)]/POP)

+ 4.0767*POPDEN + WATER RESIDUAL.

Calculation of the Composite MDG Indicator

This indicator summarizes the changes in the MDG indicators. It is calculated

by combining poverty (neutral case), literacy rate, life expectancy, access to safe

water, malnutrition prevalence, and infant mortality. The index is assumed to be

equal to 100 in 2005. An increase indicates an improvement. First of all, we calculate

the value of each MDG indicator with respect to their values in 2005.9 For example,

Relative poverty rate in 2006 = Poverty rate in 2006/Poverty rate in 2005.

It should be noted that while calculating the index, we take the inverse of

poverty, malnutrition prevalence, and infant mortality since an increase in indicators

are supposed to show an improvement toward achieving the MDGs.

After calculating the relative values of the MDG indicators, their geometric

average is the composite MDG indicator.

Creating Simulated Data Files

9 “Niger-MDG-table-baseline.xls” shows how this index is calculated.

47

The baseline MDG table is given in “Niger-MDG-table-baseline.xls” file. This

file is linked to “OUTPUT-NIGER.xls” and “Niger-Output Table-BASELINE-MDG.xls”

files.10 The baseline MDG table is given in Appendix I.

SHOCK 5 – Effects of an Increase in Foreign Aid on the MDG Indicators

• The first shock is a permanent increase in the aid-to-GDP ratio by 5

percentage points (i.e. 0.05) starting in 2006. The original value of the ratio of aid to

GDP is taken to be equal to 10.67 % up to 2006. Its value will increase to 10.67% +

5% = 15.67% in 2006. The variable introducing this shock in the simulation program

is AID_GDP_MDGSHOCK.

• In order to apply this shock, open the following lines in the simulation program.

'line 1 MDG AID SHOCK after 2005'niger.append AID = NGDP*AID_GDP_MDGSHOCK 'line 2 MDG AID SHOCK after 2005'write(t=xls,b4,t) C:\Niger\output-niger-shock5.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• In order to run this aid shock, the following line in the simulation program

should be closed as indicated in the program: niger.append AID = AID_const * NGDP



simulated data after the shock.

10 Details about how “OUTPUT-NIGER.xls” is constructed are given in Section VII.

48



• The output file, “OUTPUT-NIGER-SHOCK5.xls”, is used to create the

summary table, “Niger-Output Table-SHOCK5.xls”, and the MDG table, “Niger-MDG-

table-withaidshock.xls”. “Niger-output-Aid-Shock-MDG Table 1.xls” shows the

deviation from the summary baseline table.

• “Niger-MDG-table-withaidshock-deviation.xls” presents the deviation from the

baseline MDG table. This table is given in Appendix I.

SHOCK 6 – Effects of Cancellation of External Debt on the MDG Indicators

• The second shock is cancellation of external debt. For this experiment, we

assume that the outstanding stock of Niger’s external debt is cancelled in 2006, and

that in the following years “new” borrowing occurs only at a very low effective interest

rate, of 0.2 percent. We assume that the savings associated with lower interest

payments (which represent about 0.52 percent of GDP in 2006) are reallocated

entirely to public investment.

• This additional revenue is calculated as follows using the simulated data given

in “OUTPUT-NIGER.xls” file.

100*FdebtG in 2005*RG* in 2006*ER in 2006/NGDP in 2006 = 0.52 percent

• In order to run this shock, new variables are introduced in the simulation

program. IGRESIDUALFORDEBT is additional income from debt relief, which is

entirely allocated to public investment. DUMMY1 is a dummy variable which is equal

to 0 in 2006 (in which public external debt is cancelled) and 1 otherwise. It

guarantees that external public interest payment is going to be zero in 2006.

RGSTARlow series is equal to its original values up to 2006, but it is equal to 0.2

49

percent after that, corresponding to a lower effective interest rate on public external

debt.


'line 1 - debt relief shock'niger.append GTOT = WG*LE_G + PQT*(CG + IG) + DUMMY1*RGstarlow*ER*FdebtG(-1) + RD*DdebtG(-1) 'line 2 - debt relief shock'niger.append IG = (-0.174921+0.649353*(TAX(-1)/(NGDP(-1)))+1.549799*(AID/NGDP)-3.26115*(AID/NGDP)^2)*NGDP/PQT + IGRESIDUALFORDEBT 'line 3 - debt relief shock'niger.append delta_NFA = PXstar*X - PMstar*M - DUMMY1*RGstarlow*FdebtG(-1) - RPstar*FdebtP(-1) + UTR$ + (AID$ +AID_RES) + FG + FP+ERROR_OMM 'line 4 - debt relief shock'niger.append FdebtG = FG + DUMMY1*FdebtG(-1) 'line 5 - debt relief shock'write(t=xls,b4,t) C:\Niger\output-niger-shock6.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• In order to run this shock the following lines in the simulation program should

be closed as indicated in the program: 'NOTE: Close the following line when running the debt relief shock (Shock 6) niger.append GTOT = WG*LE_G + PQT*(CG + IG) + RGstar*ER*FdebtG(-1) + RD*DdebtG(-1)

'NOTE: Close the following line when running the debt relief shock (Shock 6) niger.append IG = (-0.174921+0.649353*(TAX(-1)/(NGDP(-1)))+1.549799*(AID/NGDP)-3.26115*(AID/NGDP)^2)*NGDP/PQT + IG_RES

'NOTE: Close the following line when running the debt relief shock (Shock 6) niger.append delta_NFA = PXstar*X - PMstar*M - RGstar*FdebtG(-1) - RPstar*FdebtP(-1) + UTR$ + (AID$ +AID_RES) + FG + FP+ERROR_OMM

'NOTE: Close the following line when running the debt relief shock (Shock 6) niger.append FdebtG = FG + FdebtG(-1)

'baseline' write(t=xls,b4,t) C:\Niger\output-niger.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0

50

NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0







summary table, “OUTPUT-NIGER-SHOCK6.xls”, and the MDG table, “Niger-MDG-

table-withdebtshock.xls”. “Niger-output-Debtrelief-Shock-Table 2.xls” presents the

deviation from the baseline summary table.

• “Niger-MDG-table-withdebtshock-deviation.xls” presents the deviation from the

baseline MDG table. This table is given in Appendix I.

SHOCK 7 – Effects of 0.52 percent Increase in Foreign Aid on the MDG Indicators

• This policy experiment aims to investigate the question of whether the impact

of debt relief compares favorably with a permanent increase in aid of the exact same

magnitude, of about 0.52 percentage of GDP, beginning also in 2006.

• Given that the original value of the ratio of aid to GDP is equal to 10.67 %, it

will increase to 10.67% + 0.52% = 11.19% in 2006. The variable introducing this

shock in the simulation program is AID_GDP_MDGSHOCK2.


51

'line 1 MDG AID SHOCK of 0.52 % after 2006'niger.append AID = NGDP*AID_GDP_MDGSHOCK2 'line 2 MDG AID SHOCK of 0.52 % after 2006' write(t=xls,b4,t) C:\Niger\output-niger-shock7.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• In order to run this aid shock, the following line in the simulation program

should be closed as indicated in the program: niger.append AID = AID_const * NGDP








table-withaidshock0.52.xls”. “Niger-output-Aid-Shock-MDG Table 3.xls” shows the

deviation from the summary baseline table.

• “Niger-MDG-table-withaidshock-deviation-aidshock=0.052.xls” presents the

deviation from the baseline MDG table. This table is given in Appendix I.

Sensitivity Analysis (Partial Efficiency) – Baseline MDG Table

• In this case, we assume that public investment is partially efficient such that αh

is equal to 0.5 in equation (A33) in Appendix E. In order to obtain the simulated data

52

series that will be used to construct the baseline MDG table, open the following lines

in the program:

'line1baseline 2'scalar alpha_h = 0.5 'line2baseline2 - MDG tables'write(t=xls,b4,t) C:\Niger\OUTPUT-NIGER8.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• The name of the output file is “OUTPUT-NIGER8.xls”. This file is used to

calculate the summary table in “Niger-Output Table-BASELINE-MDG 2”. The MDG

table in a case of partial efficiency is presented in “Niger-MDG-table-baseline 2.xls”

Sensitivity Analysis (Partial Efficiency) –MDG Tables with Aid Shock

• In addition to a lower partial efficiency parameter, a permanent increase in the

aid-to-GDP ratio by 5 percentage points (i.e. 0.05) is introduced, starting in 2006. The

original value of the ratio of aid to GDP is taken to be equal to 10.67 % up to 2006.

Its value will increase to 10.67% + 5% = 15.67% in 2006. The variable introducing

this shock in the simulation program is AID_GDP_MDGSHOCK.

• While running the aid shock, open the following line:

'line1baseline 2'scalar alpha_h = 0.5 'line 1 MDG AID SHOCK after 2005'niger.append AID = NGDP*AID_GDP_MDGSHOCK 'line 2 MDG AID SHOCK after 2005'write(t=xls,b4,t) C:\Niger\output-niger-shock9.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0 IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• Close the following line:

53

niger.append AID = AID_const * NGDP



table-withaidshock-partial efficiency.xls”. “Niger-output-Aid-Shock-MDG Table partial

efficiency.xls” shows the deviation from the summary baseline table.

Sensitivity Analysis (Partial Efficiency) –MDG Tables for Cancellation of Public External Debt

• It is assumed that the outstanding stock of Niger’s external debt is cancelled in

2006, and that in the following years “new” borrowing occurs only at a very low

effective interest rate, of 0.2 percent. We assume that the savings associated with

lower interest payments (which represent about 0.52 percent of GDP in 2006) are

reallocated entirely to public investment.

• While running the debt relief shock, open the following lines:

'line1baseline 2'scalar alpha_h = 0.5

'line 5 - debt relief shock partial efficiency'write(t=xls,b4,t) C:\Niger\output-niger-shock10.xls AID_0 CG_0 CP_0

PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0

IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0

TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar

RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0

YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

'line 1 - debt relief shock'niger.append GTOT = WG*LE_G + PQT*(CG + IG) + DUMMY1*RGstarlow*ER*FdebtG(-1) + RD*DdebtG(-1) 'line 2 - debt relief shock'niger.append IG = (-0.174921+0.649353*(TAX(-1)/(NGDP(-1)))+1.549799*(AID/NGDP)-3.26115*(AID/NGDP)^2)*NGDP/PQT + IGRESIDUALFORDEBT 'line 3 - debt relief shock'niger.append delta_NFA = PXstar*X - PMstar*M - DUMMY1*RGstarlow*FdebtG(-1) - RPstar*FdebtP(-1) + UTR$ + (AID$ +AID_RES) + FG + FP+ERROR_OMM 'line 4 - debt relief shock'niger.append FdebtG = FG + DUMMY1*FdebtG(-1) 'line 5 - debt relief shock partial efficiency'write(t=xls,b4,t) C:\Niger\output-niger-shock10.xls AID_0 CG_0 CP_0 PQ_0 DdebtG_0 DOM_0 ER FdebtG_0 FdebtP_0 FdebtTot_0 GBAL_0 GTOT_0 IG_0 IGedu_0 IGhea_0 IGinf_0

54

IP_0 J_0 KGedu_0 KGhea_0 KGinf_0 KP_0 LE_0 LR_0 M_0 PD_0 PM_0 POP_0 PX_0 PY_0 Qd_0 Q SP_0 T_0 TAX_0 X_0 Ydisp_0 Y_0 kappa_edu kappa_hea kappa_inf DB_0 FG_0 FP LAND n PMstar PXstar RD RGstar RPstar tm UTR$ Delta_NFA_0 ERROR_OMM_0 NGDP_0 KGedu_0 LE_P_0 LE_G_0 DITXR_0 INDTXR_0 YTOT_0 kappa_oth WG_0 IGoth_0 DITAX_0 INDTAX_0 PQT_0 Z_0 KGZ_0

• Close the following lines: niger.append GTOT = WG*LE_G + PQT*(CG + IG) + RGstar*ER*FdebtG(-1) + RD*DdebtG(-1) niger.append IG = (-0.174921+0.649353*(TAX(-1)/(NGDP(-1)))+1.549799*(AID/NGDP)-3.26115*(AID/NGDP)^2)*NGDP/PQT + IG_RES niger.append delta_NFA = PXstar*X - PMstar*M - RGstar*FdebtG(-1) - RPstar*FdebtP(-1) + UTR$ + (AID$ +AID_RES) + FG + FP+ERROR_OMM niger.append FdebtG = FG + FdebtG(-1)


summary table, “Niger-Output Table-SHOCK10.xls”, and the MDG table, “Niger-

MDG-table-withdebtshock-partial efficiency.xls”. “Niger-output-Debtrelief-Shock-Table

- partial efficiency.xls” shows the deviation from the summary baseline table.

XI. LINKING THE MODEL WITH THE DECOMPOSITION OF PUBLIC CAPITAL EXPENDITURE TABLE

55

REFERENCES Agénor, Pierre-Richard, Nihal Bayraktar, and Karim El Aynaoui, “Roads out of

Poverty? Assessing the Links between Aid, Public Investment, Growth, and Poverty Reduction,” World Bank Working Paper No: 3490, (January 2005).

Agénor, Pierre-Richard, Nihal Bayraktar, Emmanuel Pinto Moreira, and Karim El Aynaoui, “Achieving the Millennium Development Goals in Sub-Saharan Africa,” World Bank Working Paper No: ???, (October 2005).

Chiang Alpha C., Fundamental Methods of Mathematical Economics, 3rd Edition, McGraw-Hill/Irwin, (1984).

Pinto Moreira, Emmanuel and Nihal Bayraktar, “A Macroeconomic Framework

for Quantifying Growth and Poverty Reduction Strategies in Niger” World Bank Working Paper No: 3506, (January 2005).

56

APPENDIX A – Definitions

This appendix defines the types of functions and parameters used in the manual. Chiang (1984) gives detailed information on them.

1. Constant Elasticity of Substitution (CES) Production Function

An example of this type of function is given below:

Q = A[βK(-ρ) + (1-β).L(-ρ)](-1/ρ) (A3-1)

where Q is output, K is the capital stock, and L is labor. A is the shift or efficiency parameter, β is the share parameter, and ρ is the substitution parameter. Each input has a constant substitution parameter. The major properties of this type of functions are that they are homogenous of degree of one and display constant returns to scale.

2. Substitution parameter (ρ)

It determines the elasticity of substitution. See the definition elasticity of

substitution below.

3. Elasticity Substitution (σ) From the first order condition obtained by maximizing production function (e.g.

Equation (A3-1)) given the cost of production function, the elasticity of substitution (σ) is equal to 1/(1+ ρ) for CES production functions. It measures the effect of a change in the price ratio of inputs on the least-cost input combination in order to produce the same level of given output. Assuming that w is the price of labor and r is the price of capital, the elasticity of substitution between K and L can be defined as

σ = Relative change in (K/L)/ Relative change in (w/r)

As w increases, the K/L ratio also increases since K, which is relatively cheaper

now, will be substituted for L.

4. Shift parameter (A) For given values of inputs, the magnitude of A will proportionately affect the

level of output. It is also named as efficiency parameter as an indicator of the state of the technology.

5. Distribution parameter (β)

It shows the relative shares of inputs in the production.

6. Constant Elasticity of Transformation (CET) Functions

57

These functions define the allocation of any output between alternative uses. In the example below output Y is allocated between exports, X, and domestic sales, DOM, according to a CET function

Y = A[βX-ρT + (1 - β)DOM-ρT](1//ρT) (A3-2) Their properties are similar to the properties of CES functions. ρT is the

transformation parameter.

7. Transformation parameter (ρT) It determines the elasticity of transformation.

8. Elasticity of Transformation (σT)

From the first order condition obtained by maximizing output function (e.g. Equation (A3-2) given the total cost of products, the elasticity of substitution is equal to 1/(1+ ρT) for CET functions. It measures the effect of a change in the price ratio of alternative outputs on the optimal output combination in order to produce the same level of given input. Assuming that PD is the price of DOM and PX is the price of X, the elasticity of transformation between DOM and X can be defined as

σT = Relative change in (X/DOM)/ Relative change in (PD/PX)

As PD increases, X/DOM drops, since DOM, which is relatively more expensive

now, will be produced more compared to X.

9. Types of Variables

a. Exogenous variables: Variables determined out of the model. These are given variables.

b. Endogenous variables: Variables determined within the model. They can be a function of exogenous and endogenous variables.

58

Appendix B - List of Variables and Parameter Estimates Endogenous Variables Variable EViews

Name Definition

AID AID Total aid measured in domestic-currency terms

CP CP Total private consumption in real terms CG CG Real public spending on consumption DdebtG DdebtG Domestic public debt stock (direct

borrowing)

∆NFA Delta_NFA Change in net foreign assets of the central bank

DITAX DITAX Direct tax revenue DITXR DITXR Effective direct tax rate DOM DOM Domestic sales EQPD EQPD Equilibrium value of PD

FdebtG FdebtG Stock of public foreign debt

FdebtP FdebtP Stock of private foreign debt FdebtTot FdebtTot Total external debt FG FG Flow of government borrowing abroad GBAL GBAL Government budget balance GTOT GTOT Total government expenditure IG IG Real public investment IGedu IGedu Real public investment in education

IGhea IGhea Real public investment in health IGinf IGinf Real public investment in infrastructure IGoth IGoth Real public investment in other

categories

INDTAX INDTAX Indirect tax revenue INDTXR INDTXR Effective indirect tax rate IP IP Real private spending on investment J J Composite input from the supply of

composite input T and private capital, KP

KGedu KGedu Stock of public capital in education KGhea KGhea Public capital in health KGinf KGinf Public capital in infrastructure KGZ KGZ Composite public capital in education KP KP Private capital LE, ∆LEN LE,

delta_LEN Total educated labor (stock and flow)

LEP LE_P Quantity of educated labor used in private production

LR LR Raw labor M M Demand for imported goods (in real

59

terms) NGDP NGDP Nominal gross domestic product PD PD Price of the domestic good PM PM Domestic-currency price of imports POP POP Size of the population PQ, PQT PQ, PQT Composite price index (before and after

indirect taxes)

PX PX Domestic-currency price of exports PY PY GDP deflator Qd Qd Total demand for goods sold on the

domestic market (which includes both imports and domestically-produced goods)

Q Q Domestic sales SP SP Private savings T T “Effective” labor; composite input from

the supply of educated labor, LE, and the stock of public capital in health, Kghea

TAX TAX Total tax revenue X X Exports (in real terms) Ydisp Ydisp Households’ disposable income in

nominal terms

Y Y Aggregate supply of domestic goods (in real terms)

YTOT YTOT Total income before taxes Z Z Composite public education input

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Exogenous Variables Variable EViews Name Definition

κh Kappa_h Share of public investment in h with h = edu, hea, inf, oth and Σκh = 1

χ Kappa Share of teachers in LE_G AID$ AID$ Total aid measured in US dollars

terms

DB DB Flow of direct domestic borrowing ER ER Nominal exchange rate ERROR_OMM ERROR_OMM Errors and omissions FP FP Private capital inflows LAND LAND Land (normalized to unity)

LEG LE_G Quantity of educated labor employed by the public sector

n n Growth rate of population and raw labor

NMCG NMCG Real public spending on other goods and services

PM* PMstar World price of imports PX* PXstar World price of exports RD RD Interest rate on domestic public

debt

RG* RGstar Interest rate on public foreign debt RP* RPstar Interest rate on private foreign

borrowing

tm tm Tariff rate UTR$ UTR$ Private unrequired transfers WG WG Average effective wage in the public

sector

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Parameters and Estimated Values Variable EViews

Name Definition

αh alpha_h Partial efficiency parameter of IG θKGE theta_KGE Parameter capturing congestion effects

in the education system

θKGI theta_KGI Parameter capturing congestion effects in the education system

θH theta_H Parameter determining the strength of congestion effects in the provision of health services

θI theta_I Parameter capturing congestion effects on infrastructure capital

ADE ADE Shift parameter in production of domestic goods Ys

ADM ADM shift parameter in production of Qs AE AE Shift parameter in flow production of

educated labor LE

AJ AJ Shift parameter for composite input J AKGZ AKGZ Shift parameter for composite input KGZ

AT AT Shift parameter for composite input T

AY AY Shift parameter for in the production function

AZ AZ Shift parameter for in Z

βDE beta_DE Share parameter between exports EXP and domestic sales DOM in production of domestic goods Ys

βDM beta_DM Share parameter between imports M and demand for domestic goods DOM

βE beta_E Share parameter between educated labor LE and public capital in education, Kgedu in flow production of LE

βJ beta_J Share parameter between the supply of T and the stock of private capital, KP in production of J

βKGZ beta_KGZ Share parameter in production of KGZ βT beta_T Share parameter between the supply of

educated labor, LE, and the stock of public capital in health, Kghea in production of T

βY beta_Y Share parameter between the supply of J and public capital in infrastructure, Kginf in production of Ys

βZ beta_Z Share parameter in equation Z δh delta_h Depreciation rate of public capital with h

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= edu, hea, inf δP delta_P Constant rate of depreciation of private

capital

ρDE rho_DE transformation parameter in production of domestic goods Ys

ρDM rho_DM Substitution parameter in Qs ρE rho_E Substitution parameter in flow production

of LE

ρJ rho_J Substitution parameter in production of J ρKGZ rho_KGZ Substitution parameter in production of

KGZ

ρT rho_T Substitution parameter in production of T ρY rho_Y Substitution parameter in production of

domestic output

ρZ rho_Z Substitution parameter in production of Z s s Marginal propensity to save σDE sigma_DE = 1/(1-ρDE); elasticity of transformation

between exports and domestic sales

σDM sigma_DM = 1/(1+ρDM); elasticity of substitution between imports and demand for domestic goods

σE sigma_E = 1/(1+ρE); elasticity of substitution between LR-1 and KGedu/(LR-1)θE

σJ sigma_J = 1/(1+ρJ); elasticity of substitution between T and KP

σKGZ sigma_KGZ = 1/(1+ρKGZ); elasticity of substitution between KGedu and KGinf

σT sigma_T = 1/(1+ρT); elasticity of substitution between LE and Kghea/POPθH

σY sigma_Y = 1/(1+ρY); elasticity of substitution between J and KGinf/Y-1

θI

σZ sigma_Z = 1/(1+ρZ); elasticity of substitution between between LE_G and KGedu

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APPENDIX C – Estimation Results This appendix reports the estimation results for Equations (1) to (4). The estimation technique is ordinary least squares. The regressions are corrected for serial correlation with autoregressive processes of order one and/or two, denoted AR(1) and AR(2). The definitions of the equations and variables are given in Pinto Moreira and Bayraktar (2005). Estimation results for 11 PQT·IP/NGDP = IP((∆Y/Y-1) -2, KGinf/Y, ER·FP/NGDP) Dependent Variable: PQT.IP/NGDP Method: Least Squares Sample(adjusted): 1982 2002 Included observations: 21 after adjusting endpoints Convergence achieved after 120 iterations

Variable Coefficient Std. Error t-Statistic Prob. Constant term 0.001554 0.026338 0.058985 0.9539

(∆Y/Y-1) -2 0.056452 0.026889 2.099476 0.0559PQT.KGinf/NGDP 0.083040 0.058769 1.413001 0.1811

ER·FP/NGDP 0.033393 0.178805 0.186756 0.8547Dummy-87 -0.028385 0.007331 -3.871750 0.0019

Dummy-92_95 -0.027295 0.006753 -4.042141 0.0014AR(1) 0.829831 0.304689 2.723535 0.0174AR(2) -0.353888 0.278302 -1.271594 0.2258

R-squared 0.812020 Mean dependent var 0.032714Adjusted R-squared 0.710799 S.D. dependent var 0.014028S.E. of regression 0.007544 Akaike info criterion -6.653767Sum squared resid 0.000740 Schwarz criterion -6.255853Log likelihood 77.86455 F-statistic 8.022309Durbin-Watson stat 1.893319 Prob(F-statistic) 0.000717Inverted AR Roots .41 -.43i .41+.43i

Note: Since private investment variable fluctuates a lot in year 1987 and years between 1992 and 1995, dummy variables are used for these years. Dummy-87 is 1 in 1987, 0 otherwise. Dummy-92_95 is 1 in 1992-95, 0 otherwise.

11 Note that the coefficient of (KGinf.PQT/NGDP) is taken as 0.15304 in the simulation program since the lower value of the coefficient was producing lower IP.

64

Estimation results for INDTXR = INDTXR(INDTXR-1, AID/NGDP) Dependent Variable: INDTXR Method: Least Squares Sample(adjusted): 1986 2002 Included observations: 17 after adjusting endpoints Convergence achieved after 7 iterations

Variable Coefficient Std. Error t-Statistic Prob. Constant term 0.007920 0.002764 2.865322 0.0133

INDTXR-1 0.706572 0.091551 7.717805 0.0000AID/NGDP -0.029834 0.014422 -2.068596 0.0591

AR(1) -0.350974 0.260495 -1.347332 0.2009R-squared 0.790924 Mean dependent var 0.014905Adjusted R-squared 0.742676 S.D. dependent var 0.004181S.E. of regression 0.002121 Akaike info criterion -9.271855Sum squared resid 5.85E-05 Schwarz criterion -9.075805Log likelihood 82.81077 F-statistic 16.39279Durbin-Watson stat 1.861421 Prob(F-statistic) 0.000105Inverted AR Roots -.35 Estimation results for 12 PQT·IG/NGDP = IG[(TAX/NGDP)-1, AID/NGDP, (AID/NGDP)2] Dependent Variable: PQT·IG/NGDP Method: Least Squares Sample(adjusted): 1987 2002 Included observations: 16 after adjusting endpoints Convergence achieved after 12 iterations

Variable Coefficient Std. Error t-Statistic Prob. Constant term -0.174921 0.074946 -2.333958 0.0418(TAX/NGDP)-1 1.449353 0.428763 3.380316 0.0070

AID/NGDP 1.549799 0.655702 2.363574 0.0397(AID/NGDP)2 -4.261150 1.958849 -2.175334 0.0547

AR(1) 0.527316 0.299184 1.762515 0.1085AR(2) -0.420780 0.250577 -1.679246 0.1240

R-squared 0.702030 Mean dependent var 0.058565Adjusted R-squared 0.553044 S.D. dependent var 0.017584S.E. of regression 0.011756 Akaike info criterion -5.768968Sum squared resid 0.001382 Schwarz criterion -5.479247Log likelihood 52.15174 F-statistic 4.712076Durbin-Watson stat 1.888750 Prob(F-statistic) 0.017978Inverted AR Roots .26 -.59i .26+.59i

12 Note that the coefficient of (TAX/NGDP)-1 is taken as 0.649353 in the simulation program since the higher value of the coefficient was producing extremely sensitive results to changes in the tax to NGDP ratio. Similarly, the coefficient of (AID/NGDP)2 is taken as -3.26115 in order to reduce the negative effect of the square term of aid on IG.

65

APPENDIX D – EViews Commands Used in the Program and Their Meanings

The following definition of the EViews command used in the simulation program for Niger is presented in this appendix. These definitions are taken from the help menu of EViews Version 4.1. CREATE Command

Create a new workfile. Syntax Command: create optional_name frequency start end You may provide an optional name for your workfile. If you do not, EViews will

create an untitled workfile. You must specify the frequency, and the starting and ending dates of your data.

For undated data, you should specify the starting and ending observation numbers. Options You must choose one of the following options to specify the frequency of your

workfile: a Annual s Semi-annual q Quarterly m Monthly w Weekly d Daily (5 day week) 7 Daily (7 day week) u Undated or irregular Examples create a 1880 90

creates an annual workfile from 1880 to 1990. create m 1990:1 2010:12

creates a monthly workfile from January 1990 to December 2010. create w 2/10/1951 3/17/1994

creates a weekly workfile from the week starting February 10, 1951 to the week starting March 17, 1994.

66

create u 1 5000

creates an undated workfile with 5000 observations.

SCALAR Command Declare a scalar object. The scalar command declares a scalar object and optionally assigns a value. Syntax Command: scalar scalar_name Command: scalar scalar_name=assignment The scalar keyword should be followed by a valid name, and optionally, by an

assignment. If there is no explicit assignment, the scalar will be assigned a value of zero.

Examples scalar alpha

declares a scalar object named ALPHA with value zero. equation eq1.ls res c res(-1 to -4) x1 x2 scalar lm=eq1.@regobs*eq1.@r2 show lm

runs a regression, saves the as a scalar named LM, and displays its value in the status line at the bottom of the EViews window.

READ Command Read data from a foreign disk file. The "read" command may be used to read multiple series into a workfile from a

file on disk. When used as a procedure, read imports data directly into pool and matrix objects.

Syntax

67

Command: read(options) path\file_name name1 name2 name3 Command: read(options) path\file_name n Coef Proc: coef_name.read(options) path\file_name Pool Proc: pool_name.read(options) path\file_name n1? n2? n3? Matrix Proc: matrix_name.read(options) path\file_name You must supply the name of the source file. If you do not include the optional

path specification, EViews will look for the file in the default directory. The input specification follows the source file name. Path specifications may point to local or network drives. If the path specification contains a space, you may enclose the entire expression in double quotation marks.

In the command proc form of read, there are two ways to specify the input

series. First, you may list the names of the series in the order they appear in the file. Second, if the data file contains a header line for the series names, you may specify the number n of the series in the file instead of a list of names; EViews will name the series as given in the header line. If you specify a number and the data file does not contain a header line, EViews will name the series as SER01, SER02, SER03, and so on.

For the pool proc form of read, you must provide a list of ordinary or pool series. Options File type options t=dat, txt ASCII (plain text) files. t=wk1, wk3 Lotus spreadsheet files. t=xls Excel spreadsheet files. If you do not specify the "t" option, EViews uses the file name extension to

determine the file type. If you do specify the "t" option, then the file name extension will not be used to determine the file type.

Options for ascii text files na= Specify text for NAs. Default is "NA". byper Panel data organized by date/period. Default is data organized by

cross-section (only for pool read). bycross (default) Panel data organized by cross-section (only for pool read). t Read by series (or transpose the data for matrix objects). Default is to read by

observation with series in columns. d=t Treat tab as delimiter.

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d=c Treat comma as delimiter. d=s Treat space as delimiter. d=a Treat alpha numeric characters as delimiter. custom= Specify symbol/character to treat as delimiter. mult Treat multiple delimiters as one. name Series names in file. label= Number of lines between the header line and the data. Must be used

with the "name" option. rect(default) Treat file layout as rectangular. norect Do not treat file layout as rectangular. skipcol= Number of columns to skip. Must be used with the "rect" option. skiprow= Number of rows to skip. Must be used with the "rect" option. comment= Specify character/symbol to treat as comment sign. Everything to

the right of the comment sign is ignored. Must be used with the "rect" option. singlequote Strings are in single quotes, not double quotes. dropstrings Do not treat strings as NA; simply drop them. negparen Treat numbers in parentheses as negative numbers. allowcomma Allow commas in numbers (note that using commas as a

delimiter takes precedence over this option). currency= Specify symbol/character for currency data. Options for spreadsheet (Lotus, Excel) files _number (default=b2) Coordinate of the upper-left cell containing data. s=_name Sheet name for Excel 5-8 Workbooks. byper Panel data organized by date/period. Default is data organized by

cross-section (only for pool read). bycross (default) Panel data organized by cross-section (only for pool read). t Read by series (or transpose the data for matrix objects). Default is to read by

observation with each series in columns. Examples read(t=dat,na=.) a:\mydat.raw id lwage hrs

reads data from an ASCII file MYDAT.RAW in the A drive. The data file is listed by observation, NA is coded as a "." (dot or period), and there are three series, which are to be named ID, LWAGE, HRS in this order from left to right.

read(a2,s=sheet3) cps88.xls 10

reads data from an Excel file CPS88 in the default directory. The data are organized by observation, the upper left data cell is A2, and 10 series are read from a sheet named SHEET3.

read(a2, s=sheet2) "\\network\dr 1\cps91.xls" 10

reads the Excel file CPS91 from the network drive specified in the path.

69

SERIES Command Series of observations. An EViews series contains a set of observations on a

variable. To declare a series, use the keyword series, followed by a name, and

optionally, by an "=" sign and a valid series expression: series y series x=3*z If there is no assignment, the series will be initialized to contain NAs. Series Views bar bar graph of the series. bdstest BDS independence test. cdfplot distribution (cumulative, survivor, quantile) functions. correl correlogram, autocorrelation and partial autocorrelation functions. edftest empirical distribution function tests. freq one-way tabulation. hist descriptive statistics and histogram. kdensity kernel density estimate. label label information for the series. line line graph of the series. qqplot quantile-quantile plot. seasplot seasonal line graph. sheet spreadsheet view of the series. spike spike graph. statby statistics by classification.

70

stats descriptive statistics and histogram. testby equality test by classification. teststat simple hypothesis tests. uroot unit root test. Series Procs displayname set display name. hpf Hodrick-Prescott filter. seas seasonal adjustment only for quarterly and monthly time series. resample resample from the observations in the series. smooth exponential smoothing. tramoseats seasonal adjustment using Tramo/Seats. x11 seasonal adjustment by Census X11 method only for quarterly and

monthly time series. x12 seasonal adjustment by Census X12 method only for quarterly and

monthly time series. Series Data Members (i) i-th element of the series from the beginning of the workfile (when used

on the left-hand side of an assignment, or when the element appears in a matrix, vector, or scalar assignment).

Series Element Functions @elem(ser, j) function to access the j-th observation of the series SER, where j

identifies the date or observation. Series Examples You can declare a series in the usual fashion: series b=income*@mean(z) series blag=b(1)

71

Note that the last example, above, involves a series expression so that B(1) is treated as a one-period lead of the entire series, not as an element operator. In contrast,

scalar blag1=b(1)

evaluates the first observation on B in the workfile. Once a series is declared, views and procs are available: a.qqplot a.statby(mean, var, std) b To access individual values: scalar quarterlyval = @elem(y, "1980:3") scalar undatedval = @elem(x, 323) GENR Command Generate series using pool objects. This procedure allows you to generate multiple series using the cross-section

identifiers in a pool. To generate values for a single series, see series. Syntax Pool Proc: pool_name.genr ser_name = expression You may use the cross section identifier "?" in the series name and/or in the

expression on the right-hand side. Examples The commands pool pool1 pool1.add 1 2 3 pool1.genr y? = x? - @mean(x?)

are equivalent to generating separate series for each cross-section: series y1 = x1 - @mean(x1)

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series y2 = x2 - @mean(x2) series y3 = x3 - @mean(x3) Similarly, pool pool2 pool2.add us uk can pool2.genr y_? = log(x_?)-log(x_us)

generates three series Y_US, Y_UK, Y_CAN that are the log differences from X_US. Note that Y_US=0.

The pool genr command simply loops across the cross-section identifiers,

performing the appropriate substitution. Thus, the command pool2.genr z=y_?

is equivalent to entering series z=y_us series z=y_uk series z=y_can

so that the ordinary series Z will contain Y_CAN, the last series associated with the "Y_?".

SMPL Command Set sample range. The smpl command sets the workfile sample to use for statistical operations

and series assignment expressions. Syntax Command: smpl start1 end1 start2 end2 ... if_condition Command: smpl sample_name List the date or number of the first observation and the date or number of the

last observation for the sample. Rules for specifying dates are given in Date Formats. smpl may contain more than one pair of beginning and ending observations.

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The smpl command also allows you to select observations on the basis of conditions specified in an if statement. This enables you to use logical operators to specify what observations to include in EViews' procedures. Put the if statement after the pairs of dates.

You can also use smpl to set the current observations to the contents of a

named sample object; put the name of the sample object after the command smpl. Special keywords for smpl The following "@-keywords" can be used in a smpl command: @all The whole workfile range. @first The first observation in the workfile. @last The last observation in the workfile. Examples smpl 1955:1 1972:12

sets the workfile sample from 1955:1 to 1972:12 smpl @first 1940 1946 1972 1975 @last

excludes observations (or years) 1941-1945 and 1973-1974 from the workfile sample.

smpl if union=1 and edu<=15

sets the sample to those observations where UNION takes the value 1 and EDU is less than or equal to 15.

sample half @first @first+@obs(x)/2 smpl half smpl if x>0 smpl @all if x>0 The first line declares a sample object named HALF which includes the first half

of the series X. The second line sets the sample to HALF and the third line sets the sample to those observations in HALF where X is positive. The last line sets the sample to those observations where X is positive over the full sample.

MODEL Command

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Set of simultaneous equations used for forecasting and simulation. Declare an object by entering the keyword model, followed by a name: model mymod

declares an empty model named MYMOD. To fill MYMOD, open the model and edit the specification view, or use the append view. Note that models are not used for estimation of unknown parameters.

Model Views block display model block structure. eqs view of model organized by equation. label view or set label information for the model. msg display model solution messages. text show text showing equations in the model. trace view of trace output from model solution. vars view of model organized by variable. Model Procs addassign assign add factors to equations. addinit initialize add factors append append a line of text to a model. control solve for values of control variable so that target matches trajectory. displayname set display name. exclude specifies (or merges) excluded series to the active scenario. makegraph make graph object showing model series. makegroup make group out of model series and display dated data table. merge merge other objects into the model. override specifies (or merges) override series to the active scenario.

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scenario set the active, alternate, or comparison scenario. solve solve the model. solveopt set solve options for model. spec Displays the text specification view. Model Examples The commands model mod1 mod1.append y=324.35+x mod1.append x=-234+7.3*z mod1.solve(m=100,c=.008)

create, specify, and solve the model MOD1. The command mod1(g).makegraph gr1 x y z

plots the endogenous series X, Y, and Z, in the active scenario for model MOD1. APPEND Command Append a specification line to a model, system, sspace, or var. Syntax Object Proc: object_name.append text Var Proc: var_name.append(options) text Type the text to be added after the append keyword. For vars, you must specify

the text type in the options argument. Options for Vars One of the following options is required when using append as a var proc: svar Text for identifying restrictions for structural VAR.

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coint Text for restrictions on the cointegration relations and/or adjustment coefficients.

Examples model macro2 macro2.merge eq_m1 macro2.merge eq_gdp macro2.append assign @all f macro1.append @trace gdp macro2.solve The first line declares a model object. The second and third lines merge existing

equations into the model. The fourth and fifth line appends an assign statement and a trace of GDP to the model. The last line solves the model.

system macro1 macro1.append cons=c(1)+c(2)*gdp+c(3)*cons(-1) macro1.append inv=c(4)+c(5)*tb3+c(6)*d(gdp) macro1.append gdp=cons+inv+gov macro1.append inst tb3 gov cons(-1) gdp(-1) macro1.gmm show macro1.results The first line declares a system. The next three lines appends the specification

of each endogenous variable in the system. The fifth line appends the list of instruments to be used in estimation. The last two lines estimate the model by GMM and display the estimation results.

vector(2) svec0=0 sspace1.append @mprior svec0 This command appends a line in the state space object SSPACE1 to use the

zero vector SVEC0 as initial values for the state vector. STATUSLINE Command Send text to the status line.

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Displays a message in the status line at the bottom of the EViews main window.

The message may include text, control variables, and string variables. Syntax Command: statusline Examples statusline Iteration Number: !t Displays the message "Iteration Number: !t" in the status line replacing "!t" with

the current value of the control variable in the program. SOLVE Command Solve the model. solve finds the solution to a simultaneous equation model for the set of

observations specified in the current workfile sample. Syntax Command: solve(options) Model Proc: model_name.solve(options) Note: When solve is used in a program (batch mode) models are always solved

over the workfile sample. If the model contains a solution sample, it will be ignored in favor of the workfile sample.

You should follow the name of the model after the solve command or use solve

as a procedure of a named model object. The default solution method is dynamic simulation. You may modify the solution method as an option.

solve first looks for the specified model in the current workfile. If it is not

present, solve attempts to fetch a model file (.DBL) from the default directory or, if provided, the path specified with the model name.

Options solve can take any of the options available in solveopt. Examples

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solve mod1

solves the model MOD1 using the default solution method. nonlin2.solve(m=500,e)

solves the model NONLIN2 with an extended search of up to 500 iterations. WRITE Command Write series to a disk file. The write command creates a foreign format disk file containing any number of

series. You should use write when you wish to export EViews data to another program.

Syntax Command: write(options) path\file name1 name2 name3 ... Pool Proc: pool_name.write(options) path\file n1? n2? n3? ... Coef Proc: coef_name.write(options) path\file Matrix Proc: matrix_name.write(options) path\file Follow the write keyword by a name for the output file and list the series to be

written. The optional path name may be on the local machine, or may point to a network drive. If the path name contains spaces, enclose the entire expression in double quotation marks. To write matrix objects, simply provide a filename; the entire matrix will be exported.

Note that EViews cannot, at present, write into an existing file. The file that you

select will, if necessary, be replaced. Options Options are specified in parentheses after the write keyword and are used to

specify the format of the output file. File type t=dat, txt ASCII (plain text) files. t=wk1, wk3 Lotus spreadsheet files. t=xls Excel spreadsheet files.

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If you omit the "t=" option, EViews will determine the type based on the file extension. Unrecognized extensions will be treated as ASCII files. For Lotus and Excel spreadsheet files specified without the "t=" option, EViews will automatically append the appropriate extension if it is not otherwise specified.

ASCII text files na=text Specify text for NAs. Default is "NA". dates Write dates/obs and (for pool) cross section identifiers. nodates (default) Do not write dates/obs and (for pool) cross-section

identifiers. names (default) Write series names. nonames Do not write series names. id Write cross-section identifier. d=s Single space delimiter (default is tab). d=c Comma delimiter (default is tab). byper Panel data organized by date/period. Default is data organized by

cross-section (only for pool write). bycross (default) Panel data organized by cross-section (only for pools). t Write by series (or transpose the data for matrix objects). Default is to read by

obs with series in columns. Spreadsheet (Lotus, Excel) files letter_number Coordinate of the upper-left cell containing data. dates (default) Write dates/obs and (for pool) cross-section identifiers. dates=first Write date in Excel date format converting to the first day of the

corresponding observation if necessary (only for Excel files). dates=last Write date in Excel date format converting to the last day of the

corresponding observation if necessary (only for Excel files). nodates Do not write dates/obs and (pool) cross-section identifiers. names (default) Write series names. nonames Do not write series names. byper Panel data organized by date/period. Default is data organized by

cross-section (only for pool write). bycross (default) Panel data organized by cross-section (only for pools). t Write by series (or transpose the data for matrix objects). Default is to write by

obs with each series in columns. Examples write(t=txt,na=.,d=c,dates) a:\dat1.csv hat1 hat_se1 Writes the two series HAT1 and HAT_SE1 into an ASCII file named DAT1.CSV

on the A drive. The data file is listed by observations, NAs are coded as "." (dot), each series is separated by a comma, and the date/observation numbers are written together with the series names.

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write(t=txt,na=.,d=c,dates) dat1.csv hat1 hat_se1

writes the same file in the default directory. mypool.write(t=xls,per) "\\network\drive a\growth" gdp? edu?

writes an Excel file GROWTH.XLS in the specified directory. The data are organized by observations and are listed by period/time.

STOP Command Break out of program. The stop command halts execution of a program. It has the same effect as

hitting the F1 (break) key. Syntax Command: stop

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APPENDIX E - List of Equations Production of Goods

T(LEP, KGhea, POP) = AT·[βT·LEP-ρT + (1 - βT)(KGhea/POPθH)-ρT]-1/ρT (A1)

J(T, KP) = AJ·[βJ·T-ρJ + (1 - βJ)KP-ρJ]-1/ρJ (A2)

Y(J, Kginf,Y-1) = AY·[βY·J-ρY + (1 - βY)(KGinf-1/Y-1θI) -ρY]-1/ρY (A3)

Y = ADE·[βDE·XρDE + (1 - βDE)DOMρDE]1/ρDE (A4)

PY·Y = PD·DOM + PX·X (A5)

X/DOM = {(PX/PD)·[(1 - βDE)/βDE]}σDE (A6)

Population and Labor Supply

POP = (1+n)·POP-1 (A7)

LR = (1+n)·LR-1 (A8)

KGZ(KGinf, KGedu)

= AKGZ·[βKGZ·{KGinf/YθKGI}-ρKGZ + (1 - βKGZ){KGedu/LRθKGE} -ρKGZ]-1/ρKGZ, (A9)

Z(LEG, KGZ) = AZ·[βZ·(χ·LEG)-ρZ + (1 - βZ)(KGZ-1) -ρZ]-1/ρZ, (A10)

∆LEN = AE·[βE·(LR-1)-ρE + (1 - βE)(Z)-ρE]-1/ρE (A11)

LE = LE-1 + ∆LEN (A12)

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LEP = LE - LEG (A13)

Income and Private Expenditure

YTOT = PY·Y + WG·LEG - RP*·ER·FdebtP-1 + RD·DdebtG-1 + ER·UTR$ (A14)

Ydisp = YTOT - DITAX (A15)

CP = (1 - s)·Ydisp/PQT (A16)

PQT·IP/NGDP = IP((∆Y/Y-1) -2, KGinf/Y, ER·FP/NGDP) (A17)

KP = IP-1 + (1 - δP)·KP-1 (A18)

Qd = (CP+CG) + (IP+IG) (A19)

Q = ADM[βDM·DOM-ρDM + (1 - βDM)M-ρDM]-1/ρDM (A20)

PQ·Q = PD·DOM + PM·M (A21)

M/DOM = {(PD/PM)·[(1 - βDM)/βDM]}σDM (A22)

Aid, Government Budget, and GDP at Market Prices

GTOT = WG·LEG + PQT·(CG + IG) + RG*·ER·FdebtG-1 + RD·DdebtG-1 (A23)

GBAL = TAX + AID - GTOT (A24)

TAX = DITAX + INDTAX + tm·ER·PM*·M (A25)

AID = ER·AID$ (A26)

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DdebtG = DB + DdebtG-1 (A27)

IG = IGedu + IGhea + IGinf + IGoth (A28)

IGh = κh·IG (A29)

DITAX = DITXR·YTOT (A30)

INDTAX = INDTXR(INDTXR-1, AID/NGDP)·PQ·Q (A31)

CG = NMCG + δh.ΣhKGh-1, h = edu, hea, inf

PQT·IG/NGDP = ig[(TAX/NGDP)-1, AID/NGDP, (AID/NGDP)^2] (A32)

KGh = αh.IGh-1 + (1 - δh)KGh-1, h = edu, hea, inf (A33)

NGDP = PY·Y + INDTAX + tm·ER·PM*·M (A34)

Balance of Payments and Foreign Debt

PX*·X - PM*·M - RG*·FdebtG-1 - RP*·FdebtP-1 + UTR$ (A35)

+ AID$ + FG + FP - ∆NFA = 0

FdebtP = FP + FdebtP-1 (A36)

FdebtG = FG + FdebtG-1 (A37)

FdebtTot = FdebtP + FdebtG (A38)

Market Equilibrium and Prices

Q = Qd (A39)

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PQ = APQ[βDM·PD1-σDM + (1 - βDM)·PM1-σ

DM] 1/(1-σDM

) (A40)

PQT = (1+INDTXR)·PQ (A41)

PY = [βDE· PX1+σDE + (1 - βDE)· PD1+σ

DE] 1/(1+σDE

). (A42)

PD = λPD.EQPD + (1-λPD).PD-1, (A43)

PX = ER·PX* (A44)

PM = (1+tm)·ER·PM* (A45)

Deficit Financing and Private Savings

- GBAL = DB + ER·FG (A46)

SP = s·Ydisp (A47)

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APPENDIX F – Simple Example Model

This appendix gives information about a simple model and how we can code a program to simulate this model in Eviews. If you do not have any experience in Eviews, it would be best to go over this appendix before you study the actual model.

The simple model defined in this appendix is a two-equation Keynesian model.

The first equation is the income (Y) function:

Y = Consumption + I + G

where Consumption is private consumption, I is private investment, and G is total government spending. The second equation is the consumption function:

Consumption = alpha_con + beta_con * Y where alpha_con is autonomous consumption, and beta_con is the marginal propensity to consume. In this model, I and G are exogenous variables, which are determined outside of the model, and alpha_con and beta_con are parameters. The variables determined within the model, or endogenous variables, are Y and Consumption.

The starting period or base year is 1 in this example. The model is simulated between period 2 and period 5. The starting and projected values (between period 2 and 5) of exogenous variables are given in EXOG.xls file. Different values can be assigned as projected values of exogenous variables. In this example, period 1 values are used as projected values throughout our simulation period. The starting values of endogenous variables are given in ENDO.xls file. After we run the simulation program, the results will be written in output.xls file.

The simulation program written in Eviews is in Model.prg and also written below.

ENDO.xls

EXOG.xlsExogenous Variables Time Period -1 1 2 3 4 5

DefinitionI investment 100.00 100.00 100.00 100.00 100.00G government spending 200.00 200.00 200.00 200.00 200.00

ENDOGENOUS Time Period -1 1 2 3 4 5variable name Definition starting valuesY income 1750.00Consumption aggregate consumption 1450.00

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' ----------------------------------- ' Demonstration Model: Keynesian Model ' coded in EViews by Nihal Bayraktar ' ----------------------------------- create C:\Niger\simple-simulation-program\KeynesianModel U 5 smpl 1 5 '------------------------ 'IMPORTING DATA: EXOGENOUS VARIABLES AND PARAMETERS read(e3, t) C:\Niger\simple-simulation-program\exog.xls I G ' IMPORTING DATA: ENDOGENOUS VARIABLES read(e3, t) C:\Niger\simple-simulation-program\endo.xls Y Consumption '------------------------ 'PARAMETERS scalar beta_con = 0.8 ' marginal propensity to consume '------------------------ 'CALIBRATED PARAMETER series Y series Consumption scalar alpha_con = Consumption(1) - beta_con*Y(1) ' autonomous consumption '------------------------ model KC '----------------------S I M U L A T I O N ------------------------- ' AGGREGATE INCOME IDENTITY KC.append Y = Consumption + I + G ' CONSUMPTION FUNCTION KC.append Consumption = alpha_con + beta_con * Y '------------------- smpl 2 5 solve(m = 20000, c = 0.001) KC smpl 1 5 write(e3, t) C:\Niger\simple-simulation-program\output.xls Y_0 Consumption_0 I G

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The commands used in this simple program and their meanings are summarized below. Similar commands are used in the actual model.

create C:\Niger\simple-simulation-program\KeynesianModel U 5

• Create an EViews workfile named as KeynesianModel • “U” stands for undated data frequency. Since our data file and the simulation

program covers the period between 1 and 5, we write 5 after ‘U”. smpl 1 5

• Sample range scalar beta_con = 0.8

• The parameters are defined as a constant number in the simulation program. The scalar command guarantees that the parameters are kept constant throughout the simulation period. series Y

• In order to calculate a scalar number (it is alpha_con in our case), variables that are used in calculating the scalar need to be defined as “series”.

• After Y is defined as series, Y(1) corresponds to the value of Y in Period 1.

read(e3,t) C:\Niger\simple-simulation-program\exog.xls I G

• Importing exogenous variables and parameters from EXOG.xls • Options

– “e3”: coordinates of the upper left cell of the data matrix in the Excel spreadsheet.

– “t ”: when our data series are in rows rather than in columns. read(e3, t) C:\Niger\simple-simulation-program\endo.xls Y Consumption

• Importing endogenous variables from ENDO.xls model KC

• Creates a model named as KC

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KC.append Y = Consumption + I + G KC.append Consumption = alpha_con + beta_con * Y

• “Append” command to specify our equations

• NATIONAL INCOME IDENTITY: Y = Consumption + I + G

• CONSUMPTION FUNCTION: Consumption = alpha_con + beta_con * Y solve(m = 20000, c = 0.001) KC

• Trigger Eviews to solve a model. • Eviews finds a solution to a simultaneous equation model using available data. • Options

– “m = integer ”: maximum number of iterations to be executed. – “c = number ”: convergence criterion for the solution of the dynamic

simulation. • KC: name of our model.

write(e3, t) C:\Niger\simple-simulation-program\output.xls Y_0

Consumption_0 I G

• Export variables from EViews into an external file • Y_0 and Consumption_0: simulated values of Y and Consumption

EXERCISE: In order to better understand how the simulation program works, it

is suggested to study how the results change as the projected values of exogenous variables and/or parameters change.

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APPENDIX G – Tables of Simulation Results

TABLE 3 – BASELINE

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Real Sector (in billions of current CFA francs)Total supply of goods and services 2084.7 2203.1 2408.2 2672.1 2988.6 3349.1 3746.0 4172.7 4624.2 5096.8 5588.0 6096.5 Gross domestic product at factor cost 1587.5 1706.6 1872.7 2082.4 2332.5 2616.0 2927.1 3260.6 3612.6 3980.4 4362.0 4756.4 Imports of goods and NFS (inclusive of tariffs) 497.2 496.6 535.5 589.6 656.1 733.1 818.9 912.1 1011.6 1116.4 1226.0 1340.1Total expenditure on goods and services 2084.7 2274.7 2501.3 2783.8 3117.8 3489.6 3892.8 4321.9 4773.3 5244.2 5733.4 6240.1 Total consumption 1623.3 1758.9 1938.2 2163.4 2430.9 2732.9 3063.2 3416.8 3789.6 4179.0 4583.2 5001.2 Private consumption 1375.4 1479.6 1625.8 1810.9 2031.9 2282.7 2558.0 2853.3 3165.0 3490.7 3828.8 4178.4 Public spending on goods and services 247.9 279.3 312.3 352.5 399.0 450.1 505.2 563.5 624.6 688.3 754.4 822.8 Total investment 217.5 243.8 255.5 272.7 295.9 320.3 345.4 371.0 396.8 422.9 449.1 475.5 Private investment 133.9 147.1 158.4 168.4 183.4 198.9 214.4 229.8 245.1 260.2 275.3 290.3 Public investment 83.6 96.6 97.1 104.3 112.6 121.4 131.0 141.1 151.7 162.6 173.8 185.2 Exports of goods and NFS 244.0 272.0 307.6 347.7 391.0 436.5 484.2 534.2 586.8 642.3 701.1 763.4

Gross domestic product at market prices 1627.8 1828.6 2033.7 2283.3 2575.6 2898.0 3245.3 3613.3 3998.8 4400.1 4816.0 5246.2Disposable income 1624.0 1748.0 1918.7 2133.4 2389.0 2678.5 2995.9 3336.0 3694.9 4069.7 4458.5 4860.5

Poverty rate Ravallion's (2004) adjusted elasticity (Gini = 50.5) 66.5 65.9 64.2 61.6 58.8 55.8 53.1 50.6 48.3 46.3 44.6 43.1 Consumption per capita growth elasticity of -0.5 64.6 64.3 63.5 62.4 61.1 59.8 58.5 57.3 56.1 55.1 54.2 53.4 Consumption per capita growth elasticity of -1.0 66.1 65.6 64.0 61.8 59.2 56.7 54.2 51.9 49.9 48.1 46.5 45.1 Consumption per capita growth elasticity of -1.5 67.7 66.9 64.5 61.1 57.3 53.6 50.1 46.9 44.1 41.7 39.7 37.9

External Sector (% of GDP)Current account -6.0 -2.6 -1.1 0.0 0.8 1.4 1.7 1.9 2.1 2.2 2.3 2.4 Trade balance -9.6 -7.0 -6.1 -5.6 -5.4 -5.3 -5.4 -5.6 -5.7 -5.9 -6.0 -6.1 Exports of goods and NFS 15.0 14.9 15.1 15.2 15.2 15.1 14.9 14.8 14.7 14.6 14.6 14.6 Imports of goods and NFS 24.6 21.9 21.2 20.8 20.5 20.4 20.4 20.4 20.4 20.5 20.5 20.6 Private unrequited transfers 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.3 Income (net) -0.4 -0.4 -0.4 -0.4 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.2 -0.2 Public -0.6 -0.5 -0.5 -0.5 -0.5 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.3 Private 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Aid, total 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 Other current account flows (net) -7.3 -6.5 -5.9 -5.2 -4.6 -4.1 -3.7 -3.3 -3.0 -2.7 -2.5 -2.3Capital account 6.0 5.6 5.2 5.0 4.9 4.7 4.5 4.4 4.2 4.1 4.0 3.9 Foreign direct investment 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Public borrowing 3.5 3.6 3.2 3.0 2.8 2.6 2.5 2.3 2.2 2.0 1.9 1.8 Other private flows (Errors and omissions) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Government Sector (% of GDP)Total revenue (including grants) 21.2 20.7 20.8 20.8 20.8 20.8 20.8 20.9 20.9 21.0 21.0 21.0 Domestic taxes 4.6 4.8 5.0 5.1 5.2 5.3 5.3 5.3 5.4 5.4 5.4 5.4 Direct taxes 2.0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Indirect taxes 2.6 2.9 3.1 3.2 3.3 3.4 3.4 3.5 3.5 3.5 3.5 3.5 Indirect taxes on imports 5.9 5.3 5.1 5.0 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9 Foreign aid (grants) 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7Total expenditure 40.6 40.8 40.6 40.6 40.5 40.4 40.3 40.2 40.1 40.0 40.0 39.9 Spending on goods and services (total) 15.6 15.7 15.8 15.9 16.0 16.0 16.1 16.1 16.1 16.2 16.2 16.2 Maintenance spending 0.9 1.0 1.1 1.3 1.3 1.4 1.4 1.5 1.5 1.5 1.5 1.6 Other spending on goods and services 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 Wages and salaries 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Investment 5.1 5.3 4.8 4.6 4.4 4.2 4.0 3.9 3.8 3.7 3.6 3.5 Interest payments 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 Domestic debt 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Foreign debt 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.3Overall fiscal balance including grants (cash basis) -3.9 -4.6 -4.2 -4.0 -3.8 -3.6 -3.5 -3.3 -3.2 -3.0 -2.9 -2.8Total financing 3.9 4.6 4.2 4.0 3.8 3.6 3.5 3.3 3.2 3.0 2.9 2.8 Foreign financing 3.5 3.6 3.2 3.0 2.8 2.6 2.5 2.3 2.2 2.0 1.9 1.8 Domestic borrowing 0.4 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Prices and Real Exchange RateGDP at factor cost deflator (% change) -2.9 3.4 4.1 4.5 4.6 4.5 4.2 3.8 3.4 3.0 2.7 2.5Composite good price (after indirect taxes, % change) 0.7 3.7 4.1 4.4 4.4 4.3 4.0 3.7 3.3 3.0 2.8 2.6Real exchange rate (% change) 15.2 -0.7 -1.1 -1.4 -1.4 -1.3 -1.0 -0.7 -0.3 0.0 0.2 0.4

Memorandum itemsReal GDP per capita at factor cost (% change) 2.3 0.6 2.1 3.2 3.8 4.1 4.1 4.0 3.9 3.6 3.4 3.1Real GDP per capita at market prices (% change) -1.5 5.4 3.8 4.6 5.1 4.9 4.7 4.4 4.0 3.7 3.4 3.1Real disposable income per capita (% change) -0.4 0.7 2.3 3.5 4.3 4.5 4.6 4.4 4.1 3.8 3.5 3.1Private savings rate (% of GDP) 10.0 9.6 9.4 9.3 9.3 9.2 9.2 9.2 9.2 9.2 9.3 9.3Real private consumption per capita (% change) -4.9 0.8 2.4 3.5 4.1 4.4 4.4 4.2 3.9 3.6 3.3 3.0Private investment (% of GDP) 8.2 8.0 7.8 7.4 7.1 6.9 6.6 6.4 6.1 5.9 5.7 5.5Private investment (% of total investment) 61.6 60.4 62.0 61.8 62.0 62.1 62.1 62.0 61.8 61.5 61.3 61.1Public investment (% of total public expenditure) 12.7 12.9 11.8 11.3 10.8 10.4 10.0 9.7 9.5 9.2 9.0 8.8 Health (% of public investment) 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 Infrastructure (% of public investment) 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 Education (% of public investment) 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 Other (% of public investment) 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2Aid (% of total revenue) 50.3 51.4 51.4 51.3 51.3 51.2 51.2 51.1 51.0 50.9 50.8 50.8Total public investment (% of aid) 48.2 49.6 44.8 42.8 41.0 39.3 37.8 36.6 35.6 34.7 33.8 33.1Domestic debt (% of GDP) 7.9 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9.0 9.3 9.5External debt (% of GDP) 65.1 62.0 59.4 56.4 53.3 50.5 48.1 46.0 44.2 42.7 41.4 40.4Interest payment on external public debt (% of exports) 3.8 3.6 3.4 3.2 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3Degree of openness (total trade in % of GDP) 45.5 42.0 41.5 41.1 40.7 40.4 40.2 40.0 40.0 40.0 40.0 40.1Educated labor (in % of population) 18.3 19.2 19.9 20.8 21.7 22.6 23.5 24.4 25.3 26.1 26.9 27.6Real imports (in billions of current CFA francs) 1064.5 1032.1 1080.6 1155.2 1248.0 1353.8 1468.3 1587.8 1709.6 1831.8 1953.1 2072.6Real exports (in billions of current CFA francs) 1145.3 1239.8 1361.3 1493.9 1630.8 1767.6 1903.6 2039.1 2174.6 2311.1 2449.1 2588.9Real public investment (in billions of current CFA francs) 83.6 93.5 90.4 93.2 96.5 99.8 103.6 107.8 112.1 116.7 121.3 126.0

Note: The real exchange rate is defined as the growth rate of nominal exchange rate plus the growth rate of the import price index minus the growth rate of composite good price after indirect taxes.The “adjusted” elasticity formula proposed by Ravallion (2004) is -9.3*(1-Gini)^3 = -1.13 where Gini index is 50.5 for Niger.

Years

Table 3Niger: Trend-based Projections, 2004-15

90

TABLE 4 – AID SHOCK (SHOCK 1)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



Poverty rate Ravallion's (2004) adjusted elasticity (Gini = 50.5) 0.00 -0.69 -1.21 -2.00 -3.01 -4.10 -5.18 -6.16 -7.01 -7.75 -8.37 -8.90 Consumption per capita growth elasticity of -0.5 0.00 -0.30 -0.53 -0.89 -1.37 -1.93 -2.52 -3.10 -3.65 -4.16 -4.62 -5.05 Consumption per capita growth elasticity of -1.0 0.00 -0.61 -1.07 -1.78 -2.68 -3.68 -4.67 -5.60 -6.42 -7.14 -7.76 -8.29 Consumption per capita growth elasticity of -1.5 0.00 -0.93 -1.62 -2.65 -3.91 -5.24 -6.48 -7.55 -8.44 -9.15 -9.71 -10.17

External Sector (% of GDP)Current account 0.00 5.56 5.18 4.98 4.82 4.65 4.47 4.26 4.04 3.82 3.60 3.39 Trade balance 0.00 0.09 -0.39 -0.69 -0.94 -1.16 -1.40 -1.61 -1.84 -2.06 -2.25 -2.45 Exports of goods and NFS 0.00 -1.00 -1.39 -1.77 -2.08 -2.37 -2.65 -2.90 -3.14 -3.37 -3.57 -3.77 Imports of goods and NFS 0.00 -1.09 -1.00 -1.07 -1.14 -1.21 -1.25 -1.29 -1.30 -1.31 -1.32 -1.31 Private unrequited transfers 0.00 -0.05 -0.06 -0.07 -0.08 -0.09 -0.10 -0.10 -0.11 -0.11 -0.11 -0.11 Income (net) 0.00 0.03 0.05 0.07 0.09 0.10 0.11 0.12 0.13 0.14 0.14 0.15 Public 0.00 0.04 0.06 0.09 0.10 0.12 0.13 0.14 0.15 0.16 0.17 0.17 Private 0.00 -0.01 -0.01 -0.01 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.03 Aid, total 0.00 5.00 5.00 5.00 5.00 5.00 5.01 5.00 5.00 5.01 5.00 5.00 Other current account flows (net) 0.00 0.49 0.58 0.68 0.76 0.81 0.84 0.85 0.85 0.84 0.83 0.80Capital account 0.00 -1.46 -1.75 -1.61 -1.56 -1.52 -1.51 -1.50 -1.49 -1.48 -1.47 -1.46 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 -1.46 -1.75 -1.61 -1.56 -1.52 -1.51 -1.50 -1.49 -1.48 -1.47 -1.46 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 4.49 4.42 4.33 4.27 4.22 4.21 4.19 4.18 4.19 4.18 4.19 Domestic taxes 0.00 -0.25 -0.34 -0.41 -0.45 -0.48 -0.50 -0.51 -0.51 -0.51 -0.50 -0.50 Direct taxes 0.00 -0.08 -0.07 -0.07 -0.07 -0.07 -0.06 -0.06 -0.05 -0.05 -0.05 -0.04 Indirect taxes 0.00 -0.17 -0.27 -0.34 -0.38 -0.42 -0.44 -0.45 -0.45 -0.46 -0.46 -0.46 Indirect taxes on imports 0.00 -0.26 -0.24 -0.26 -0.27 -0.29 -0.30 -0.31 -0.31 -0.31 -0.32 -0.32 Foreign aid (grants) 0.00 5.00 5.00 5.00 5.00 5.00 5.01 5.00 5.00 5.01 5.00 5.00Total expenditure 0.00 2.91 2.56 2.73 2.82 2.88 2.94 2.97 3.01 3.06 3.09 3.15 Spending on goods and services 0.00 -0.05 -0.05 0.08 0.17 0.23 0.29 0.34 0.38 0.41 0.44 0.47 Maintenance spending 0.00 -0.05 -0.05 0.08 0.17 0.23 0.29 0.34 0.38 0.41 0.44 0.47 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.18 -0.18 -0.18 Investment 0.00 3.22 2.91 2.85 2.77 2.71 2.66 2.62 2.60 2.58 2.57 2.57 Interest payments 0.00 -0.04 -0.07 -0.09 -0.11 -0.13 -0.14 -0.16 -0.16 -0.17 -0.18 -0.19 Domestic debt 0.00 0.00 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Foreign debt 0.00 -0.04 -0.06 -0.09 -0.10 -0.12 -0.13 -0.14 -0.15 -0.16 -0.17 -0.17Overall fiscal balance 0.00 1.46 1.75 1.61 1.56 1.52 1.51 1.50 1.49 1.48 1.47 1.46Total financing 0.00 -1.46 -1.75 -1.61 -1.56 -1.52 -1.51 -1.50 -1.49 -1.48 -1.47 -1.46 Foreign financing 0.00 -1.46 -1.75 -1.61 -1.56 -1.52 -1.51 -1.50 -1.49 -1.48 -1.47 -1.46 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 3.85 3.34 3.34 3.24 3.08 2.87 2.63 2.36 2.11 1.88 1.68Composite good price (after indirect taxes, % change) 0.00 2.98 2.61 2.65 2.59 2.49 2.33 2.14 1.93 1.73 1.54 1.38Real exchange rate (% change) 0.00 -2.98 -2.61 -2.65 -2.59 -2.49 -2.33 -2.14 -1.93 -1.73 -1.54 -1.38

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 0.46 0.98 1.40 1.69 1.84 1.89 1.88 1.83 1.76Real GDP per capita at market prices (% change) 0.00 6.21 0.24 1.46 1.87 2.22 2.32 2.39 2.31 2.21 2.12 1.98Real disposable income per capita (% change) 0.00 0.98 0.83 1.39 1.92 2.33 2.51 2.62 2.58 2.48 2.38 2.22Private savings rate (% of GDP) 0.00 -0.40 -0.34 -0.34 -0.33 -0.32 -0.31 -0.29 -0.27 -0.25 -0.23 -0.21Real private consumption per capita (% change) 0.00 0.92 0.73 1.18 1.63 1.98 2.18 2.26 2.26 2.19 2.09 1.98Private investment (% of GDP) 0.00 -0.36 -0.16 -0.07 -0.01 0.04 0.09 0.12 0.15 0.18 0.20 0.22Private investment (% of total investment) 0.00 -12.89 -12.16 -12.11 -12.07 -12.06 -12.08 -12.13 -12.20 -12.30 -12.40 -12.49Public investment (% of total public expenditure) 0.00 6.51 6.04 5.87 5.70 5.57 5.48 5.41 5.36 5.34 5.32 5.31 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Aid (% of total revenue) 0.00 10.68 10.84 11.04 11.20 11.31 11.39 11.42 11.44 11.44 11.43 11.41Total public investment (% of aid) 0.00 4.75 4.26 4.52 4.62 4.75 4.88 5.04 5.21 5.40 5.61 5.81Domestic debt (% of GDP) 0.00 -0.53 -0.65 -0.82 -0.98 -1.13 -1.27 -1.40 -1.51 -1.60 -1.68 -1.75External debt (% of GDP) 0.00 -5.84 -8.26 -10.58 -12.48 -14.07 -15.38 -16.46 -17.35 -18.09 -18.73 -19.28Interest payment on external public debt (% of exports) 0.00 -0.03 -0.10 -0.22 -0.32 -0.41 -0.49 -0.56 -0.62 -0.68 -0.73 -0.78Degree of openness (total trade in % of GDP) 0.00 -2.36 -2.64 -3.10 -3.50 -3.87 -4.21 -4.49 -4.76 -5.00 -5.20 -5.40Educated labor (in % of population) 0.00 0.00 0.00 0.20 0.53 0.96 1.47 2.01 2.59 3.18 3.78 4.38Real imports (in billions of current CFA francs) 0.00 28.70 61.85 104.91 161.18 232.72 319.28 420.71 534.15 657.80 790.21 929.31Real exports (in billions of current CFA francs) 0.00 10.88 9.91 24.89 51.47 87.66 127.34 174.64 221.61 270.70 324.77 379.02Real public investment (in billions of current CFA francs) 0.00 64.55 62.27 67.21 72.95 79.86 87.85 96.69 106.39 116.88 127.93 139.61

Years

Table 4Niger: 5 Percent Increase in Aid to GDP Ratio, 2005-15

91

TABLE 5 – SHOCK TO GOVERNMENT INVESTMENT (SHOCK 2)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



Poverty rate Ravallion's (2004) adjusted elasticity (Gini = 50.5) 0.00 0.00 -0.02 -0.36 -0.96 -1.72 -2.50 -3.23 -3.88 -4.42 -4.87 -5.24 Consumption per capita growth elasticity of -0.5 0.00 0.00 -0.01 -0.16 -0.43 -0.80 -1.20 -1.60 -1.98 -2.32 -2.62 -2.89 Consumption per capita growth elasticity of -1.0 0.00 0.00 -0.02 -0.32 -0.85 -1.53 -2.25 -2.93 -3.53 -4.05 -4.49 -4.86 Consumption per capita growth elasticity of -1.5 0.00 0.00 -0.03 -0.48 -1.26 -2.21 -3.16 -4.01 -4.72 -5.29 -5.74 -6.09

External Sector (% of GDP)Current account 0.00 0.00 0.02 0.17 0.32 0.43 0.48 0.46 0.41 0.35 0.27 0.19 Trade balance 0.00 0.00 0.00 0.10 0.19 0.25 0.24 0.20 0.12 0.04 -0.04 -0.12 Exports of goods and NFS 0.00 0.00 -0.04 -0.06 -0.07 -0.10 -0.15 -0.22 -0.29 -0.36 -0.42 -0.48 Imports of goods and NFS 0.00 0.00 -0.05 -0.16 -0.26 -0.34 -0.39 -0.42 -0.42 -0.41 -0.39 -0.36 Private unrequited transfers 0.00 0.00 0.00 -0.01 -0.02 -0.02 -0.03 -0.03 -0.04 -0.04 -0.04 -0.04 Income (net) 0.00 0.00 0.00 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.03 0.03 Public 0.00 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 0.03 0.04 0.04 Private 0.00 0.00 0.00 0.00 0.00 0.00 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Aid, total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01 Other current account flows (net) 0.00 0.00 0.02 0.07 0.14 0.20 0.24 0.28 0.30 0.31 0.32 0.32Capital account 0.00 0.00 0.00 0.06 0.08 0.07 0.06 0.04 0.01 -0.01 -0.02 -0.03 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 0.00 0.00 0.06 0.08 0.07 0.06 0.04 0.01 -0.01 -0.02 -0.03 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 0.00 -0.02 -0.05 -0.09 -0.11 -0.13 -0.13 -0.12 -0.12 -0.11 -0.10 Domestic taxes 0.00 0.00 0.00 -0.01 -0.02 -0.03 -0.03 -0.03 -0.03 -0.02 -0.02 -0.02 Direct taxes 0.00 0.00 0.00 -0.01 -0.01 -0.02 -0.02 -0.02 -0.02 -0.01 -0.01 -0.01 Indirect taxes 0.00 0.00 0.00 0.00 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 0.00 Indirect taxes on imports 0.00 0.00 -0.01 -0.04 -0.06 -0.08 -0.09 -0.10 -0.10 -0.10 -0.09 -0.09 Foreign aid (grants) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01Total expenditure 0.00 0.00 -0.02 0.06 0.09 0.08 0.07 0.05 0.05 0.04 0.03 0.03 Spending on goods and services 0.00 0.00 0.00 0.06 0.10 0.12 0.13 0.14 0.15 0.15 0.15 0.16 Maintenance spending 0.00 0.00 0.00 0.06 0.10 0.12 0.13 0.14 0.15 0.15 0.15 0.16 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 0.00 -0.01 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.01 Investment 0.00 0.00 -0.01 -0.04 -0.08 -0.13 -0.17 -0.20 -0.22 -0.23 -0.23 -0.23 Interest payments 0.00 0.00 0.00 -0.01 -0.01 -0.02 -0.03 -0.03 -0.04 -0.04 -0.04 -0.04 Domestic debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.01 -0.01 -0.01 Foreign debt 0.00 0.00 0.00 -0.01 -0.01 -0.02 -0.02 -0.03 -0.03 -0.03 -0.04 -0.04Overall fiscal balance 0.00 0.00 0.00 -0.06 -0.08 -0.07 -0.06 -0.04 -0.01 0.01 0.02 0.03Total financing 0.00 0.00 0.00 0.06 0.08 0.07 0.06 0.04 0.01 -0.01 -0.02 -0.03 Foreign financing 0.00 0.00 0.00 0.06 0.08 0.07 0.06 0.04 0.01 -0.01 -0.02 -0.03 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 0.00 0.16 0.44 0.65 0.77 0.79 0.73 0.62 0.52 0.41 0.31Composite good price (after indirect taxes, % change) 0.00 0.00 0.13 0.36 0.53 0.63 0.64 0.59 0.51 0.42 0.33 0.25Real exchange rate (% change) 0.00 0.00 -0.13 -0.36 -0.53 -0.63 -0.64 -0.59 -0.51 -0.42 -0.33 -0.25

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 0.36 0.76 1.08 1.29 1.38 1.39 1.34 1.27 1.18Real GDP per capita at market prices (% change) 0.00 0.00 0.25 0.86 1.26 1.53 1.62 1.60 1.49 1.41 1.29 1.18Real disposable income per capita (% change) 0.00 0.00 0.04 0.50 0.97 1.34 1.55 1.62 1.58 1.51 1.40 1.29Private savings rate (% of GDP) 0.00 0.00 -0.02 -0.05 -0.07 -0.08 -0.09 -0.09 -0.08 -0.07 -0.06 -0.05Real private consumption per capita (% change) 0.00 0.00 0.03 0.46 0.90 1.23 1.42 1.49 1.47 1.40 1.30 1.20Private investment (% of GDP) 0.00 0.00 0.14 0.20 0.23 0.25 0.27 0.27 0.28 0.27 0.27 0.27Private investment (% of total investment) 0.00 0.00 0.44 0.82 1.20 1.59 1.93 2.20 2.39 2.53 2.63 2.70Public investment (% of total public expenditure) 0.00 0.00 -0.01 -0.10 -0.23 -0.35 -0.44 -0.51 -0.55 -0.57 -0.58 -0.58 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 20.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00Aid (% of total revenue) 0.00 0.00 0.04 0.13 0.21 0.27 0.31 0.32 0.33 0.31 0.29 0.27Total public investment (% of aid) 0.00 0.00 -0.06 -0.33 -0.78 -1.22 -1.60 -1.87 -2.04 -2.13 -2.17 -2.18Domestic debt (% of GDP) 0.00 0.00 -0.02 -0.10 -0.20 -0.32 -0.43 -0.53 -0.61 -0.67 -0.73 -0.77External debt (% of GDP) 0.00 0.00 -0.19 -0.68 -1.30 -1.95 -2.55 -3.04 -3.43 -3.73 -3.95 -4.10Interest payment on external public debt (% of exports) 0.00 0.00 0.00 -0.03 -0.07 -0.10 -0.13 -0.15 -0.16 -0.17 -0.18 -0.18Degree of openness (total trade in % of GDP) 0.00 0.00 -0.10 -0.26 -0.39 -0.53 -0.64 -0.73 -0.81 -0.87 -0.90 -0.93Educated labor (in % of population) 0.00 0.00 0.00 0.15 0.41 0.74 1.12 1.52 1.93 2.33 2.73 3.11Real imports (in billions of current CFA francs) 0.00 0.00 1.26 7.68 21.59 44.00 74.44 111.56 153.24 198.62 246.15 294.68Real exports (in billions of current CFA francs) 0.00 0.00 0.52 15.22 41.87 76.54 115.45 156.07 195.70 237.77 279.57 321.70Real public investment (in billions of current CFA francs) 0.00 0.00 0.07 0.15 0.09 0.14 0.39 0.90 1.73 2.76 3.93 5.26

Years

Table 5Niger: 20 Percent Decrease in "Other" Investment in Percent of Total Public Investment

Allocated to 20 Percent Increase in Infrastucture Investment in Percent of Total Public Investment, 2005-15

92

TABLE 6 – SHOCK TO TARIFF RATE (SHOCK 3a)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Real Sector (in billions of current CFA francs)Total supply of goods and services 0.00 -0.35 -1.25 -2.18 -3.35 -4.75 -6.35 -8.09 -9.89 -11.71 -13.49 -15.21 Gross domestic product at factor cost 0.00 0.52 -0.61 -1.59 -2.81 -4.27 -5.93 -7.71 -9.56 -11.41 -13.22 -14.96 Imports of goods and NFS (inclusive of tariffs) 0.00 -3.34 -3.49 -4.26 -5.26 -6.47 -7.89 -9.45 -11.09 -12.77 -14.45 -16.08Total expenditure on goods and services 0.00 0.18 -2.27 -3.05 -4.26 -5.69 -7.31 -9.03 -10.80 -12.56 -14.28 -15.93 Total consumption 0.00 0.43 -0.83 -1.66 -2.89 -4.37 -6.06 -7.87 -9.74 -11.61 -13.44 -15.19 Private consumption 0.00 0.78 -0.17 -1.01 -2.15 -3.57 -5.21 -6.99 -8.84 -10.70 -12.52 -14.27 Public spending on goods and services 0.00 -1.37 -4.24 -5.00 -6.64 -8.42 -10.35 -12.33 -14.31 -16.25 -18.10 -19.87 Total investment 0.00 -1.50 -15.54 -17.68 -20.24 -22.63 -25.03 -27.38 -29.64 -31.80 -33.84 -35.77 Private investment 0.00 -1.54 -2.57 -4.51 -6.50 -8.53 -10.72 -12.95 -15.14 -17.26 -19.28 -21.19 Public investment 0.00 -1.44 -36.71 -38.96 -42.63 -45.72 -48.46 -50.88 -53.07 -55.07 -56.91 -58.62 Exports of goods and NFS 0.00 0.01 -0.31 -0.21 -0.71 -1.53 -2.57 -3.70 -4.88 -6.06 -7.23 -8.37

Gross domestic product at market prices 0.00 -1.69 -4.89 -5.79 -7.13 -8.66 -10.35 -12.13 -13.92 -15.68 -17.38 -19.00Disposable income 0.00 0.42 -0.68 -1.63 -2.84 -4.30 -5.95 -7.74 -9.58 -11.42 -13.23 -14.97

Poverty rate Ravallion's (2004) adjusted elasticity (Gini = 50.5) 0.00 -1.79 -1.73 -1.64 -1.35 -0.90 -0.33 0.30 0.96 1.63 2.28 2.92 Consumption per capita growth elasticity of -0.5 0.00 -0.77 -0.75 -0.73 -0.62 -0.43 -0.17 0.14 0.47 0.82 1.18 1.53 Consumption per capita growth elasticity of -1.0 0.00 -1.58 -1.53 -1.45 -1.20 -0.81 -0.30 0.27 0.87 1.48 2.08 2.67 Consumption per capita growth elasticity of -1.5 0.00 -2.42 -2.31 -2.16 -1.75 -1.14 -0.41 0.39 1.20 1.99 2.76 3.49

External Sector (% of GDP)Current account 0.00 -1.78 -2.20 -2.05 -1.99 -1.98 -1.97 -1.95 -1.92 -1.86 -1.79 -1.71 Trade balance 0.00 -1.68 -1.89 -1.70 -1.61 -1.55 -1.50 -1.45 -1.39 -1.31 -1.22 -1.12 Exports of goods and NFS 0.00 0.26 0.73 0.90 1.05 1.18 1.30 1.42 1.54 1.66 1.79 1.91 Imports of goods and NFS 0.00 1.94 2.62 2.61 2.66 2.73 2.80 2.87 2.93 2.97 3.01 3.03 Private unrequited transfers 0.00 0.01 0.03 0.03 0.04 0.04 0.05 0.06 0.06 0.07 0.07 0.07 Income (net) 0.00 -0.01 -0.05 -0.06 -0.07 -0.08 -0.09 -0.10 -0.11 -0.12 -0.13 -0.13 Public 0.00 -0.01 -0.05 -0.06 -0.07 -0.09 -0.10 -0.11 -0.12 -0.13 -0.14 -0.15 Private 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.02 0.02 Aid, total 0.00 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other current account flows (net) 0.00 -0.11 -0.30 -0.32 -0.36 -0.39 -0.42 -0.45 -0.48 -0.50 -0.52 -0.53Capital account 0.00 2.66 1.17 1.30 1.25 1.23 1.22 1.21 1.21 1.20 1.20 1.20 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 2.66 1.17 1.30 1.25 1.23 1.22 1.21 1.21 1.20 1.20 1.20 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 -2.65 -2.66 -2.79 -2.86 -2.91 -2.95 -2.98 -3.00 -3.02 -3.04 -3.06 Domestic taxes 0.00 -0.26 -0.44 -0.60 -0.71 -0.79 -0.84 -0.88 -0.90 -0.93 -0.94 -0.95 Direct taxes 0.00 0.04 0.08 0.08 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09 Indirect taxes 0.00 -0.30 -0.52 -0.69 -0.80 -0.88 -0.93 -0.97 -1.00 -1.02 -1.03 -1.05 Indirect taxes on imports 0.00 -2.39 -2.23 -2.19 -2.15 -2.12 -2.10 -2.10 -2.10 -2.10 -2.10 -2.11 Foreign aid (grants) 0.00 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Total expenditure 0.00 0.03 -1.40 -1.40 -1.57 -1.70 -1.80 -1.88 -1.95 -2.01 -2.07 -2.12 Spending on goods and services 0.00 0.00 0.02 0.02 -0.04 -0.10 -0.15 -0.19 -0.23 -0.27 -0.30 -0.34 Maintenance spending 0.00 0.00 0.02 0.02 -0.04 -0.10 -0.15 -0.19 -0.23 -0.27 -0.30 -0.34 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 0.00 0.09 0.10 0.10 0.11 0.11 0.11 0.11 0.12 0.12 0.12 Investment 0.00 0.01 -1.60 -1.61 -1.67 -1.70 -1.72 -1.72 -1.73 -1.73 -1.73 -1.73 Interest payments 0.00 0.01 0.05 0.07 0.08 0.09 0.10 0.12 0.13 0.14 0.15 0.16 Domestic debt 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 Foreign debt 0.00 0.01 0.05 0.06 0.07 0.09 0.10 0.11 0.12 0.13 0.14 0.15Overall fiscal balance 0.00 -2.66 -1.17 -1.30 -1.25 -1.23 -1.22 -1.21 -1.21 -1.20 -1.20 -1.20Total financing 0.00 2.66 1.17 1.30 1.25 1.23 1.22 1.21 1.21 1.20 1.20 1.20 Foreign financing 0.00 2.66 1.17 1.30 1.25 1.23 1.22 1.21 1.21 1.20 1.20 1.20 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 0.54 -1.17 -1.04 -1.10 -1.13 -1.15 -1.13 -1.10 -1.04 -0.97 -0.88Composite good price (after indirect taxes, % change) 0.00 -1.93 -1.18 -1.01 -1.01 -1.00 -0.99 -0.97 -0.93 -0.87 -0.81 -0.74Real exchange rate (% change) 0.00 1.93 1.18 1.01 1.01 1.00 0.99 0.97 0.93 0.87 0.81 0.74

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 0.00 -0.20 -0.45 -0.68 -0.87 -1.02 -1.12 -1.19 -1.23Real GDP per capita at market prices (% change) 0.00 0.04 -2.44 -0.06 -0.60 -0.85 -1.08 -1.24 -1.33 -1.38 -1.40 -1.40Real disposable income per capita (% change) 0.00 2.38 -0.02 -0.06 -0.37 -0.68 -0.94 -1.14 -1.28 -1.38 -1.43 -1.45Private savings rate (% of GDP) 0.00 0.20 0.42 0.41 0.43 0.44 0.45 0.46 0.47 0.47 0.47 0.46Real private consumption per capita (% change) 0.00 2.39 -0.02 -0.03 -0.31 -0.59 -0.84 -1.03 -1.17 -1.26 -1.32 -1.35Private investment (% of GDP) 0.00 0.01 0.19 0.10 0.05 0.01 -0.03 -0.06 -0.09 -0.11 -0.13 -0.15Private investment (% of total investment) 0.00 -0.02 9.52 9.88 10.68 11.32 11.85 12.31 12.73 13.12 13.49 13.86Public investment (% of total public expenditure) 0.00 0.02 -3.66 -3.70 -3.86 -3.94 -3.99 -4.02 -4.04 -4.05 -4.06 -4.07 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Aid (% of total revenue) 0.00 7.56 7.61 7.96 8.17 8.32 8.41 8.48 8.53 8.58 8.62 8.65Total public investment (% of aid) 0.00 0.09 -15.00 -15.07 -15.66 -15.93 -16.08 -16.15 -16.18 -16.18 -16.18 -16.18Domestic debt (% of GDP) 0.00 0.12 0.36 0.39 0.46 0.54 0.63 0.73 0.84 0.95 1.05 1.16External debt (% of GDP) 0.00 3.65 6.44 7.60 8.81 9.99 11.16 12.30 13.42 14.50 15.52 16.50Interest payment on external public debt (% of exports) 0.00 0.00 0.17 0.20 0.26 0.32 0.38 0.44 0.50 0.55 0.60 0.64Degree of openness (total trade in % of GDP) 0.00 -0.20 1.11 1.32 1.56 1.78 1.99 2.19 2.37 2.54 2.69 2.83Educated labor (in % of population) 0.00 0.00 0.00 0.00 -0.09 -0.25 -0.47 -0.73 -1.03 -1.36 -1.70 -2.06Real imports (in billions of current CFA francs) 0.00 72.38 73.92 69.25 60.97 47.93 29.03 3.99 -26.87 -62.89 -103.24 -147.10Real exports (in billions of current CFA francs) 0.00 0.10 -4.20 -3.06 -11.61 -27.11 -48.84 -75.53 -106.17 -140.12 -177.00 -216.61Real public investment (in billions of current CFA francs) 0.00 0.11 -31.75 -34.40 -38.76 -42.84 -46.94 -51.07 -55.27 -59.55 -63.92 -68.36

Years

Table 6Niger: 12 Percent Decrease in Tariff Rate, No Change in Direct or Indirect Tax Rate, 2005-15

93

TABLE 7 – SHOCK TO TARIFF RATE (SHOCK 3b)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Real Sector (in billions of current CFA francs)Total supply of goods and services 0.00 -2.84 -4.17 -5.37 -6.26 -6.86 -7.22 -7.41 -7.48 -7.47 -7.42 -7.33 Gross domestic product at factor cost 0.00 -2.14 -3.65 -4.88 -5.77 -6.37 -6.72 -6.91 -6.98 -6.97 -6.92 -6.83 Imports of goods and NFS (inclusive of tariffs) 0.00 -5.26 -6.02 -7.12 -7.99 -8.60 -8.98 -9.18 -9.26 -9.26 -9.20 -9.10Total expenditure on goods and services 0.00 -4.81 -5.56 -6.49 -7.12 -7.51 -7.71 -7.79 -7.78 -7.71 -7.61 -7.49 Total consumption 0.00 -5.53 -6.89 -8.03 -8.81 -9.31 -9.60 -9.73 -9.75 -9.71 -9.63 -9.52 Private consumption 0.00 -5.26 -6.74 -7.93 -8.78 -9.34 -9.67 -9.83 -9.88 -9.85 -9.78 -9.68 Public spending on goods and services 0.00 -6.98 -7.67 -8.54 -8.95 -9.17 -9.24 -9.20 -9.11 -8.98 -8.83 -8.66 Total investment 0.00 -4.38 -1.50 -2.18 -2.69 -3.05 -3.21 -3.25 -3.20 -3.10 -2.96 -2.80 Private investment 0.00 -3.90 -5.14 -5.78 -6.25 -6.54 -6.64 -6.62 -6.52 -6.39 -6.24 -6.06 Public investment 0.00 -5.09 4.45 3.62 3.11 2.68 2.39 2.23 2.16 2.17 2.22 2.31 Exports of goods and NFS 0.00 -0.56 -0.51 -0.31 0.03 0.49 0.97 1.44 1.87 2.26 2.59 2.89

Gross domestic product at market prices 0.00 -7.22 -7.89 -8.74 -9.27 -9.58 -9.72 -9.75 -9.70 -9.61 -9.49 -9.35Disposable income 0.00 -5.08 -6.53 -7.71 -8.56 -9.13 -9.48 -9.66 -9.72 -9.71 -9.66 -9.57


External Sector (% of GDP)Current account 0.00 -2.28 -2.01 -1.71 -1.41 -1.16 -0.97 -0.82 -0.71 -0.63 -0.57 -0.52 Trade balance 0.00 -1.79 -1.54 -1.23 -0.96 -0.75 -0.60 -0.49 -0.41 -0.36 -0.33 -0.30 Exports of goods and NFS 0.00 1.07 1.21 1.41 1.56 1.68 1.77 1.83 1.88 1.92 1.94 1.97 Imports of goods and NFS 0.00 2.86 2.75 2.64 2.52 2.43 2.36 2.32 2.30 2.28 2.27 2.27 Private unrequited transfers 0.00 0.05 0.05 0.05 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 Income (net) 0.00 -0.03 -0.03 -0.03 -0.03 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.01 Public 0.00 -0.04 -0.04 -0.04 -0.04 -0.03 -0.03 -0.03 -0.03 -0.02 -0.02 -0.02 Private 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.00 Aid, total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other current account flows (net) 0.00 -0.51 -0.50 -0.50 -0.47 -0.44 -0.40 -0.36 -0.32 -0.29 -0.26 -0.23Capital account 0.00 -0.52 0.01 0.00 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 -0.52 0.01 0.00 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 0.86 0.85 0.83 0.81 0.78 0.76 0.74 0.73 0.71 0.70 0.69 Domestic taxes 0.00 3.15 3.06 3.01 2.97 2.94 2.92 2.90 2.90 2.89 2.89 2.89 Direct taxes 0.00 3.09 3.01 2.96 2.92 2.90 2.89 2.88 2.88 2.87 2.87 2.87 Indirect taxes 0.00 0.06 0.05 0.05 0.04 0.03 0.03 0.03 0.02 0.02 0.02 0.02 Indirect taxes on imports 0.00 -2.28 -2.22 -2.18 -2.16 -2.16 -2.16 -2.16 -2.17 -2.18 -2.19 -2.20 Foreign aid (grants) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Total expenditure 0.00 0.38 0.87 0.85 0.86 0.86 0.85 0.84 0.84 0.83 0.82 0.82 Spending on goods and services 0.00 0.04 0.04 0.04 0.06 0.07 0.09 0.10 0.11 0.11 0.12 0.12 Maintenance spending 0.00 0.04 0.04 0.04 0.06 0.07 0.09 0.10 0.11 0.11 0.12 0.12 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 0.14 0.12 0.11 0.11 0.10 0.10 0.10 0.10 0.10 0.09 0.09 Investment 0.00 0.12 0.64 0.62 0.60 0.57 0.54 0.52 0.50 0.48 0.47 0.45 Interest payments 0.00 0.05 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.02 0.02 Domestic debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Foreign debt 0.00 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.02 0.02 0.02Overall fiscal balance 0.00 0.52 -0.01 0.00 -0.01 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02Total financing 0.00 -0.52 0.01 0.00 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Foreign financing 0.00 -0.52 0.01 0.00 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 -2.21 -1.61 -1.33 -1.02 -0.77 -0.56 -0.42 -0.31 -0.24 -0.19 -0.15Composite good price (after indirect taxes, % change) 0.00 -3.83 -1.31 -1.08 -0.83 -0.62 -0.46 -0.34 -0.26 -0.20 -0.16 -0.13Real exchange rate (% change) 0.00 3.83 1.31 1.08 0.83 0.62 0.46 0.34 0.26 0.20 0.16 0.13

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 -0.01 0.04 0.11 0.17 0.22 0.25 0.26 0.27 0.26Real GDP per capita at market prices (% change) 0.00 -4.27 0.51 0.04 0.18 0.24 0.29 0.31 0.31 0.32 0.30 0.29Real disposable income per capita (% change) 0.00 -1.63 -0.36 -0.32 -0.20 -0.07 0.04 0.12 0.17 0.22 0.23 0.23Private savings rate (% of GDP) 0.00 0.22 0.14 0.11 0.07 0.05 0.02 0.01 0.00 -0.01 -0.02 -0.02Real private consumption per capita (% change) 0.00 -1.63 -0.32 -0.25 -0.13 -0.01 0.09 0.16 0.20 0.23 0.24 0.24Private investment (% of GDP) 0.00 0.29 0.23 0.24 0.24 0.23 0.23 0.22 0.22 0.21 0.21 0.20Private investment (% of total investment) 0.00 0.30 -2.29 -2.27 -2.27 -2.24 -2.20 -2.15 -2.12 -2.09 -2.07 -2.05Public investment (% of total public expenditure) 0.00 0.17 1.30 1.26 1.22 1.16 1.11 1.06 1.02 0.99 0.96 0.94 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Aid (% of total revenue) 0.00 -2.05 -2.01 -1.97 -1.91 -1.85 -1.79 -1.75 -1.71 -1.67 -1.64 -1.61Total public investment (% of aid) 0.00 1.12 5.99 5.79 5.58 5.32 5.07 4.85 4.67 4.51 4.37 4.25Domestic debt (% of GDP) 0.00 0.55 0.55 0.56 0.55 0.51 0.47 0.42 0.38 0.34 0.30 0.26External debt (% of GDP) 0.00 3.99 4.02 4.11 3.97 3.72 3.42 3.10 2.80 2.52 2.26 2.03Interest payment on external public debt (% of exports) 0.00 0.02 -0.03 -0.05 -0.07 -0.09 -0.11 -0.12 -0.14 -0.15 -0.16 -0.17Degree of openness (total trade in % of GDP) 0.00 1.64 1.75 1.87 1.92 1.95 1.97 1.99 2.01 2.01 2.03 2.04Educated labor (in % of population) 0.00 0.00 0.00 0.00 0.02 0.06 0.12 0.18 0.26 0.33 0.41 0.49Real imports (in billions of current CFA francs) 0.00 50.46 43.72 32.67 23.17 15.99 11.19 8.57 7.77 8.42 10.26 13.01Real exports (in billions of current CFA francs) 0.00 -6.94 -6.89 -4.62 0.55 8.62 18.54 29.44 40.73 52.15 63.53 74.88Real public investment (in billions of current CFA francs) 0.00 -1.36 8.90 9.43 10.08 10.64 11.23 11.88 12.59 13.36 14.17 15.02

Years

Table 7Niger: 12 Percent Decrease in Tariff Rate, Increase in Direct Tax Rate to 4.9 Percent, 2005-15

94

TABLE 8 – SHOCK TO TARIFF RATE (SHOCK 3c)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Real Sector (in billions of current CFA francs)Total supply of goods and services 0.00 -2.15 -3.13 -4.06 -4.84 -5.50 -6.08 -6.62 -7.13 -7.63 -8.13 -8.61 Gross domestic product at factor cost 0.00 -1.40 -2.55 -3.52 -4.32 -4.99 -5.58 -6.13 -6.66 -7.17 -7.68 -8.17 Imports of goods and NFS (inclusive of tariffs) 0.00 -4.73 -5.13 -5.96 -6.70 -7.33 -7.87 -8.37 -8.83 -9.29 -9.74 -10.18Total expenditure on goods and services 0.00 -3.44 -4.17 -4.93 -5.57 -6.12 -6.62 -7.10 -7.57 -8.04 -8.51 -8.96 Total consumption 0.00 -3.90 -4.82 -5.61 -6.28 -6.86 -7.39 -7.89 -8.38 -8.87 -9.36 -9.84 Private consumption 0.00 -3.66 -4.60 -5.40 -6.08 -6.67 -7.20 -7.70 -8.19 -8.67 -9.16 -9.63 Public spending on goods and services 0.00 -5.15 -5.95 -6.70 -7.29 -7.83 -8.34 -8.86 -9.37 -9.89 -10.40 -10.90 Total investment 0.00 -3.52 -3.86 -5.49 -6.94 -8.18 -9.26 -10.24 -11.15 -12.00 -12.81 -13.58 Private investment 0.00 -3.23 -4.19 -4.91 -5.63 -6.31 -6.94 -7.57 -8.19 -8.82 -9.44 -10.05 Public investment 0.00 -3.95 -3.34 -6.42 -9.08 -11.24 -13.05 -14.59 -15.92 -17.10 -18.15 -19.12 Exports of goods and NFS 0.00 -0.42 -0.33 -0.21 -0.07 0.06 0.14 0.14 0.08 -0.03 -0.17 -0.35

Gross domestic product at market prices 0.00 -3.19 -4.21 -5.12 -5.85 -6.45 -7.00 -7.51 -8.02 -8.51 -8.99 -9.46Disposable income 0.00 -1.48 -2.60 -3.55 -4.34 -5.01 -5.60 -6.15 -6.67 -7.19 -7.69 -8.18


External Sector (% of GDP)Current account 0.00 -1.74 -1.68 -1.51 -1.34 -1.20 -1.10 -1.02 -0.95 -0.90 -0.85 -0.80 Trade balance 0.00 -1.53 -1.44 -1.24 -1.06 -0.92 -0.82 -0.75 -0.69 -0.64 -0.60 -0.56 Exports of goods and NFS 0.00 0.43 0.61 0.79 0.93 1.05 1.14 1.22 1.29 1.35 1.41 1.46 Imports of goods and NFS 0.00 1.96 2.05 2.03 1.99 1.97 1.97 1.97 1.98 2.00 2.01 2.02 Private unrequited transfers 0.00 0.02 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Income (net) 0.00 -0.01 -0.02 -0.02 -0.02 -0.03 -0.03 -0.03 -0.03 -0.03 -0.04 -0.04 Public 0.00 -0.02 -0.02 -0.03 -0.03 -0.03 -0.03 -0.04 -0.04 -0.04 -0.04 -0.04 Private 0.00 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 Aid, total 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other current account flows (net) 0.00 -0.21 -0.26 -0.28 -0.29 -0.28 -0.28 -0.27 -0.26 -0.25 -0.24 -0.24Capital account 0.00 0.00 0.26 0.30 0.32 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 0.00 0.26 0.30 0.32 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 0.13 -0.06 -0.21 -0.32 -0.40 -0.46 -0.51 -0.55 -0.58 -0.60 -0.62 Domestic taxes 0.00 2.51 2.24 2.04 1.91 1.81 1.74 1.70 1.66 1.64 1.62 1.61 Direct taxes 0.00 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 Indirect taxes 0.00 2.48 2.21 2.01 1.88 1.78 1.72 1.67 1.64 1.61 1.59 1.58 Indirect taxes on imports 0.00 -2.39 -2.30 -2.25 -2.22 -2.21 -2.20 -2.21 -2.21 -2.21 -2.22 -2.23 Foreign aid (grants) 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Total expenditure 0.00 0.04 0.12 0.03 -0.04 -0.11 -0.16 -0.21 -0.25 -0.29 -0.32 -0.35 Spending on goods and services 0.00 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.01 0.00 -0.01 -0.02 Maintenance spending 0.00 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.01 0.00 -0.01 -0.02 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 0.00 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02 Investment 0.00 -0.04 0.04 -0.06 -0.15 -0.21 -0.26 -0.30 -0.33 -0.35 -0.36 -0.38 Interest payments 0.00 0.02 0.02 0.03 0.03 0.04 0.04 0.04 0.04 0.04 0.05 0.05 Domestic debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Foreign debt 0.00 0.02 0.02 0.03 0.03 0.03 0.03 0.04 0.04 0.04 0.04 0.04Overall fiscal balance 0.00 0.00 -0.26 -0.30 -0.32 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33 -0.33Total financing 0.00 0.00 0.26 0.30 0.32 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Foreign financing 0.00 0.00 0.26 0.30 0.32 0.33 0.33 0.33 0.33 0.33 0.33 0.33 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 -1.45 -1.22 -1.03 -0.86 -0.72 -0.62 -0.55 -0.49 -0.45 -0.42 -0.38Composite good price (after indirect taxes, % change) 0.00 -0.98 -1.22 -1.00 -0.81 -0.67 -0.56 -0.49 -0.43 -0.39 -0.36 -0.33Real exchange rate (% change) 0.00 0.98 1.22 1.00 0.81 0.67 0.56 0.49 0.43 0.39 0.36 0.33

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 -0.01 0.00 -0.01 -0.03 -0.06 -0.09 -0.12 -0.15 -0.17Real GDP per capita at market prices (% change) 0.00 -2.61 0.04 -0.07 -0.05 -0.06 -0.09 -0.13 -0.17 -0.20 -0.22 -0.23Real disposable income per capita (% change) 0.00 -0.61 -0.03 -0.09 -0.10 -0.12 -0.13 -0.16 -0.19 -0.21 -0.24 -0.25Private savings rate (% of GDP) 0.00 0.17 0.16 0.15 0.15 0.14 0.14 0.14 0.14 0.13 0.13 0.13Real private consumption per capita (% change) 0.00 -0.58 -0.02 -0.04 -0.05 -0.06 -0.08 -0.11 -0.14 -0.17 -0.20 -0.22Private investment (% of GDP) 0.00 0.00 0.00 0.02 0.02 0.01 0.00 0.00 -0.01 -0.02 -0.03 -0.04Private investment (% of total investment) 0.00 0.18 -0.21 0.38 0.87 1.27 1.59 1.84 2.05 2.23 2.37 2.49Public investment (% of total public expenditure) 0.00 -0.11 0.07 -0.16 -0.36 -0.51 -0.61 -0.70 -0.76 -0.81 -0.84 -0.87 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Aid (% of total revenue) 0.00 -0.28 0.16 0.52 0.80 1.00 1.16 1.27 1.36 1.43 1.49 1.54Total public investment (% of aid) 0.00 -0.42 0.41 -0.58 -1.41 -2.01 -2.46 -2.80 -3.05 -3.25 -3.40 -3.53Domestic debt (% of GDP) 0.00 0.23 0.29 0.33 0.35 0.36 0.37 0.38 0.39 0.40 0.41 0.42External debt (% of GDP) 0.00 1.91 2.59 3.14 3.50 3.77 3.98 4.17 4.35 4.52 4.69 4.86Interest payment on external public debt (% of exports) 0.00 0.02 0.00 0.01 0.01 0.01 0.02 0.03 0.03 0.04 0.05 0.06Degree of openness (total trade in % of GDP) 0.00 -0.01 0.36 0.56 0.70 0.81 0.91 0.99 1.07 1.14 1.20 1.26Educated labor (in % of population) 0.00 0.00 0.00 0.00 0.00 -0.01 -0.02 -0.04 -0.07 -0.11 -0.16 -0.22Real imports (in billions of current CFA francs) 0.00 56.45 54.38 47.54 41.08 35.13 29.25 22.96 15.88 7.79 -1.41 -11.70Real exports (in billions of current CFA francs) 0.00 -5.27 -4.53 -3.14 -1.12 1.08 2.58 2.89 1.83 -0.59 -4.27 -9.12Real public investment (in billions of current CFA francs) 0.00 -0.82 0.65 -1.59 -3.72 -5.60 -7.34 -8.98 -10.54 -12.07 -13.57 -15.07

Years

Table 8Niger: 12 Percent Decrease in Tariff Rate, Increase in Indirect Tax Rate to 4.9 Percent, 2005-15

95

TABLE 9 – BASELINE (Partially efficient IG)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015




External Sector (% of GDP)Current account -6.0 -2.7 -1.3 -0.3 0.3 0.7 1.0 1.3 1.5 1.7 1.9 2.1 Trade balance -9.6 -7.0 -6.2 -5.8 -5.7 -5.6 -5.7 -5.8 -5.8 -5.9 -5.9 -5.8 Exports of goods and NFS 15.0 14.9 15.2 15.3 15.3 15.3 15.2 15.2 15.2 15.2 15.2 15.3 Imports of goods and NFS 24.6 21.9 21.4 21.1 21.0 20.9 20.9 20.9 21.0 21.0 21.1 21.1 Private unrequited transfers 0.7 0.7 0.6 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 Income (net) -0.4 -0.4 -0.4 -0.4 -0.4 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 Public -0.6 -0.5 -0.5 -0.5 -0.5 -0.5 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 Private 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Aid, total 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 Other current account flows (net) -7.3 -6.5 -5.9 -5.4 -4.9 -4.4 -4.1 -3.7 -3.5 -3.2 -3.0 -2.8Capital account 6.0 5.6 5.1 4.9 4.7 4.5 4.3 4.2 4.0 3.9 3.8 3.7 Foreign direct investment 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Public borrowing 3.5 3.6 3.1 2.8 2.6 2.4 2.3 2.1 2.0 1.9 1.8 1.7 Other private flows (Errors and omissions) 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Government Sector (% of GDP)Total revenue (including grants) 21.2 20.8 20.8 20.9 20.9 21.0 21.0 21.1 21.1 21.1 21.1 21.2 Domestic taxes 4.6 4.8 5.0 5.1 5.2 5.3 5.3 5.4 5.4 5.4 5.4 5.4 Direct taxes 2.0 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 Indirect taxes 2.6 2.9 3.1 3.2 3.3 3.4 3.4 3.5 3.5 3.5 3.5 3.5 Indirect taxes on imports 5.9 5.3 5.1 5.1 5.0 5.0 5.0 5.0 5.0 5.0 5.1 5.1 Foreign aid (grants) 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7Total expenditure 40.6 40.9 40.4 40.3 40.1 40.0 39.9 39.8 39.7 39.6 39.5 39.5 Spending on goods and services (total) 15.6 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.7 15.8 15.8 Maintenance spending 0.9 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Other spending on goods and services 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 Wages and salaries 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Investment 5.1 5.3 4.8 4.7 4.5 4.4 4.3 4.2 4.1 4.0 4.0 3.9 Interest payments 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Domestic debt 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Foreign debt 0.6 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4Overall fiscal balance including grants (cash basis) -3.9 -4.6 -4.1 -3.8 -3.6 -3.4 -3.3 -3.1 -3.0 -2.9 -2.8 -2.7Total financing 3.9 4.6 4.1 3.8 3.6 3.4 3.3 3.1 3.0 2.9 2.8 2.7 Foreign financing 3.5 3.6 3.1 2.8 2.6 2.4 2.3 2.1 2.0 1.9 1.8 1.7 Domestic borrowing 0.4 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Prices and Real Exchange RateGDP at factor cost deflator (% change) -2.9 3.3 3.6 3.7 3.7 3.5 3.2 2.9 2.6 2.4 2.2 2.0Composite good price (after indirect taxes, % change) 0.7 3.6 3.7 3.7 3.7 3.5 3.2 2.9 2.7 2.5 2.3 2.2Real exchange rate (% change) 15.2 -0.6 -0.7 -0.7 -0.7 -0.5 -0.2 0.1 0.3 0.5 0.7 0.8

Memorandum itemsReal GDP per capita at factor cost (% change) 2.3 0.6 1.8 2.4 2.6 2.6 2.5 2.4 2.2 2.0 1.8 1.6Real GDP per capita at market prices (% change) -1.5 5.1 2.9 3.2 3.3 3.0 2.7 2.5 2.2 1.9 1.7 1.5Real disposable income per capita (% change) -0.4 0.6 1.9 2.5 2.8 2.8 2.7 2.4 2.2 1.9 1.7 1.5Private savings rate (% of GDP) 10.0 9.6 9.5 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.4 9.3Real private consumption per capita (% change) -4.9 0.7 1.9 2.5 2.8 2.8 2.6 2.4 2.1 1.9 1.7 1.4Private investment (% of GDP) 8.2 7.9 7.6 7.2 6.9 6.6 6.4 6.1 5.9 5.7 5.5 5.3Private investment (% of total investment) 61.6 60.0 61.2 60.6 60.3 60.1 59.7 59.3 59.0 58.6 58.2 57.9Public investment (% of total public expenditure) 12.7 13.0 11.9 11.6 11.3 11.0 10.8 10.6 10.4 10.2 10.0 9.8 Health (% of public investment) 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 17.7 Infrastructure (% of public investment) 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 37.4 Education (% of public investment) 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 Other (% of public investment) 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2 34.2Aid (% of total revenue) 50.3 51.4 51.3 51.1 51.0 50.9 50.7 50.6 50.6 50.5 50.5 50.4Total public investment (% of aid) 48.2 49.6 45.1 43.7 42.5 41.3 40.3 39.4 38.6 37.8 37.1 36.4Domestic debt (% of GDP) 7.9 8.1 8.3 8.6 8.8 9.0 9.2 9.5 9.8 10.1 10.4 10.7External debt (% of GDP) 65.1 62.2 60.1 57.8 55.6 53.5 51.8 50.2 48.9 47.8 46.7 45.8Interest payment on external public debt (% of exports) 3.8 3.6 3.4 3.3 3.2 3.0 2.9 2.9 2.8 2.7 2.6 2.6Degree of openness (total trade in % of GDP) 45.5 42.1 41.7 41.5 41.3 41.2 41.1 41.1 41.2 41.2 41.3 41.5Educated labor (in % of population) 18.3 19.2 19.8 20.4 21.0 21.5 22.0 22.5 22.9 23.3 23.6 23.9

Years

Table 9Niger: Trend-based Projections, 2004-15, Lower Efficiency of Public Investment

96

TABLE 10 – SHOCK 4 (Aid shock with partially efficient IG)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015



Poverty rate Ravallion's (2004) adjusted elasticity (Gini = 50.5) 0.00 -0.69 -1.20 -1.80 -2.47 -3.21 -3.97 -4.72 -5.45 -6.15 -6.80 -7.42 Consumption per capita growth elasticity of -0.5 0.00 -0.30 -0.52 -0.79 -1.11 -1.47 -1.86 -2.26 -2.66 -3.05 -3.42 -3.79 Consumption per capita growth elasticity of -1.0 0.00 -0.61 -1.06 -1.59 -2.20 -2.86 -3.56 -4.25 -4.92 -5.57 -6.18 -6.76 Consumption per capita growth elasticity of -1.5 0.00 -0.93 -1.61 -2.39 -3.25 -4.16 -5.09 -5.98 -6.83 -7.62 -8.36 -9.04

External Sector (% of GDP)Current account 0.00 5.57 5.19 4.92 4.70 4.52 4.34 4.16 3.99 3.81 3.63 3.46 Trade balance 0.00 0.09 -0.39 -0.73 -1.02 -1.26 -1.48 -1.68 -1.88 -2.07 -2.25 -2.42 Exports of goods and NFS 0.00 -1.01 -1.37 -1.73 -2.04 -2.31 -2.55 -2.77 -2.98 -3.17 -3.35 -3.51 Imports of goods and NFS 0.00 -1.10 -0.99 -1.00 -1.02 -1.04 -1.07 -1.09 -1.10 -1.10 -1.10 -1.09 Private unrequited transfers 0.00 -0.05 -0.06 -0.07 -0.08 -0.09 -0.09 -0.10 -0.10 -0.11 -0.11 -0.11 Income (net) 0.00 0.03 0.05 0.07 0.09 0.10 0.12 0.13 0.14 0.15 0.16 0.16 Public 0.00 0.04 0.06 0.08 0.10 0.12 0.13 0.15 0.16 0.17 0.18 0.19 Private 0.00 -0.01 -0.01 -0.01 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 -0.02 Aid, total 0.00 5.00 5.00 4.99 5.00 5.00 5.00 5.00 5.01 5.01 5.01 5.01 Other current account flows (net) 0.00 0.49 0.58 0.66 0.72 0.76 0.80 0.82 0.83 0.83 0.83 0.82Capital account 0.00 -1.46 -1.74 -1.67 -1.65 -1.63 -1.63 -1.63 -1.63 -1.63 -1.64 -1.64 Private borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Public borrowing 0.00 -1.46 -1.74 -1.67 -1.65 -1.63 -1.63 -1.63 -1.63 -1.63 -1.64 -1.64 Errors and omissions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Government Sector (% of GDP)Total revenue (including grants) 0.00 4.49 4.43 4.35 4.31 4.27 4.25 4.24 4.24 4.24 4.25 4.26 Domestic taxes 0.00 -0.25 -0.34 -0.40 -0.44 -0.47 -0.49 -0.50 -0.50 -0.50 -0.50 -0.49 Direct taxes 0.00 -0.08 -0.07 -0.06 -0.06 -0.06 -0.05 -0.05 -0.05 -0.04 -0.04 -0.04 Indirect taxes 0.00 -0.17 -0.27 -0.34 -0.38 -0.41 -0.43 -0.45 -0.45 -0.46 -0.46 -0.46 Indirect taxes on imports 0.00 -0.26 -0.24 -0.24 -0.24 -0.25 -0.26 -0.26 -0.26 -0.26 -0.26 -0.26 Foreign aid (grants) 0.00 5.00 5.00 4.99 5.00 5.00 5.00 5.00 5.01 5.01 5.01 5.01Total expenditure 0.00 2.91 2.58 2.64 2.67 2.70 2.71 2.73 2.77 2.79 2.81 2.84 Spending on goods and services 0.00 -0.05 -0.05 0.02 0.07 0.11 0.15 0.18 0.21 0.23 0.26 0.28 Maintenance spending 0.00 -0.05 -0.05 0.02 0.07 0.11 0.15 0.18 0.21 0.23 0.26 0.28 Other spending on goods and services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Wages and salaries 0.00 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 -0.17 Investment 0.00 3.22 2.91 2.86 2.81 2.77 2.73 2.70 2.68 2.67 2.66 2.65 Interest payments 0.00 -0.04 -0.07 -0.09 -0.11 -0.13 -0.14 -0.16 -0.17 -0.18 -0.19 -0.20 Domestic debt 0.00 0.00 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 Foreign debt 0.00 -0.04 -0.06 -0.08 -0.10 -0.12 -0.13 -0.15 -0.16 -0.17 -0.18 -0.19Overall fiscal balance 0.00 1.46 1.74 1.67 1.65 1.63 1.63 1.63 1.63 1.63 1.64 1.64Total financing 0.00 -1.46 -1.74 -1.67 -1.65 -1.63 -1.63 -1.63 -1.63 -1.63 -1.64 -1.64 Foreign financing 0.00 -1.46 -1.74 -1.67 -1.65 -1.63 -1.63 -1.63 -1.63 -1.63 -1.64 -1.64 Domestic borrowing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Prices and Real Exchange RateGDP at factor cost deflator (% change) 0.00 3.84 3.20 2.98 2.74 2.52 2.31 2.09 1.90 1.70 1.51 1.33Composite good price (after indirect taxes, % change) 0.00 2.97 2.50 2.36 2.19 2.03 1.86 1.70 1.54 1.39 1.23 1.08Real exchange rate (% change) 0.00 -2.97 -2.50 -2.36 -2.19 -2.03 -1.86 -1.70 -1.54 -1.39 -1.23 -1.08

Memorandum itemsReal GDP per capita at factor cost (% change) 0.00 0.00 0.00 0.24 0.51 0.75 0.94 1.07 1.16 1.21 1.23 1.23Real GDP per capita at market prices (% change) 0.00 6.18 0.08 0.83 1.05 1.24 1.37 1.42 1.39 1.43 1.40 1.36Real disposable income per capita (% change) 0.00 0.97 0.80 1.01 1.25 1.43 1.56 1.63 1.62 1.65 1.61 1.57Private savings rate (% of GDP) 0.00 -0.40 -0.34 -0.32 -0.30 -0.28 -0.26 -0.25 -0.23 -0.21 -0.19 -0.17Real private consumption per capita (% change) 0.00 0.92 0.71 0.89 1.07 1.24 1.36 1.43 1.47 1.48 1.46 1.42Private investment (% of GDP) 0.00 -0.35 -0.23 -0.18 -0.14 -0.11 -0.08 -0.06 -0.04 -0.03 -0.02 -0.01Private investment (% of total investment) 0.00 -12.90 -12.40 -12.42 -12.42 -12.44 -12.48 -12.53 -12.63 -12.74 -12.86 -12.99Public investment (% of total public expenditure) 0.00 6.51 6.05 5.95 5.86 5.78 5.72 5.67 5.64 5.62 5.61 5.61 Health (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Infrastructure (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Education (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other (% of public investment) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Aid (% of total revenue) 0.00 10.69 10.83 10.97 11.09 11.18 11.23 11.27 11.29 11.30 11.29 11.27Total public investment (% of aid) 0.00 4.73 4.15 4.33 4.39 4.48 4.57 4.66 4.79 4.94 5.10 5.28Domestic debt (% of GDP) 0.00 -0.53 -0.64 -0.78 -0.91 -1.03 -1.16 -1.27 -1.37 -1.47 -1.56 -1.65External debt (% of GDP) 0.00 -5.85 -8.24 -10.46 -12.36 -14.02 -15.50 -16.82 -17.99 -19.06 -20.03 -20.91Interest payment on external public debt (% of exports) 0.00 -0.03 -0.10 -0.20 -0.29 -0.38 -0.47 -0.55 -0.62 -0.70 -0.77 -0.83Degree of openness (total trade in % of GDP) 0.00 -2.37 -2.60 -2.96 -3.30 -3.60 -3.88 -4.12 -4.34 -4.54 -4.71 -4.86Educated labor (in % of population) 0.00 0.00 0.00 0.10 0.27 0.49 0.75 1.04 1.34 1.66 1.99 2.32

Years

Table 10Niger: 5 Percent Increase in Aid to GDP Ratio, 2005-15, Lower Efficiency of Public Investment

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APPENDIX H – CALCULATION OF VARIABLES AND PROJECTION OF EXOGENOUS VARIABLES ENDOGENOUS VARIABLES *** = calibrated series AID Total aid. The series are named as Official Development Assistance, Grants

total (from all donors) in the Development Assistance Committee database. It includes both food aid (relief food aid and food aid excluding relief food aid) and nonfood aid. Unit: in current LCU File: "Niger-AID-OECD.xls"; "Sheet: AID-TRANS"; "line 4", (Aid) Note: The original series are multiplied by ER to express in current LCU. Source: OECD.

***CP Total private consumption in real terms

Unit: in constant LCU (2004) From: Equation (A19) CP = Qd – IP – IG – CG

***DdebtG Domestic public debt stock

Unit: in current LCU From: Equation (A27) DdebtG(t) = DdebtG(t+1) - DB(t+1) Note: In 2003, actual value of DdebtG is taken, which is 0.0773 of NGDP. In 2004, DdebtG in 2004 = DdebtG in 2003 + DB in 2004.

***delta_LE_N Total educated labor flow

From: Equation (A11) Delta_LE_N = LE – LE(-1)

Delta_NFA Change in reserves Unit: in US$ File: “Niger-BOP.xls”, line 32, = overall balance Note: The original series are divided by ER to convert into $US. Source: IMF.

DITAX Direct tax revenue (domestic) Unit: in current LCU File: [Niger-BUDGET.xls, line61] Note: Total tax revenue is taken from the “budget” file. The share of direct tax revenue in total tax revenue is calculated using data from World Bank sources. (Niger-Wbafrican.xls; line=124; Direct taxes (Cur. Loc. Curr.)) Definition of Direct tax revenue in WB Africa Database: Direct taxes on goods and services include all taxes and duties levied on production, extraction, sale, transfer, leasing, or delivery of goods and rendering of

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services, or in respect of the use of goods, or permission to use goods or to perform activities, are covered. Examples include all general sales taxes, value added taxes and excises. Source: IMF and World Bank.

***DITXR Effective direct tax rate

From: Equation (A30) DITXR = DITAX/YTOT

***DOM Domestic sales

Unit: in constant LCU (2004) From: Equation (A21) DOM = [PQ.Q-PM.M]/PD.

FG Flow of government borrowing abroad

Unit: in US $ File: "Niger-AID-OECD.xls";"Sheet: AID-TRANS"; "line 6", (Loans Total Net) Note: Since the original series are in millions of US dollars, we multiply them by 1,000,000. Source: OECD.

***FdebtG Stock of foreign debt

Unit: in US$ From: Equation (A37) FdebtG(t) = FG(t) + FdebtG(t-1) Note: 2004 value is the actual value.

***FdebtP Stock of private foreign debt

Unit: in US$ From: Equation (A36) Note: FdebtP in 2002 = [Total external interest payment in $US from BOP in 2004]/RP* in 2003 and 2004. Then FdebtP in 2004 = FP in 2004 + FdebtP in 2002. FdebtP for t < 2002 is calibrated as follows: FdebtP(t) = FdebtP(t+1) - FP(t+1).

***FdebtTot Total external debt

Unit: in US$ From: Equation (A38) FdebtTot = FdebtP + FdebtG

GBAL Government budget balance

Unit: in current LCU File: "Niger-BUDGET.xls";"Sheet: Summary for model Final"; "line 29"; Overall balance including grants Source: IMF.

GTOT Total government expenditure

Unit: in current LCU

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File: "Niger-BUDGET.xls";"Sheet: Summary for model Final"; "line 15" Source: IMF.

IG Real public spending on investment

Unit: in constant LCU (2004) From: IG = Public FCF/PQT File: "PUBLIC INVESTMENT STRUCTURE_ NIGER (1967-2002).xls" Note: In 2003 and 2004, IG is calculated by multiplying total capital expenditure (from Niger-Budget) in 2004 by the share of IG in total capital expenditure (from Niger-Budget) in 2002. Source: IMF.

IGedu Real public investment in education

Unit: in constant LCU (2004) From IGedu = Public FCF in Education/PQT File: "PUBLIC INVESTMENT STRUCTURE_ NIGER (1967-2002).xls" Source: IMF.

IGhea Real public investment in health

Unit: in constant LCU (2004) From: IGhea = Public FCF in health/PQT File: "PUBLIC INVESTMENT STRUCTURE_ NIGER (1967-2002).xls" Source: IMF.

IGinf Real public investment in infrastructure

Unit: in constant LCU (2004) File: "PUBLIC INVESTMENT STRUCTURE_ NIGER (1967-2002).xls" From: IGinf = Public FCF in infrastructure /PQT Source: IMF.

IGoth Real public investment in others Unit: in constant LCU (2004) File: "PUBLIC INVESTMENT STRUCTURE_ NIGER (1967-2002).xls" From: IGoth = Public FCF in others /PQT Source: IMF.

INDTAX Indirect tax revenue (domestic)

File: [Niger-BUDGET.xls, line62] Note: Total tax revenue is taken from the “budget” file. The share of indirect tax revenue in total tax revenue is calculated using data from World Bank sources. Total indirect tax revenue = Indirect [Niger-Wbafrican.xls;line=543; Indirect taxes (Cur. Loc. Curr.)] – [Niger-Wbafrican.xls; line=1014,Taxes on int'l trade (Cur. Loc. Curr.)] Definition of Indirect taxes in WB Africa Database: Indirect taxes are the sum of indirect taxes less subsidies. Indirect taxes are those taxes payable by producers that relate to the production, sale, purchase or use of the goods and services. Subsidies are grants on the current account made by general government to private enterprises and unincorporated public enterprises. The

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grants may take the form of payments to ensure a guaranteed price or to enable maintenance of prices of goods and services below costs of production, and other forms of assistance to producers. Note: This definition includes taxes on international trade. Since our definition includes only domestic indirect taxes, taxes on international trade is subtracted. Source: IMF and World Bank.

***INDTXR Effective indirect tax rate From: Equation (A31) INDTXR = INDTAX/(Q.PQ)

IP Real private spending on investment

Unit: in constant LCU (2004) File: "Niger-WBafrican.xls";"line=373”; GDFI-priv From: IP = Private FCF/PQT Source: World Bank.

***J Composite input from the supply of composite input T and private capital, KP Unit: in constant LCU (2004) From: Equation (A2) J(T, KP) = AJ·[βJ·T-ρJ + (1 - βJ)KP-ρJ]-1/ρJ

***KGedu Stock of public capital in education Unit: in constant LCU (2004) From: Equation (A33) KGedu(t) = (1-deltaedu).KGedu(t-1)+IGedu(t-1)

***KGhea Public capital in health

Unit: in constant LCU (2004) From: From: Equation (A33) KGhea(t) = (1-deltahea).KGhea(t-1)+IGhea(t-1)

***KGinf Public capital in infrastructure

Unit: in constant LCU (2004) From: From: Equation (A33) KGinf(t) = (1-deltainf).KGinf(t-1)+IGinf(t-1)

***KGZ Composite public education input From: Equation (A9) KGZ(KGinf, KGedu) = AKGZ·[βKGZ·{KGinf/(Y-1)θKGI}-ρKGZ

+ (1 - βKGZ){KGedu/(LR-1)θKGE} -ρKGZ]-1/ρKGZ,

***KP Private capital

Unit: in constant LCU (2004) From: From: Equation (A18)

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KP(t) = (1-deltaP).KP(t-1)+IP(t-1) LE Educated labor level

File: "Niger-WDI-GDF-all.xls";"line=475", (Literacy rate, adult total (% of people ages 15 and above)) Note: Its value in 2004 is calibrated by multiplying LE in 2002 by 0.035 (n). From: LE = POP*(literacy rate) Source: World Bank.

***LE_P Quantity of educated labor used in private production

From: Equation (A13) LE_P = LE - LE_G

***LR “Raw” labor

From: = POP - LE M Demand for imported goods

Unit: in constant LCU (2004) File: "Niger-BOP.xls"; Line 10 + Line 14 From: M = Nominal imports.(1+tm)/(PM) Source: IMF.

NGDP GDP at market prices

Unit: in current LCU File: "Niger-WBafrican.xls";"line=390" Note: The 2003 value is taken from the file named [IMFMACROFRAMPETERLASTJUNE23.xls]; Sheet = Selected ind -TAb 4; line = 75]. The 2004 value is taken from the file named [IMFMACROPRGF2.xls]. Source: World Bank.

POP Size of the population

File: "Niger-WDI-GDF-all.xls"; line=645 Note: 2003 value = POP in 2002 * (1+0.031). 0.031 sent by Emmanuel. 2004 value = 3.3 % sent by government authorities. Source: World Bank.

PQ Composite market price (or consumer price index) Unit: 2004 = 1 File: consumer price index "Niger-WDI-GDF-all.xls"; line=107; consumer price index Note: The CPI level in 2003 is calculated by multiplying CPI in 2002 by the CPI inflation rate in 2003, which is taken from File = “IMFMACROFRAMPETERLASTJUNE23.xls”; Sheet = Selected ind -TAb 4; Line 16. Similarly, the CPI level in 2004 is calculated by multiplying CPI in 2003 by the CPI inflation rate in 2004 given in the file named as [IMFMACROPRGF2.xls]. Then the CPI series is re-indexed in a way that the 2004 value = 1.

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Source: World Bank and IMF.

***PQT After tax PQ From: Equation (A41) PQT = (1+INDTXR)·PQ

***Qd Total demand for goods sold on the domestic market (which includes both

imports and domestically-produced goods) Unit: in constant LCU (2004) From: Equation (A5) and (A21) Qd= (PY.Y (i.e. nominal GDP at factor cost) – PX.X (i.e. nominal exports from BOP) + PM.M (i.e. nominal imports from BOP times (1+tm)))/PQ

***Q Domestic sales

Unit: in constant LCU (2004) From: Equation (A39) Q = Qd

***SP Private savings

Unit: in current LCU From: Equation (A47) SP = Ydisp.s

***T “Effective” labor; composite input from the supply of educated labor, LE, and

the stock of public capital in health, Kghea Unit: in constant LCU (2004) From: Equation (A1) T = AT[betaT.LE^(-rhoT) + (1-betaT).(Kghea/(POP^thetaH))^(-rhoT)]^(-1/rhoT)

TAX Total tax revenue

Unit: in current LCU File: “’[Niger-BUDGET.xls]Summary for model Final'!line=9” From: TAX = Tax revenue + non-tax revenue Source: IMF.

X Exports (in real terms)

Unit: in constant LCU (2004) File: "Niger-BOP.xls"; line= (9 + 13) From: Exports in real terms = Nominal exports/PX Source: IMF.

Y Aggregate supply of domestic goods (in real terms)

Unit: in constant LCU (2004) File: "Niger-WBafrican.xls";"line=385"; GDP at factor cost Note: The original series is in constant 1987 LCU. In order to change the base year to 2004, the Y series is re-indexed. It is calculated by dividing real GDP at

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factor cost in 1987 prices by the ratio of real GDP at factor cost in 1987 prices to nominal GDP at factor cost in 1987 prices in 2004. Source: World Bank.

***Ydisp Households’ disposable income in nominal terms

Unit: in current LCU From: Equation (A15) Ydisp = YTOT-DITAX

***YTOT Total income before taxes

From: Equation (A14) YTOT = PY·Y + WG·LEG - RP*·ER·FdebtP-1 + RD·DdebtG-1 + ER·UTR$

***Z Composite public education input

From: Equation (A10) Z(LEG, KGedu) = AZ·[βZ· (χ.LEG)-ρZ + (1 - βZ)(KGZ) -ρZ]-1/ρZ

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EXOGENOUS VARIABLES *** = calibrated series AID$ Aid in foreign-currency terms

Unit: in US$ File: "Niger-AID-OECD.xls";"Sheet: AID-TRANS"; "line 9", (Food Aid) + "Niger-AID-OECD.xls";"Sheet: AID-TRANS"; "line 10", (Non Food Aid) Source: OECD.

CG Real public spending on consumption

Unit: in constant LCU (2004) From: =(Total gov. expenditure-interest payment-public FCF-wages)/PQT File: "Niger-BUDGET.xls";"Sheet: Summary for model Final"; "line 15" (Expenditure - government), "Niger-BUDGET.xls";"Sheet: Summary for model Final"; "line 18" (Interest Payments - government),"Niger-BUDGET.xls";"Sheet: Summary for model Final"; "line 21" (Public FCF) Source: IMF.

DB Flow of direct domestic borrowing

Unit: in current LCU File: "Niger-BUDGET.xls";"Summary for model Final"; "line 34" Source: IMF.

ER Nominal exchange rate

Unit: LCU per US$ File: "Niger-WDI-GDF-all.xls";"line=573); Official exchange rate (LCU per US$, period average) Note: In 2003 and 2004, ER is taken from File = “Niger-IFS-all.xls”; Line = 12. Source: World Bank and IMF.

ERROR_OMM Errors and omissions

Unit: in US$ From: = capital account balance (incl. errors and omissions) - (FP+FG) File: “Niger-BOP.xls”; Line = 27 Source: IMF.

FP Private capital inflows

Unit: in US $ File: Between 1975-95, Foreign direct investment, net (BoP, current US$), "Niger-WDI-GDF-all.xls", Line = 242. Between 1996-2002, Foreign direct invest. (Net, cur. US $), "Niger-WBafrican.xls"; Line = 359 Note: In 2003 and 2004, the source of FP is File = “Niger-BOP.xls”; Line = 28. This data point is divided by ER to convert it into $US. Source: World Bank.

***Kappa_edu Share of public investment in education

From: Equation (A29)

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Kappa_edu = IGedu/IG ***Kappa-hea Share of public investment in health

From: Equation (A29) Kappa_hea = IGhea/IG

***Kappa-inf Share of public investment in infrastructure

From: Equation (A29) Kappa_inf = IGinf/IG

***Kappa-oth Share of public investment in other

From: Equation (A29) Kappa_oth = IGoth/IG

***LAND Land (normalized to unity) LE_G Quantity of educated labor employed by the public sector

File: “Effectifs Fonction Publique (SKILLED UNSKILLED).xls”; Line = 21 Source: Government Authorities.

***n Growth rate of population and raw labor

From: n = (POP-POP(-1))/POP(-1) Note: In 2003, n is taken as 3.1%. In 2004, n is taken as 3.3%.

***RD Interest rate on domestic public debt

From: = [Total domestic interest payment = RD.DdebtG(t)]/DdebtG(t-1) File: "Niger-BUDGET.xls";"Summary for model Final"; "line 54", RD.DdebtG-1, Public interest payment, domestic, in billions of LCU Source: IMF.

***RG* Interest rate on public foreign debt

From: = [Total external interest payment in $US = RG*.FdebtG(t)]/FdebtG(t-1)] File: "Niger-BUDGET.xls"; Sheet = "Summary for model Final"; Line = 53; RG*.FdebtG-1, Public interest payment, external, in billions of LCU Source: IMF.

***RP* Interest rate on private foreign borrowing

From: In 2004, its value is assumed to be equal to 0.021, the money market rate in the Euro Area (assuming expected depreciation is zero and there is no capital control in Niger). This value of RP* is used to calibrate total private foreign debt stock in 2003 such that FdebtP in 2003 = [Total external interest payment in $US]/RP* in 2003. Then other values of FdebtP are calibrated. Then using this information, RP* before 2004 is calibrated such that RP*(t) = [Total external interest payment in $US in period t]/FdebtP(t-1) where t = 1998 and 2002.

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File: The data source of Total external interest payment is File = "Niger-BOP.xls"; Line 16 + Line 17; Income (net) + Of which: gross official interest payments. Source: IMF.

tm Tariff rate

From: = tax revenue from international trade (current LCU)/total imports(current LCU) File: [Niger-BUDGET.xls, line63] Note: Total tax revenue is taken from the “budget” file. The share of international tax revenue in total tax revenue is calculated using data from World Bank sources. The data source of Taxes on international trade is File = "Niger-Wbafrican.xls"; Line = 1014; Taxes on int'l trade (Cur. Loc. Curr.). Definition of taxes on international trade in WB Africa Database: Taxes on international trade include import duties, export duties, profits of export or import monopolies, exchange profits, and exchange taxes. Current revenue includes all revenue from taxes and nonrepayable receipts (other than grants) from the sale of land, intangible assets, government stocks, or fixed capital assets, or from capital transfers from nongovernmental sources. It also includes fines, fees, recoveries, inheritance taxes, and nonrecurrent levies on capital. Source: World Bank and IMF.

UTR$ Private unrequited transfers

Unit: in US$ File: Niger-BOP.xls, line 19 (Private transfers, net) Note: The original series is divided by ER to convert it into $US. Source: IMF.

WG Average effective wage in the public sector

From: = total wage bill/LE_G File: “Niger-BUDGET.xls, line 49, wages and salaries. Source: IMF.

χ Share of teachers in total educated labor in the public sector

From: χ = total number of teachers/LE_G

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PRICES Given share parameters, elasticity of substitution parameters, shift parameters,

and PQ = 1 in the base year, other prices are calibrated as follows: PM Domestic-currency price of imports (index)

From equation (A22) and given • M = Nominal M (from BOP series).(1+tm)/PM; • DOM = Nominal DOM/PD where Nominal DOM = PD.DOM = PQ.Q – PM.M; • PD = {[PQ1-σ

DM – (1 - βDM)·PM1-σDM]/ βDM}1/(1-σ

DM);

• PQ = 1 in the base year; • βDM = 0.75; • σ

DM = 0.7;

PM = {[PQ1-σDM.(NM/NDOM).(1/βDM).((1- βDM)/ βDM)-σ

DM]/ [1 +

(NM/NDOM).((1- βDM)/βDM).((1- βDM)/ βDM)-σDM]}1/(1-σ

DM)

where NM is nominal imports and NDOM is nominal domestic sales.

PD Price of the domestic good (index)

From equation (A43); given the value of PM calculated above.

PD = {[PQ1-σDM – (1 - βDM)·PM1-σ

DM]/ βDM}1/(1-σDM

)

PX Domestic-currency price of exports (index)

From equation (A6) and given

• X = Nominal X (from BOP series)/PX; • DOM = Nominal DOM/PD where Nominal DOM = PD.DOM = PQ.Q (nominal

Q) – PM.M (nominal M); • the value of PD calculated above; • βDE = 0.15; • σ

DE = 0.3;

PX = [PD1+σDE.(NX/NDOM).((1- βDE)/βDE)-σ

DE]1/(1+σDE

) where NX is nominal exports and NDOM is nominal domestic sales.

PY Price of Y

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From equation (A42) and given the values of PX and PD calculated above

PY = [βDE· PX1+σ

DE + (1 - βDE)· PD1+σDE] 1/(1+σ

DE).

PM* World price of imports From equation (A45) and given the value of PM calculated above

PM* = PM/(ER.(1+tm)).

PX* World price of exports

From equation (A44) and given the value of PX calculated above

PX* = PX/ER.

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PARAMETERS σDM = 1/(1+ρDM); elasticity of transformation between imports and demand for

domestic goods; =coefficient from regression = 0.7 ρDM Substitution parameter in Q; calculated with σDM; = 0.43 θKGE Parameter capturing congestion effects in the education system; =0.9 θKGI Parameter capturing congestion effects in the education system; =0.9 θH Parameter determining the strength of congestion effects in the provision of

health services; =0.4 θI Parameter capturing congestion effects on infrastructure capital; = 0.3 ADE Shift parameter in production of domestic goods Ys; calibrated ADM shift parameter in production of Qs; calibrated AE Shift parameter in flow production of educated labor LE; calibrated AJ Shift parameter for composite input J; =1 AKGZ Shift parameter for composite input KGZ; =1 AT Shift parameter for composite input T; =1 AY Shift parameter for composite input Ys; calibrated AZ Shift parameter for composite input Z; =1 βDE Share parameter between exports EXP and domestic sales DOM in

production of domestic goods Ys; calibrated = X/(X+DOM); =0.15 βDM Share parameter between imports M and demand for domestic goods DOM;

calibrated = DOM/(M+DOM); =0.75 βE Share parameter between educated labor LE and public capital in education,

KGedu in flow production of LE; = 0.3 βJ Share parameter between the supply of T and the stock of private capital, KP

in production of J; imposed; = 0.6 βKGZ Share parameter between KGedu and KGinf in production of KGZ; calibrated;

= KGinf/(KGinf+KGedu); 0.79

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βT Share parameter between the supply of educated labor, LE, and the stock of public capital in health, KGhea in production of T; imposed; = 0.85

βY Share parameter between the supply of J and public capital in infrastructure,

KGinf in production of Y; imposed; = 0.85 βZ Share parameter in equation Z; = 0.5 ρDE Transformation parameter in production of domestic goods Y; =4.333333333 ρE Substitution parameter in flow production of LE; =2.333333333 ρJ Substitution parameter in production of J; =2.333333333 ρKGZ Substitution parameter in production of KGZ; =2.333333333 ρT Substitution parameter in production of T; =2.333333333 ρY Substitution parameter in production of Y; = 1.5 ρZ Substitution parameter in production of Z; = 4 σDE = 1/(1-ρDE); elasticity of transformation between exports and domestic sales;

=0.3 σE = 1/(1+ρY); elasticity of substitution between LR-1 and Kgedu in change LE; =

0.3 σJ = 1/(1+ρJ); elasticity of substitution between T and KP; =0.3 σKGZ = 1/(1+ρKGZ); elasticity of substitution between KGinf and KGedu; =0.3 σT = 1/(1+ρT); elasticity of substitution between LE and Kghea/POPqH; =0.3 σY = 1/(1+ρY); elasticity of substitution between J and KGinf; =0.4 σZ = 1/(1+ρZ); elasticity of substitution in Z; =0.2 δh Depreciation rate of public capital with h = edu, hea, inf, oth; = 0.035 δP Constant rate of depreciation; = 0.06 s Saving rate; imposed; = 0.1

111

ORDER OF CALIBRATION FOR CALIBRATED SERIES Step 1: All the following variables can be determined individually right after assigning

the values of the actual variables.

DebtG, delta_LE_N, CP, FdebtG, FdebtP, FdebtTot, INDTXR, J, KGedu, KGhea, KGinf, KGZ, KP, LE_P, LR, PQT, Qd, Q, T, Kappa_edu, Kappa_hea, Kappa_inf, Kappa_oth, LAND, n, Z

Step 2: All the following variables are suggested to be determined by the order given below.

1. PM 2. PD 3. PX 4. PY 5. PX* 6. PM* 7. YTOT 8. Ydisp 9. DITXR 10. SP 11. DOM

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PROJECTIONS (2004-2015) Kappa_edu = Kappa_edu in 2004 Kappa_hea = Kappa_hea in 2004 Kappa_inf = Kappa_inf in 2004 Kappa_oth = Kappa_oth in 2004 NMCG = Constant share of GDP (2004 value) DB = 1 percent of NGDP AID$ = Constant share of GDP (2004 value) ER = ER in 2004 FP = Constant share of GDP (2004 value) LAND = 1 n = 2004 value = 3.3% PM* = PM*(t-1)*(1+0.03) PX* = PX*(t-1)*(1+0.03) RD = RD in 2004 RG* = RG* in 2004 RP* = RP* in 2004 tm = tm in 2004 UTR$ = POP* constant share of per capita UTR$ in 2004 ERROR_OMM = Constant share of GDP (2004 value) LE_G = Constant share of LE in 2004 WG = WG(t-1)*[1+(Change in PQ/PQ(t-1)]

113

APPENDIX I – MDG Tables Table – Baseline MDG Table

1990 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Poverty rate (2003 = 63)(% of the population living below $2 per day) 63.0 1/ Consumption per capita growth elasticity of -0.5 64.3 63.5 62.4 61.1 59.8 58.5 57.3 56.1 55.1 54.2 53.4 Consumption per capita growth elasticity of -1.0 65.6 64.0 61.8 59.2 56.7 54.2 51.9 49.9 48.1 46.5 45.1 Consumption per capita growth elasticity of -1.5 66.9 64.5 61.1 57.3 53.6 50.1 46.9 44.1 41.7 39.7 37.9 Ravallion's (2004) adjusted elasticity (Gini = 50.5) 65.9 64.2 61.6 58.8 55.8 53.1 50.6 48.3 46.3 44.6 43.1

Literacy rate 11.4 19.2 19.9 20.8 21.7 22.6 23.5 24.4 25.3 26.1 26.9 27.6(% of educated labor in total population)

Infant mortality (2002=155) 191 156 153 149 144 139 135 131 127 124 121 119(Infant mortality rate per 1000 live births)

Malnutrition (2000=40.1) 42.6 2/ 41.1 41.1 40.7 40.2 39.6 39.1 38.5 38.0 37.6 37.2 36.8(Malnutrition prevalence, weight for age)

Life expectancy (2002 = 46.2) 42.1 46.5 46.5 46.8 47.1 47.5 47.8 48.1 48.4 48.6 48.9 49.1(Life expectancy at birth, years )

Access to safe water (2000=59) 53.0 57.5 57.9 58.3 58.7 59.1 59.6 60.0 60.3 60.7 61.1 61.4(Percentage of population with access to safe water)

COMPOSITE MDG INDICATOR (2005 = 100) 100.0 101.4 103.7 106.2 108.9 111.5 114.1 116.6 118.9 121.0 123.0(A rise denotes an improvement)

Aid and external debt indicators Foreign aid (in % of GDP) 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 10.7 Aid (in % of total government revenue) 51.4 51.4 51.3 51.3 51.2 51.2 51.1 51.0 50.9 50.8 50.8 External debt (in % of GDP) 62.0 59.4 56.4 53.3 50.5 48.1 46.0 44.2 42.7 41.4 40.4 Interest payments on external public debt (in % of GDP) 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.3 Interest payments on external public debt (in % of exports) 3.6 3.4 3.2 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3

Note: The “adjusted” elasticity formula proposed by Ravallion (2004) is -9.3*(1-Gini)^3 = -1.13 where Gini index is 50.5 for Niger. Malnutrition prevalence is in % of children under 5.1/ The observation year is 1993.2/ The observation year is 1992.

Projections

Table 2Niger: MDG Indicators, Baseline Results for 2005-15

114

Table – 5 Percent Increase in the Aid to GDP Ratio

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Poverty rate (2003 = 63)(% of the population living below $2 per day) Consumption per capita growth elasticity of -0.5 -0.3 -0.5 -0.9 -1.3 -1.8 -2.4 -2.9 -3.5 -4.0 -4.4 Consumption per capita growth elasticity of -1.0 -0.6 -1.1 -1.7 -2.5 -3.4 -4.3 -5.2 -6.0 -6.7 -7.3 Consumption per capita growth elasticity of -1.5 -0.9 -1.6 -2.5 -3.6 -4.8 -5.9 -6.9 -7.7 -8.4 -9.0 Ravallion's (2004) adjusted elasticity (Gini = 50.5) -0.7 -1.2 -1.9 -2.8 -3.8 -4.8 -5.7 -6.5 -7.2 -7.9

Literacy rate 0.0 0.0 0.2 0.5 0.9 1.4 2.0 2.5 3.1 3.7(% of educated labor in total population)

Infant mortality (2002=155) -10 -10 -11 -12 -13 -14 -15 -16 -17 -17(Infant mortality rate per 1000 live births)

Malnutrition (2000=40.1) -3.0 -2.8 -2.9 -3.1 -3.3 -3.6 -3.8 -4.1 -4.3 -4.6(Malnutrition prevalence, weight for age)

Life expectancy (2002 = 46.2) 1.6 1.5 1.6 1.7 1.8 2.0 2.1 2.3 2.4 2.6(Life expectancy at birth, years )

Access to safe water (2000=59) 0.4 0.4 0.4 0.5 0.6 0.8 0.9 1.0 1.2 1.3(Percentage of population with access to safe water)

COMPOSITE MDG INDICATOR 3.3 3.4 4.2 5.2 6.5 8.0 9.6 11.2 12.9 14.4(A rise denotes an improvement)

Aid and external debt indicators Foreign aid (in % of GDP) 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Aid (in % of total government revenue) 10.6 10.8 11.0 11.2 11.3 11.4 11.4 11.4 11.4 11.4 External debt (in % of GDP) -5.6 -8.0 -10.1 -12.0 -13.6 -14.9 -16.0 -16.9 -17.7 -18.4 Interest payments on external public debt (in % of GDP) 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.2 Interest payments on external public debt (in % of exports) 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.6 -0.7 -0.7

Projections

Table 3Niger: 5 Percentage Point Increase in Aid-to-GDP Ratio, Simulation Results for 2006-15

(Absolute deviations from baseline)

115

Table – Cancellation of External Debt in 2006

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Poverty rate (2003 = 63)(% of the population living below $2 per day) Consumption per capita growth elasticity of -0.5 0.0 -0.1 -0.1 -0.2 -0.2 -0.3 -0.4 -0.4 -0.5 -0.5 Consumption per capita growth elasticity of -1.0 -0.1 -0.1 -0.2 -0.3 -0.4 -0.5 -0.7 -0.8 -0.9 -0.9 Consumption per capita growth elasticity of -1.5 -0.1 -0.2 -0.3 -0.4 -0.6 -0.8 -0.9 -1.0 -1.1 -1.2 Ravallion's (2004) adjusted elasticity (Gini = 50.5) -0.1 -0.1 -0.2 -0.3 -0.5 -0.6 -0.7 -0.8 -0.9 -1.0

Literacy rate 0.0 0.0 0.0 0.1 0.1 0.2 0.3 0.3 0.4 0.5(% of educated labor in total population)

Infant mortality (2002=155) -2 -1 -1 -2 -2 -2 -2 -2 -2 -2(Infant mortality rate per 1000 live births)

Malnutrition (2000=40.1) -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5(Malnutrition prevalence, weight for age)

Life expectancy (2002 = 46.2) 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3(Life expectancy at birth, years )

Access to safe water (2000=59) 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1(Percentage of population with access to safe water)

COMPOSITE MDG INDICATOR 0.5 0.5 0.5 0.6 0.8 0.9 1.1 1.3 1.4 1.6(A rise denotes an improvement)

Aid and external debt indicators Foreign aid (in % of GDP) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Aid (in % of total government revenue) 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 External debt (in % of GDP) -49.8 -44.5 -39.5 -35.2 -31.5 -28.3 -25.7 -23.4 -21.5 -19.8 Interest payments on external public debt (in % of GDP) -0.5 -0.5 -0.4 -0.4 -0.3 -0.3 -0.3 -0.2 -0.2 -0.2 Interest payments on external public debt (in % of exports) -3.4 -3.0 -2.7 -2.4 -2.2 -2.0 -1.8 -1.6 -1.5 -1.4

Projections

Table 4Niger: External Debt Cancellation in 2006, Simulation Results for 2006-15

(Absolute deviations from baseline)

116

Table – 0.52 Percent Increase in the Aid to GDP Ratio

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Poverty rate (2003 = 63)(% of the population living below $2 per day) Consumption per capita growth elasticity of -0.5 0.0 0.0 -0.1 -0.1 -0.2 -0.2 -0.3 -0.4 -0.4 -0.5 -0.6 Consumption per capita growth elasticity of -1.0 0.0 -0.1 -0.1 -0.2 -0.3 -0.4 -0.5 -0.7 -0.8 -0.9 -1.0 Consumption per capita growth elasticity of -1.5 0.0 -0.1 -0.2 -0.3 -0.4 -0.6 -0.7 -0.9 -1.0 -1.1 -1.3 Ravallion's (2004) adjusted elasticity (Gini = 50.5) 0.0 -0.1 -0.1 -0.2 -0.3 -0.5 -0.6 -0.7 -0.9 -1.0 -1.1

Literacy rate 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.3 0.4 0.5(% of educated labor in total population)

Infant mortality (2002=155) 0 -1 -1 -1 -2 -2 -2 -2 -2 -2 -2(Infant mortality rate per 1000 live births)

Malnutrition (2000=40.1) 0.0 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -0.6 -0.6(Malnutrition prevalence, weight for age)

Life expectancy (2002 = 46.2) 0.0 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3(Life expectancy at birth, years )

Access to safe water (2000=59) 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2(Percentage of population with access to safe water)

COMPOSITE MDG INDICATOR 0.0 0.4 0.4 0.5 0.6 0.8 1.0 1.1 1.3 1.5 1.7(A rise denotes an improvement)

Aid and external debt indicators Foreign aid (in % of GDP) 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Aid (in % of total government revenue) 0.0 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 External debt (in % of GDP) 0.0 -0.6 -0.8 -1.0 -1.2 -1.4 -1.5 -1.6 -1.7 -1.8 -1.9 Interest payments on external public debt (in % of GDP) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest payments on external public debt (in % of exports) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Note: The “adjusted” elasticity formula proposed by Ravallion (2004) is -9.3*(1-Gini)^3 = -1.13 where Gini index is 50.5 for Niger. Malnutrition prevalence is in % of children under 5.

Projections

Table 3Niger: Monitoring the MDGs, 2005-15 (5 Percent Increase in Aid to GDP Ratio, 2006-15)

(Absolute deviations from the baseline)

117

Input File (“Niger-Data.xls”)• Exogenous variables•Endogenous variables

EViews Simulation Program (“Niger-Simulation.prg”)

Output File (“Niger-Output.xls”)

Summary Table (“Niger-Output-Table.xls”)

Figure 1 – Simulation Program Setup

Step 1

Step 2

Step 3

Step 4

118

FIGURE 2 – INPUT FILE: ENDOGENOUS VARIABLES

119

FIGURE 3 – INPUT FILE: EXOGENOUS VARIABLES

120

FIGURE 4 – THE OUTPUT FILE

Documents

Operational Manual for “A Macroeconomic Framework for Quantifying Growth … · 2006. 3. 16. · 3 I. INTRODUCTION, BACKGROUND, and OBJECTIVES Pinto Moreira and Bayraktar (2005)