Zimbabwe: Economic Adjustment, Income Distribution and Trade Liberalization

Abstract The liberalization process in Zimbabwe is described in the first main section of this chapter, and the next section offers a stylized theory of trade liberalization effects in Africa based on the Ricardo–Viner model. An expansion of the theory model is then implemented as a CGE (computable general equilibrium) model for Zimbabwe, and the deindustrialization effects of trade liberalization are calibrated in the next section. The macroanalysis is begun by decomposing aggregate demand to identify changes in the short‐run adjustment mechanisms of the economy. The next section provides an econometric analysis of the role of wages in the macroeconomy – the estimation includes the wage formation process described by the wage curve and the consequences of real wage changes for aggregate demand. In the last main section, disaggregated labor market data are applied to documented changes in distribution and productivity.