Essays on economic reforms in developing countries (Ghana, Uganda)

I analyze different aspects of economic reforms in developing countries in three related papers each forming a chapter of the dissertation.; First paper uses a currency substitution model to explain the stylized macroeconomic facts associated with productivity-enhancing reforms in countries of Africa. The model, when calibrated to Ghana and Uganda, results in current account deficit and private capital inflows as well as changes in real interest rate, real exchange rate, and inflation comparable to those in data. These countries typify the situation of many countries of Africa currently undertaking such reforms. The paper also develops a technique for finding exact non-linear solution to two state variable perfect foresight dynamical systems. It combines reverse shooting with bisection method to systematically search for the saddlepath.; The second paper uses a three-sector model to produce a significant and sustained transient rise in wage inequality and real skilled wage pursuant a trade reform that lowers tariff on final, intermediate and capital goods, although both decline in the long run in accordance with HOS fundamentals. While adjustment costs delay capital decumulation in import-competing sector, reduction in the price of capital below its marginal product causes immediate accumulation of capital in other sectors. The resulting transient increase in capital leads to rise in wage inequality and real skilled wage due to capital-skill complementarity. The results can be obtained in a more general 4-sector model and in presence of wage rigidity in the formal sector as is the case in many developing countries.; In the third paper, I consider an overlapping-generations economy where government invests in public capital and levies tariff on imported capital and consumer good. In absence of constraints on government policy, a tariff reform results in an overall welfare gain of .389% of the current period GDP, although current young and future generations lose from the reform. The same reform causes a welfare loss of similar magnitude if government cannot raise penal tax rate proportionally with the statutory tax rate or shrinkage of government revenue as fraction of GDP reduces investment in public capital that is highly productive on the margin.