Chapter 4


 As export crop production is often a major employer of hired labour and gains most
 from a devaluation, employment and wages are likely to increase most in this sector.
 As export crop production is often concentrated regionally, employment and wage
 increases will be regionally concentrated, too.

 The effects on factor income depend, furthermore, on factor mobility between regions and
 sectors, as well as on differences in factor intensity in tradable and non-tradable sectors.
 As both the urban formal and informal sectors are adversely affected, while the
 agricultural sector is likely to gain, a devaluation may induce urban-rural migration or
 reduce rural-urban migration. Where this is the case, migration will smooth regional and
 sectoral employment and wage differentials.

3) Real income effects

 Any price change of a consumer good has a real income effect (see par. 3 of Annex 1 for a
 detailed description). The impact of product price variations induced by an exchange rate
 devaluation on real income depends on the share of the respective consumer goods in the
 household budget. The larger the share, the more significant is the impact on real income.
 The impact on real income depends, therefore, on the structure of household expenditures:
 the more a household spends on tradables, the more its real income will be affected. Here
 we find large differences between rural and urban households as well as between low and
 high income groups.

 Table 4.7: Impact of a 10 percent increase in the price of food on the real income
 of low-income and high-income households in selected countries

 Lowest Highest
 Country decile decile Source*)
 Decrease in real income
 (percent)
 Egypt 5.6 1.0 Aldermann and von Braun
 India 5.5 1.2 Mellor
 India 7.3 2.9 Murty
 Nigeria (Funtua) 7.7 6.5 Pinstrup-Andersen and Uy
 Nigeria (Gusau) 9.0 5.7 Pinstrup-Andersen and Uy
 Sri Lanka 8.5 4.1 Sahn
 Thailand 6.0 2.0 Trairatvorakul

 *) Data from various sources, compiled by Pinstrup-Andersen (1987)

 Rural households will, in general, be less affected, due to the importance of subsistence
 production, and as they usually devote a relative small percentage of their budget to
 tradable commodities. There are, however, exceptions to this, for example in areas where
 export crops are produced in mono-culture and where people depend on the market for
 supplies of food and other consumer goods from abroad.


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