The economy-wide effects of price-reducing reforms in infrastructure industries in South Africa

Abstract

Prices of infrastructure services in South Africa may be higher than in other countries because of imperfect competition, because of non-tariff barriers to trade or because of inefficiencies in production. A static CGE model is used to analyse the economywide effects of reducing plausible estimates of high prices from each of these causes in telecommunications and transport. Demand for labour is found to rise significantly. Indirect effects mean that some non-reforming sectors are affected more than the reforming sectors. Income distribution is changed, with poorest and richest households benefiting more than middle income ones. The effect of the three reforms together is generally greater than the sum of their impacts taken separately. A bottleneck in supplies of high skilled labour not only reduces the level of the impact but also changes its sectoral and household composition.