The methodologies of the studies - Institutional Constraints to Small Farmer Development in Southern Africa - page 312

A.4.1.6 Net efficiency losses (total welfare effects)
The aggregate welfare effect for the country is found by summing the gains and losses to
consumers, producers and the government. The net effect consists of two components:
negative production efficiency loss (BFE), and negative consumption efficiency loss (CGH).
The two losses together are typically referred to as 'deadweight losses' (Figure A4.3).
The magnitude of the change in national welfare is computed as dead weight efficiency
loss to consumption (0.5×e s ×t' 2 ×V') plus dead weight efficiency loss to production
(0.5×n d ×t' 2 ×W'). Since there are only negative elements in the national welfare change,
the net national welfare effect of a tariff must be negative. This means that by imposing a
tariff regime a 'small' importing country reduces national welfare (Tsakok, 1990).
Summary review of the welfare effects of imposing a tariff are as follows: whenever a 'small'
country imposes a tariff rule national welfare drops to a level equal to area BFE and CGH
in Figure A4.1. The higher tariff prices imposed the larger national welfare losses incurred
and consumers are the worse affected because they pay for the producer and government
gains. Since we are assuming that the country is 'small, the tarif has no efect on the rest of
the world prices; thus no welfare changes for producers or consumers at world level. Even
though imports are reduced, the related reduction in exports by the rest of the world is
assumed to be too small to have a noticeable impact.
In conclusion, it is recommended that countries should open up their borders to trade,
and concentrate their production activities on those commodities in which they have
comparative advantage while importing the rest from the world market. This is said to
boost trade for both trading parties. According to economic theory, inefficient producers
are the ones likely to impose trade restriction policies to promote inefficient production
systems at the expense of consumers' welfare.
A.4.2 Policy analysis matrix
Monke and Pearson (1989) developed the Policy Analysis Matrix (PAM) to analyse the
effects of government policy's on efficiencies and competitiveness. The PAM is a Partial
Equilibrium methodology that builds on the conventional social benefit-cost analysis. A
PAM differentiates between private and social profits of a production system. Initially, a
PAM was developed to analyse distorting policy effects on factor and product markets and
the effects of the policy on new technology. Today, it has been extended to the analysis of
the trade-off between efficiency and non efficiency objectives. The Policy Analysis Matrix
results give an insight into the adverse effects of policy interventions. The general structure
of a PAM is a 5 by 3 matrix with a two-way accounting identity similar to Table A4.3.