MEDIUM-RUN ADJUSTMENT UNDER IMPORT COMPRESSION - MACROECONOMIC ANALYSIS RELEVANT FOR SUB-SAHARAN AFRICA

The dynamic small open economy model of Kouri (1979) is modified to an alyze the role of the foreign exchange constraint in import dependent economies typical for sub-Saharan Africa. Structural adjustment and in vestment allocation are related to the sectoral balance between traded and protected goods. The import compression policy of the region esta blishes a linkage between the export performance of the traded sector and the capacity utilization of the protected sector. It is shown that the relationship implies possible contractionary effects of demand ex pansion, since exports are crowded out and the import capacity is redu ced. A destabilizing downward growth spiral may follow. Policies modif ying the excessive demand and the import dependency seem necessary to turn contraction into growth.