The effect of trade liberalization on Uganda's lint export

Abstract

This study investigates the effect of trade liberalization on Uganda’s lint export in the period following liberalization of the cotton industry. Specifically; the study investigates determinants of lint export for Uganda in the period following trade liberalization, the pass through effect of world cotton price shocks to farm gate price and profitability, competitiveness as well as comparative advantage of the cotton industry during this period; using imperfect substitution model, structural VAR model and policy analysis matrix respectively. The results in this study indicate that trade liberalization has positive effect on Uganda’s lint export in the long run, but the existence of low demand for Uganda cotton in the world market coupled with insignificant pass through effect of world cotton price shocks to farm gate price during this period, do not promote positive shift in domestic lint supply to the world market. The policy implications for this study include: Trade within the region should be encouraged to supplement Uganda’s lint export to the world market. Favorable structures should be put in place to encourage functioning of futures market so that whenever price change in the world market it would be reflected in the local market. Production of inorganic cotton should be encouraged. This is because there is comparative advantage in export of inorganic cotton from Uganda in the period following trade liberalization, while there is no comparative advantage in export of organic cotton during this period.