Premium
Measuring the Foreign Exchange Premium and the Premium for Non‐Tradable Outlays for 20 Countries in A frica
Author(s) -
Kuo ChunYan,
Salci Sener,
Jenkins Glenn P.
Publication year - 2015
Publication title -
south african journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.502
H-Index - 31
eISSN - 1813-6982
pISSN - 0038-2280
DOI - 10.1111/saje.12068
Subject(s) - subsidy , economics , investment (military) , foreign direct investment , international economics , production (economics) , exchange rate , monetary economics , microeconomics , macroeconomics , market economy , politics , political science , law
In this paper, we develop an analytical general equilibrium framework to measure the foreign exchange premium and the premium for non‐tradable outlays for a country. The framework allows us to capture in a consistent manner the impacts of the sourcing of funds and their expenditure on tradable and non‐tradable goods and services of investment projects. An application of the model is carried out for 20 countries in Africa. The results show that the foreign exchange premiums range from 2.4% to 9.0% and the premium for non‐tradable outlays from −0.7% to 2.9%. The empirical values depend on a number of factors, including the indirect taxes, production subsidies and international trade distortions of a country. These premiums should be incorporated into the economic evaluation of investment projects.