Consequences of a Commodity Boom in a Controlled Economy: Accumulation and Redistribution in Kenya 1975–83

Abstract

The economic theory of Dutch disease is extended and applied to the 1976-79 coffee boom in Kenya in this article. When a commodity boom is perceived as temporary, a large fraction will tend to be saved out of transient income. The spending effect of the boom is supplemented by relative price changes resulting from capital stock increases. In the presence of foreign exchange and import controls, the benefits of a sudden export price increase may be transferred intersectorally. Using a general equilibrium model, it is estimated that in Kenya the benefits of the boom were largely transferred from coffee growers to urban groups.