Both Ghana and Côte d’Ivoire have experienced coups and since 2002 Côte d’Ivoire has been mired in civil war. Fosu (2001) argues that political instability has substantial costs and the experience of Côte d’Ivoire after the coup of 1999 appears consistent with that general argument as does the economic history of Ghana over the period from 1966 to 1983. There are, however, crucial differences. Ghana experienced a series of coups following the first which overthrew Nkrumah in 1966. However, these coups did not lead to civil war. In fact the second Rawlings coup in 1981 was a prelude to a period of sustained growth in income. What can explain these different trajectories from coups to growth or to civil war?
The short answer to that question appears to be that policy choices are the key to understanding these different outcomes. The Ghanaian coup of 1971 led to policies that intensified the taxation of farmers and the size of the rent available to the rulers, who over this period were the military. Thus, the coups that occurred at the end of the 1970s, both led by Rawlings, had a choice of either relaxing that taxation or seeing the economy collapse further. It was the policy choices made by the Rawlings government which led to a gradual exit from the morass into which earlier policies had pushed the economy (Rimmer 1992 provides a detailed account). By pursuing polices that led to growth, with the relaxation of the tax rate on the agricultural sector the key policy that enabled growth, both public and private sector incomes could grow.
The policy choices available to the government of Côte d’Ivoire in the 1980s were very different. Faced with declining real prices for exports, its problem was that tax revenues were falling and this implied falls in the real incomes available to the public sector. Policy discussion at the time focused on the problems posed by the fixed exchange rate implied by membership of the Francophone West African monetary union and in fact this rate was devalued immediately after Houphouët-Boigny’s death, i.e. in January 1994. We noted above that there was a rise in exports over this period and a response to the devaluation is the most likely explanation for this reversal of the previous decline. However, to effect a rise in producer prices that would have provided a basis for rapid growth required a contraction of the tax base and, by implication, the incomes to the public sector. It was the conflict between incentives to export and the interests of the public sector (i.e. their own pockets) which was the fundamental dilemma facing policy-makers.
Read the rest of the excellent paper by Markus Eberhardt and Francis Teal here.