Understanding Commodity Dependence: A Structuralist CGE Model for Zambia

This paper develops a structuralist computable general equilibrium model to analyze how commodity-dependent economies respond to typical external shocks and policy interventions. The model is calibrated to a 2010 Social Accounting Matrix for Zambia that integrates national accounts with socio-economic and environmental data and international classifications of occupation, employment status, and institutional sectors. Zambia’s 2010 economic structure is used as an archetypal case of commodity dependence, characterized by under-diversification, structural dualism, and weak sectoral linkages. The model captures the differentiated behavior of industries and institutions under sector-specific constraints. Through comparative-static simulations, we assess the effects of external shocks (a mining export boom and currency depreciation) and of policy interventions typically regarded as development-friendly (green energy investment, wage increases, targeted transfers, and progressive tax reforms). We show how commodity booms generate output growth alongside limited employment gains, declining diversification, and adverse distributional effects; how currency depreciation is contractionary due to inflationary pressures and cost-push dynamics; how investment in non-mining and capacity-constrained sectors promotes diversified, employment-rich growth; and how distributive policies, particularly progressive tax reforms and targeted transfers, enhance equity outcomes with minimal macroeconomic trade-offs. While the framework can be recalibrated to any economy, the mechanisms and conclusions identified here apply broadly to commodity-dependent economies that share these structural features.