nep-afr New Economics Papers
on Africa
Issue of 2005‒03‒20
ten papers chosen by
Suzanne McCoskey
US Naval Academy

  1. Monetary Policies and Fiscal Policies in Emerging Markets By Ugo Panizza
  2. Should the Government be in the Banking Business? The Role of State-Owned and Development Banks By Ugo Panizza; Eduardo Levy-Yeyati; Alejandro Micco
  3. The Return to Foreign Aid By Carl-Johan Dalgaard; Henrik Hansen
  4. Globalization and Complementary Policies: Poverty Impacts in Rural Zambia By Jorge F. Balat; Guido Porto
  5. The IMF in a World of Private Capital Markets By Barry Eichengreen; Kenneth Kletzer; Ashoka Mody
  6. Slow Passthrough Around the World: A New Import for Developing Countries? By Jeffrey A. Frankel; David C. Parsley; Shang-Jin Wei
  7. Instability in Exchange Rates of the World Leading Currencies: Implications of a Spatial Competition Model among Central Banks By Dirk Engelmann; Jan Hanousek; Evzen Kocenda
  9. Economic Reform in Tanzania and Vietnam: A Comparative Commentary By Brian Van Arkadie; Do Duc Dinh
  10. Determinants of Employment Growth at MNEs: Evidence from Egypt, India, South Africa and Vietnam By Sumon Kumar Bhaumik; Klaus Meyer; Saul Estrin

  1. By: Ugo Panizza (Research Department, Inter-American Development Bank)
    Abstract: This paper surveys possible monetary policy options for emerging market countries. As the paper does not seek to enter into the fix versus flex debate, it only considers monetary policy options for countries with a flexible exchange rate. After making the point that the conduct of monetary policy requires a nominal anchor and surveying different types of nominal anchors, the paper suggests that most academics and policymakers agree on the fact that inflation targeting should be the nominal anchor of choice. Hence, the paper describes the main characteristics of an inflation targeting regime and discusses its applicability to emerging market countries. Next, the paper recognizes the necessity of coordination between fiscal and monetary policy and points out that, in order to conduct countercyclical fiscal policies, emerging market countries need to build fiscal institutions that allow accumulating surpluses during periods of economic expansion. The paper concludes by studying the applicability of inflation targeting to Egypt and finds mixed support for this option.
    Keywords: Monetary Policy, Fiscal Policy, Inflation targeting, Egypt
    Date: 2004–12
  2. By: Ugo Panizza (Research Department, Inter-American Development Bank); Eduardo Levy-Yeyati (Universidad Torcuato Di Tella); Alejandro Micco (Research Department, Inter-American Development Bank)
    Abstract: Missing abstract.
    Date: 2004–03
  3. By: Carl-Johan Dalgaard (Institute of Economics, University of Copenhagen); Henrik Hansen (Institute of Economics, University of Copenhagen)
    Abstract: This paper investigates the marginal productivity of investment in the world’s poorest economies. The aim is to estimate the return on investments financed by foreign aid as well as by domestic resource mobilization, using crosscountry aggregate data. In practice the return on both investment categories can be expected to vary considerably across countries and time. As a consequence we develop a correlated random coefficients approach to the issue at hand, which allows us to estimate the average aggregate rate of return on “aid investments” and “domestic investments”. Across a wide array of estimators our principal finding is remarkably robust; the average aggregate gross return on “aid investments” falls in a 20-30 percent range, roughly the same as the return on investments funded by other sources than aid. This finding is well in accord with micro estimates of the economic return to aid.
    Keywords: productivity, foreign aid, random coefficients, panel data
    JEL: O47 F35 C23
    Date: 2005–03
  4. By: Jorge F. Balat; Guido Porto
    Abstract: In this paper, we have two main objectives: to investigate the links between globalization and poverty observed in Zambia during the 1990s, and to explore the poverty impacts of non-traditional export growth. We look at consumption and income effects separately. On the consumption side, we study the maize marketing reforms and the elimination of maize subsidies. We find that complementary policies matter: the introduction of competition policies at the milling industry acted as a cushion that benefited consumers but the restriction on maize imports by small-scale mills hurt them. On the income side, we study agricultural export growth to estimate income gains from international trade. The gains are associated with market agriculture activities (such as growing cotton, tobacco, hybrid maize) and rural labor markets and wages. We find that by expanding trade opportunities Zambian households would earn significantly higher income. Securing these higher levels of well-being requires complementary policies, like the provision of infrastructure, credit, and extension services.
    JEL: I32 Q12 Q17 Q18
    Date: 2005–03
  5. By: Barry Eichengreen; Kenneth Kletzer; Ashoka Mody
    Abstract: The IMF attempts to stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly-available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.
    JEL: F0 F2
    Date: 2005–03
  6. By: Jeffrey A. Frankel; David C. Parsley; Shang-Jin Wei
    Abstract: Developing countries traditionally exhibit passthrough of exchange rate changes that is greater and more rapid than high-income countries, but have experienced a rapid downward trend in recent years in the degree of short-run passthrough, and in the adjustment speed. As a consequence, slow and incomplete passthrough is no longer exclusively a luxury of industrial countries. Using a new data set %uF818 prices of eight narrowly defined brand commodities, observed in 76 countries %uF818 we find empirical support for some of the factors that have been hypothesized in the literature, but not for others. Significant determinants of the passthrough coefficient include per capita incomes, bilateral distance, tariffs, country size, wages, long-term inflation, and long-term exchange rate variability. Some of these factors changed during the 1990s. Part (and only part) of the downward trend in passthrough to imported goods prices, and in turn to competitors%u2019 prices and the CPI, can be explained by changes in the monetary environment. Real wages also work to reduce passthrough to competitors%u2019 prices and the CPI, confirming the hypothesized role of distribution and retail costs in pricing to market. Rising distribution costs, due perhaps to the Balassa-Samuelson-Baumol effect, could contribute to the decline in the passthrough coefficient in some developing countries.
    JEL: F3 F4
    Date: 2005–03
  7. By: Dirk Engelmann; Jan Hanousek; Evzen Kocenda
    Abstract: We use a spatial competition based model in a two-stage game setup to assess whether equilibrium in exchange rates among the leading currencies is attainable. We show that a stable equilibrium can be reached in the case of two leading currencies, but not in the case of three. In our model, central banks of leading currencies attract, through the workings of their objective and policy, small currencies that tie with leading currencies via exchange rate regimes. This can be thought of as a competition to link smaller currencies to a leading currency that is motivated by the fact that such a tie greatly reduces volatility within such an informal “currency area”. Our theoretical findings are supported by empirical evidence. Since firms, traders, and countries currently recognize three leading currencies and their economic behavior reflects this, we may expect disagreement on overvaluation or undervaluation of certain currencies to continue.
    Keywords: exchange rates, exchange rate regimes, central bank policy, monetary union, spatial competition
    JEL: C72 E42 E58 N20 O23
    Date: 2004–06–01
  8. By: Timothy L. Fort; Cindy A. Schipani
    Abstract: Research reported by Thomas Homer-Dixon characterizes five social effects that can significantly increase the likelihood of violence in the emerging world, effects that are far deeper than can be controlled by security forces: (1) constrained agricultural production, often in ecologically marginal regions; (2) constrained economic productivity, mainly affecting people who are highly dependent on environmental resources and who are ecologically and economically marginal; (3) migration of these affected people in search of better lives; (4) greater segmentation of society, usually along existing ethnic cleavages; and (5) disruption of institutions, especially the state.1 These kinds of social effects create tensions that can erupt in violent expression. It is difficult to envision how additional security forces will solve the embedded social problems that link violence with economic, social, ethnic, and even religious frustrations. This manuscript seeks to address these concerns. Part I elaborates ways in which these issues of violence manifest themselves in a globalized economy. Part II discusses the business implications of these tensions and suggests a way in which business can be a mediating actor to lessen these tensions. Part III concludes with a suggestion for a recharacterization of the corporation in a way to sensitize it to the ecological-mindedness necessary to address the potential issues of violence in societies. We propose sustainable peace as an aim to which businesses should orient their actions both for reasons of the good of avoiding the activities that contribute to the spilling of blood as well as for the good of sustainable economic enterprises, which are fostered by stable, peaceful relationships. Thus, business must do what it does best and address economic development, even in terms of the extraction of natural resources. But it must also be attentive to the rights of others, to the development of community and meaning, and to stop violence when it is likely. Given the dangers ecological stresses pose for the planet, it is hard to think of a more compelling reason to reorient business behavior.
    Keywords: environmental law; peace; social responsibility; corporate governance
    JEL: K22 K23 M14
    Date: 2004–05–01
  9. By: Brian Van Arkadie; Do Duc Dinh
    Abstract: The economic reforms in Tanzania and Vietnam represent the two typical cases of transition economies in Asia and Africa, particularrly the transformation of the two developing economies from the planned to the market mechanism. In this paper, the two authors, Brian - a British economist and Dinh - a Vietnamese economist, have, basing on a comparative approach, enquired into various economic and social aspects of the economic reforms in the two countries, including the demographic transition, the change in population growth, the investment in human capital, the growth of GDP, the structural sransformation, the linkage between gricultural growth, rural development, food production and poverty alleviation, the reform in the industrial sector and the state enterprises, the change of ownership , the role of the State, the capital formation, the role of the domestic savings, foreign aid, investment and trade, the gains and losses from globalisation, with an aim to find the answer to the question why in the two cases, Tanzania seemed to follow the donors’ guidance better than Vietnam, but achieved smaller successes?
    Keywords: Reform vesus Renovation; Fast Liberalisation vs Step-by-Step Transformation; Privatisation vs Equitisation; Multi-Sector Ownership vs Private Ownership Bias; Industrialisation vs Agriculture-Driven Growth; Active State vs Passive State.
    JEL: E6 F41 F43 H11 N10 N15 N17 O11 O53 O55 O57 P52
    Date: 2004–06–01
  10. By: Sumon Kumar Bhaumik; Klaus Meyer; Saul Estrin
    Abstract: Foreign investors are expected to contribute to economic development through a variety of channels. However, many foreign investment operations are small, and almost insignificant in their impact on the local environment. An important indication of the potential contribution of foreign investors is thus their employment growth. Employees working for, and trained by, a multinational enterprise may become carriers of new technology and business practices. The more employees receive access to new knowledge, the more they in turn may spread the knowledge across the economy, for instance by setting up their own businesses. In this paper, we make a first step in investigating the determinants of this important mediating variable, employment growth. For a dataset covering four diverse emerging economies, we find that wholly-owned FDI operations have higher employment growth, while local industry characteristics moderate the growth effect.
    Keywords: MNE, employment growth, control, institutions, FDI policy
    JEL: O13 O33 J21 F23
    Date: 2004–07–01

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