nep-afr New Economics Papers
on Africa
Issue of 2006‒08‒19
nineteen papers chosen by
Suzanne McCoskey
Foreign Service Institute, US Department of State

  1. An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa By Todd Moss; Gunilla Pettersson; Nicolas van de Walle
  2. International benchmarking of infrastructure performance in the Southern African Customs Union Countries By Bogetic, Zeljko; Fedderke, Johannes W.
  3. A New Database of Health Professional Emigration from Africa By Michael A. Clemens; Gunilla Pettersson
  4. Does the Private Sector Care About AIDS? Evidence from Investment Climate Surveys in East Africa By Vijaya Ramachandran; Manju Kedia Shah; Ginger Turner
  5. Back to the Future for African Infrastructure? Why State-Ownership Is No More Promising the Second Time Around By John Nellis
  6. A Primer on Foreign Aid By Steve Radelet
  7. Will Debt Relief Make a Difference? Impact and Expectations of the Multilateral Debt Relief Initiative By Todd Moss
  8. Are the planned increases in aid too much of a good thing? By Owen Barder
  9. Government Policy and the Effectiveness of Foreign Aid By Robert G. Murphy; Nicholas G. Tresp
  10. After the Big Push? Fiscal and Institutional Implications of Large Aid Increases By Todd Moss; Arvind Subramanian
  11. Infrastructure and growth in South Africa : direct and indirect productivity impacts of 19 infrastructure measures By Fedderke, Johannes W.; Bogetic; Zeljko
  12. A Policymakers' Guide to Dutch Disease By Owen Barder
  13. Does aid help improve economic institutions ? By Coviello, Decio; Islam, Roumeen
  14. A Stability and Social Investment Facility for High Debt Countries By Nancy Birdsall
  15. Stormy Days on an Open Field: Asymmetries in the Global Economy By Nancy Birdsall
  16. On the Theory of Ethnic Conflict By Francesco Caselli; Wilbur John Coleman II
  17. Social Cohesion, Institutions, and Growth By William Easterly; Jozef Ritzan; Michael Woolcock
  18. Agricultural Returns and Conflict: Quasi-Experimental Evidence from a Policy Intervention Programme in Rwanda By Florence Kondylis
  19. The Day After Comrade Bob: Applying Post-Conflict Reconstruction Lessons to Zimbabwe By Todd Moss; Stewart Patrick

  1. By: Todd Moss; Gunilla Pettersson; Nicolas van de Walle
    Abstract: A number of proposals today support a substantial increase in foreign aid levels to sub-Saharan Africa even though this region already receives a historically unprecedented volume of aid. This essay reviews the evidence regarding the potentially negative effects of aid dependence on state institutions, a topic which has received relatively little attention. We note several pathways through which political institutions might be adversely affected and devote particular attention to fiscal and state revenue issues. In addition to reviewing the economic literature on the aid-revenue relationship, this essay brings in the long-standing political science literature on state-building to consider the potential impact of aid dependence on the relationship between state and citizen. We conclude that states which can raise a substantial proportion of their revenues from the international community are less accountable to their citizens and under less pressure to maintain popular legitimacy. They are therefore less likely to have the incentives to cultivate and invest in effective public institutions. As a result, substantial increases in aid inflows over a sustained period could have a harmful effect on institutional development in sub-Saharan Africa.
    Keywords: foreign aid, sub-Saharan Africa, aid dependence, state building, public institutions
    JEL: O1
    Date: 2006–01
  2. By: Bogetic, Zeljko; Fedderke, Johannes W.
    Abstract: The paper provides a first, systematic benchmarking of infrastructure performance in the Southern African Customs Union (SACU) countries (South Africa, Botswana, Lesotho, Namibia, and Swaziland) in four major sectors-electricity, water and sanitation, information and communication technology, and transportation-against the relevant group of comparator countries using a new World Bank international data base with objective and perception-based indicators of infrastructure performance from over 200 countries. The analysis suggests important comparative gaps in all major infrastructure sectors, although performance varies widely across the SACU region. Performance shortfalls are particularly acute in rural areas where most of the poor live. The benchmarking is envisaged as a comparative input into deeper analyses of infrastructure performance, especially in the context of the ongoing scaling-up efforts (for example, South Africa, Lesotho, and Botswana).
    Keywords: Transport Economics Policy & Planning,Infrastructure Regulation,Energy Production and Transportation,Infrastructure Economics,Economic Theory & Research
    Date: 2006–08–01
  3. By: Michael A. Clemens; Gunilla Pettersson
    Abstract: The migration of doctors and nurses from Africa to rich countries has raised fears of an African medical brain drain. But empirical research on the issue has been hampered by lack of data. How many doctors and nurses have left Africa? Which countries did they leave? Where have they settled? As part of a larger study of the consequences of the international migration of African health professionals, we compiled a database of the cumulative bilateral net flows of African-born physicians and nurses to the nine most important destination countries. It is the first database of net bilateral migration flows specific to a skilled profession collected systematically for a large number of developing countries. In this note we make these data available to the research community.
    Keywords: migration, brain drain, Africa, health professionals
    JEL: I1 O0
    Date: 2006–08
  4. By: Vijaya Ramachandran; Manju Kedia Shah; Ginger Turner
    Abstract: This paper analyzes the determinants of firms’ decision to provide HIV/AIDS prevention activities. Using data from 860 firms and 4,955 workers in Uganda, Tanzania, and Kenya, it shows that larger firms, and firms with higher skilled workers tend to invest more in AIDS prevention. Firms where more than 50 percent of workers are unionized are also more likely to do more prevention activity. Finally, these characteristics are also significant in determining whether or not a firm carries out pre-employment health checks of its workers. The results shed light on the likelihood of private sector intervention and the gaps that will require public sector assistance.
    Keywords: HIV/AIDS, Uganda, Tanzania, Kenya, private sector, public sector, investment climate
    JEL: H3 O1
    Date: 2006–01
  5. By: John Nellis
    Abstract: Too many African state-owned enterprises (SOEs), particularly those in infrastructure sectors, have a long history of poor performance. African governments and donors labored through the 1970s and 1980s to improve SOE performance through “commercialization”——i.e., methods short of ownership change. These generally failed, giving rise, in the 1990s, to much more heavy reliance on private sector participation and ownership. This approach produced some successes, but Africa’s private participation in infrastructure (PPI) initiatives have been comparatively few and weak. A number of those that have been launched have run into problems, to the point where both investor and African government interest in the approach has waned in the last few years. The reform is not popular—surveys of public opinion in 15 African countries reveal that only a third of respondents prefer private to state-owned firms. Nonetheless, African states (and their supporters) should not jettison the PPI approach. Rather, they should acknowledge its limitations, and recognize the large scope and moderate pace of the preparatory measures required both to improve their investment climates and to make PPI work effectively.
    Keywords: privatization, private sector, African state-owned enterprise, commercialization, private participation in infrastructure
    JEL: F0 F4 O0
    Date: 2006–02
  6. By: Steve Radelet
    Abstract: Controversies about aid effectiveness go back decades. Some experts charge that aid has enlarged government bureaucracies, perpetuated bad governments, enriched the elite in poor countries, or just been wasted. Others argue that although aid has sometimes failed, it has supported poverty reduction and growth in some countries and prevented worse performance in others. This new working paper by CGD senior fellow Steve Radelet explores trends in aid, the motivations for aid, its impacts, and debates about reforming aid. It begins by examining aid magnitudes and who gives and receives aid. It discusses the multiple motivations and objectives of aid, some of which conflict with each other. It then explores the empirical evidence on the relationship between aid and growth, which is divided between research that finds no relationship and research that finds a positive relationship (at least under certain circumstances). It also examines some of the key challenges in making aid more effective, including the principal-agent problem and the related issue of conditionality, and concludes by examining some of the main proposals for improving aid effectiveness.
    Keywords: Foreign aid, poverty reduction
    JEL: O19 O00 F00
    Date: 2006–07
  7. By: Todd Moss
    Abstract: The Multilateral Debt Relief Initiative (MDRI) is the latest phase of debt reduction for poor countries from the World Bank, the IMF, and the African Development Bank. The MDRI, which will come close to full debt reduction for at least 19 (and perhaps as many as 40) qualifying countries, is being presented as a momentous leap forward in the battle against global poverty. However, the analysis in this paper suggests that the actual gains may be more modest and elusive. This is not because, as some anti-debt campaigners fear, that the initiative is a mere accounting trick. Rather, the limited short-term financial impact of the MDRI on affected countries is because the debt service obligations being relived were themselves relatively insignificant. For example, in 2004 the average African country in the program paid $19 million in debt service to the World Bank, but received 10 times that amount in new Bank credit and more than 50 times as much in total aid. Just as importantly, finances are rarely the binding constraint on poverty and other development outcomes. This is not to say that the MDRI is futile. Indeed the impact could be considerable over the long-term, especially on the ability of creditors to be more selective in the future. But most of the impact of the MDRI will be long-term and difficult to measure. As such, expectations of the effect on indebted countries and development indicators should be kept modest and time horizons long.
    Keywords: Debt reief, multilateral, foreign aid, poverty, development
    JEL: O10 O19
    Date: 2006–05
  8. By: Owen Barder
    Abstract: Donor countries have committed themselves to increase aid to developing countries by 60 percent over the next five years; and larger increases would be needed to meet the Millennium Development Goals (MDGs). But there are concerns that there may be a limit on the amount of aid that developing countries can absorb and use effectively—and that large aid flows might even be harmful. Could a large increase in aid be “too much of a good thing?” This essay disentangles the seven possible reasons why additional aid might not be effective. These include microeconomic effects (e.g., transactions costs), macroeconomic effects (e.g., ‘Dutch Disease’) and the impact on political economy (e.g., the ‘Resource Curse’). The paper looks at each possible constraint in turn. The paper finds that there are indeed serious obstacles to effective use of increased aid, but that none is immutable. All of the constraints which limit the effective use of additional aid can be addressed by a relatively small set of practical improvements in the way that aid is provided and used. Donors have already committed themselves to a significant program of aid reform. If the measures to which donors are committed were consistently implemented, the seven constraints to effective aid absorption could be relaxed. The paper concludes that, provided increased aid is accompanied by reforms to the way aid is delivered, the capacity of developing countries to absorb and use aid should not be presented as a barrier to the increases in aid which would be needed to meet the MDGs.
    Keywords: Foreign aid, dutch disease, absorption, millenium development goals, transaction costs, resource curse, aid reform
    JEL: E01 D23 O0
    Date: 2006–07
  9. By: Robert G. Murphy (Boston College); Nicholas G. Tresp (UBS Investment Bank)
    Abstract: This paper reconsiders the role of economic policy in determining the effectiveness of foreign aid for generating economic growth in developing countries. We update and modify the data set originally used by Burnside and Dollar (2000) in order to more fully consider the critique presented by Easterly et al. (2004). Our findings suggest that the relationship among foreign aid, government policy, and economic growth is tenuous and depends importantly on the subset of countries included in the analysis. Good policy enhances the effectiveness of foreign aid in spurring growth when we use the original set of countries included in Burnside and Dollar, but this relationship disappears for an expanded set of countries. Because the relationship among aid, policy, and growth is likely to be nonlinear, we present an alternative probit model emphasizing growth thresholds. Our results from this alternative analysis confirm the conclusions of Easterly et al., finding little support for the view that good policy increases the probability that foreign aid contributes to growth.
    Keywords: foreign aid, economic development, economic growth, government policy, development assistance
    JEL: O11 O23 F43
    Date: 2006–08–09
  10. By: Todd Moss; Arvind Subramanian
    Abstract: There are indications that overseas development assistance budgets will continue to increase in coming years, spurred in part by growing calls for a ‘Big Push’ in aid to the poorest countries. In this paper, we estimate the effect of six proposals on aid intensity ratios for 52 low-income countries. We find that, in the average scenario, at least 35 of these countries would see aid inflows equivalent to more than half of total public expenditure and 17 would cross the 75 percent threshold. We also consider possible negative influences of such increases on the incentives for institutional development, on the accountability of state institutions to their own populations, and on long-term sustainability.
    Keywords: overseas development assistance, big push
    JEL: O1 F35
    Date: 2005–10
  11. By: Fedderke, Johannes W.; Bogetic; Zeljko
    Abstract: Empirical explorations of the growth and productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. A number of explanations of the contradictory findings have been proposed. These range from the crowd-out of private by public sector investment, non-linearities generating the possibility of infrastructure overprovision, simultaneity between infrastructure provision and growth, and the possibility of multiple (hence indirect) channels of influence between infrastructure and productivity improvements. The authors explore these possibilities using panel data for South Africa over the 1970-2000 period, and a range of 19 infrastructure measures. Using a number of alternative measures of productivity, the prevalence of ambiguous (countervailing signs) results, with little systematic pattern is also shown to hold for their data set in estimations that include the infrastructure measures in simple growth frameworks. The authors demonstrate that controlling for potential endogeneity of infrastructure in estimation robustly eliminates virtually all evidence of ambiguous impacts of infrastructure, due for example to possible overinvestment in infrastructure. Controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of economically meaningful magnitudes. These findings are invariant between the direct impact of infrastructure on labor productivity, and the indirect impact of infrastructure on total factor productivity.
    Keywords: Transport Economics Policy & Planning,Economic Theory & Research,Public Sector Economics & Finance,Economic Growth,Inequality
    Date: 2006–08–01
  12. By: Owen Barder
    Abstract: It is sometimes claimed that an increase in aid might cause Dutch Disease—that is, an appreciation of the real exchange rate which can slow the growth of a country’s exports— and that aid increases might thereby harm a country’s long-term growth prospects. This essay argues that it is unlikely that a long-term, sustained and predictable increase in aid would, through the impact on the real exchange rate, do more harm than good, for three reasons. First, there is not necessarily an adverse impact on exports from Dutch Disease, and any impact on economic growth may be small. Second, aid spent in part on improving the supply side—investments in infrastructure, education, government institutions and health—result in productivity benefits for the whole economy, which can offset any loss of competitiveness from the Dutch Disease effect. Third, the welfare of a nation’s citizens depends on their consumption and investment, not just output. Even on pessimistic assumptions, the additional consumption and investment which the aid finances is larger than any likely adverse impact on output. However, the macroeconomic effects of aid can cause substantial harm if the aid is not sustained until its benefits are realized. The costs of a temporary loss of competitiveness might well exceed the benefits of the short-term increase in aid. To avoid doing harm, aid should be sustained and predictable, and used in part to promote economic growth. This maximizes the chances that the long-term productivity and growth benefits will offset the adverse effects—which may be small if they exist at all—that big aid surges may pose as a result of Dutch Disease.
    Keywords: Foreign aid, dutch disease, exchange rate,economic growth, consumption
    JEL: E20 O0
    Date: 2006–07
  13. By: Coviello, Decio; Islam, Roumeen
    Abstract: Aid is expected to promote better living standards by raising investment and growth. But aid may also affect institutions directly. In theory, these effects may or may not work in the same direction as those on investment. The authors examine the effect of aid on economic institutions and find that aid has neither a positive nor a negative impact on existing measures of economic institutions. They find the results using pooled data for non-overlapping five-year periods, confirmed by pooled annual regressions for a large panel of countries and by pure cross-section regressions. The authors explicitly allow for time invariant effects that are country specific and find the results to be robust to model specifications, estimation methods, and different data sets.
    Keywords: Development Economics & Aid Effectiveness,Public Institution Analysis & Assessment,Economic Theory & Research,Economic Policy, Institutions and Governance,School Health
    Date: 2006–08–01
  14. By: Nancy Birdsall
    Abstract: A number of high-debt emerging-market economies face structural, long-term debt problems that tend to keep their growth rates low, that impart an unequalizing bias to the growth process, that severely constrain social spending and human development, and that make them vulnerable to capital flow reversals. Unless the nature and pace of growth can be improved in these lower-middle income countries, the Millennium Development Goals (MDGs) are unlikely to be met either in many of these countries, or globally. These high-debt emerging-market economies face an impossible choice between draconian and never-ending fiscal austerity, or crisis and a “debt event.” Both “bitter pills" impose high social and economic costs. This paper proposes the creation of a “Stability and Social Investment Facility” (SSF) to be housed either at the IMF or the World Bank. It would be a long-term facility to help high-debt emerging market countries cope with and ultimately overcome what will otherwise remain a chronic structural weakness. The SSF would be an instrument providing a steady and predictable source of long-term funds as well as a strong policy signal to help high-debt emerging-market economies reduce their debt burden without having to forgo vital pro-poor social expenditures and growth programs. For the facility to have a significant impact on debt and income dynamics in the eligible countries, we estimate it would need to lend $10-20 billion a year. The financial cost to the donor community would be the interest subsidy built into the SSF; were the subsidy 200 basis points, the cost in the first year would be $20 million for every $1 billion of lending. The rationale for the subsidy element is its catalytic role in facilitating a strong commitment to both prudent macroeconomic policies and pro-poor growth policies. The lower interest cost of the SSF, even if modest, would make it financially and politically easier for governments in eligible countries to address their long-term social (MDG) objectives, while maintaining a sound fiscal stance.
    Keywords: emerging market, high-debt, structural debt
    JEL: F0 O0
    Date: 2006–01
  15. By: Nancy Birdsall
    Abstract: Openness is not necessarily good for the poor. Reducing trade protection has not brought growth to today’s poorest countries, and open capital markets have not been good for the poorest households in emerging market economies. In this paper I present evidence on these two points. First, countries highly dependent on primary exports two decades ago, despite their substantial engagement in trade and a marked decline in their tariff rates in the 1990s, have failed to grow. Second, within high-debt emerging market economies the financial crises of the last decade, whether induced by domestic policy problems or global contagion, have been especially costly for the poor (in welfare terms if not in terms of absolute income losses). I discuss the asymmetries in the global economy that help explain why countries and people cannot always compete on equal terms on the “level playing field” of the global economy.
    Keywords: IMF, trade protection, economic growth, market economy, tariff
    JEL: F13 F40
    Date: 2006–02
  16. By: Francesco Caselli; Wilbur John Coleman II
    Abstract: We present a theory of ethnic conflict in which coalitions formed along ethnic lines competefor the economy's resources. The role of ethnicity is to enforce coalition membership: inethnically homogeneous societies members of the losing coalition can defect to the winners atlow cost, and this rules out conflict as an equilibrium outcome. We derive a number ofimplications of the model relating social, political, and economic indicators such as theincidence of conflict, the distance among ethnic groups, group sizes, income inequality, andexpropriable resources.
    Keywords: ethnic distance, exploitation
    JEL: P48 Q34 Z13
    Date: 2006–07
  17. By: William Easterly; Jozef Ritzan; Michael Woolcock
    Abstract: We present evidence that measures of “social cohesion,” such as income inequality and ethnic fractionalization, endogenously determine institutional quality, which in turn casually determines growth.
    Keywords: Political institutions, social cohesion, poverty, economic policy
    JEL: H5 O1
    Date: 2006–08
  18. By: Florence Kondylis
    Abstract: In 1994, the genocide in Rwanda caused massive waves of displacement. We use thesemigrations as a quasi-natural experiment to measure the cost of civil conflict. In 1997, thegovernment implemented a resettlement and land redistribution policy to improve theconditions for returnees and to induce conflict resolution. We assess the asset effect of theprogramme on agricultural output, and use this intervention as an instrument to measure skillspill-over mechanisms across returnees and stayers. Time differentials in the implementationof the policy across villages are used to identify its impact. Evidence that the policy wassuccessful in raising migrants' agricultural production by increasing access to land is found,as well as higher returns to on-farm labour among the returnees in all areas. However,evidence of lower returns to agricultural inputs for returnees in policy areas suggests that thepolicy induced a `ghetto effect'. The policy implications of this study are that, in order topromote durable peace, and therefore sustainable development in the region, these sources ofeconomic inequalities across groups need to be addressed.
    Keywords: Microeconomic cost of conflict, migrations, land redistribution, instrumentalvariable quantile regressions
    JEL: C4 O12 Q12 Q15 R15 R23
    Date: 2005–12
  19. By: Todd Moss; Stewart Patrick
    Abstract: Zimbabwe is a country in deep economic and political crisis, but also one whose situation could change quickly. Waiting until the day after the fall of Robert Mugabe could be too late, so the international community should start preliminary planning now for responses to a transition in Zimbabwe. Given the war-like trauma experienced by the country and acute conditions today, any donor strategy cannot be limited to traditional development practice but must be informed by recent post-conflict experiences. This paper lays out a framework for an international effort and identifies priority actions to support a political transition and economic recovery. It also suggests some immediate steps that the US and other donors can take, including the formation of a Commission for Assistance to a Free Zimbabwe. Beginning the planning process now is not only prudent, but such a public effort could also be catalytic: letting the Zimbabwean people know they have not been forgotten and that the world stands ready to help once Robert Mugabe is gone could perhaps help to bring about that day a little sooner.
    Keywords: Zimbabwe, Robert Mugabe, post-conflict, political transition, economic recovery
    JEL: O1 F51
    Date: 2005–12

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