nep-afr New Economics Papers
on Africa
Issue of 2008‒01‒05
fifteen papers chosen by
Suzanne McCoskey
George Washington University

  1. The Linkages between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment By Léonce Ndikumana; Sher Verick
  2. Stuck in the middle? The structure of trade between South Africa and its major trading partners By Koen Smet
  3. Financial Deepening in Sub-Saharan Africa: Empirical Evidence on the Role of Creditor Rights Protection and Information Sharing By Calvin A. McDonald; Liliana Schumacher
  4. Assessing the Impact of Development Cooperation: the Case of African Growth and Opportunity Act (AGOA) and U.S. Imports from Sub-Saharan Africa. By Bichaka Fayissa; Badassa Tadasse
  5. Has Low Productivity Constrained Competitiveness of African Firms? : Comparison of the Firm Performances with Asian Firms By Fukunishi, Takahiro
  6. Diversities and Disparities among Female-Headed Households in Rural Malawi By Takane, Tsutomu
  7. Containing ethnic conflicts through ethical voting? Evidence from Ethiopia By Marie-Anne Valfort
  8. What matters to African firms ? the relevance of perceptions data By Turner, Ginger; Shah, Manju Kedia; Ramachandran, Vijaya; Gelb, Alan
  9. Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective By Olumuyiwa Adedeji; Oral Williams
  10. Three methods of forecasting currency crises: Which made the run in signaling the South African currency crisis of June 2006? By Tobias Knedlik; Rolf Scheufele
  11. Empirical Evidence on the New International Aid Architecture By Stijn Claessens; Danny Cassimon; Bjorn Van Camperhout
  12. Is Accra a superstar city ? By Mathema, Ashna S.; Buckley, Robert M.
  13. Aid inflows and the real effective exchange rate in Tanzania By Rowe, Francis; Li, Ying
  14. Measuring the Degree of Central Bank Independence in Egypt By Noha Farrag; Ahmed Kamaly

  1. By: Léonce Ndikumana (University of Massachusetts, Amherst, and UNECA, Addis Ababa); Sher Verick (UNECA, P.O.B 3005, Addis Ababa, Ethiopia)
    Abstract: Despite the recent increase in foreign direct investment (FDI) to African countries, these resources have not had a meaningful impact on economic development because of limited effects on domestic factor markets, especially domestic investment and employment. In this context, this study analyses the two-way linkages between FDI and domestic investment in Sub-Saharan Africa. The results suggest that firstly, FDI crowds in domestic investment, and secondly, countries will gain much from measures aimed at improving the domestic investment climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non-resource rich countries. JEL Categories: E22; F21; F23
    Keywords: FDI; private investment; public investment; Africa
    Date: 2007–12
  2. By: Koen Smet (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: This paper analyses the South African trade data from1992 until 2006 by means of a Grubel-Lloyd index, a measurement of marginal intra-industry trade and a revealed comparative advantage (RCA) indicator. During this period a lot happened that influenced the South African trade policy, e.g. the political transition in 1994, the formation of the World Trade Organisation in 1995, the rise of China as trading power, etc. The purpose is not only to analyse the current structure of South African trade, but also to examine its structural change over time. As a result this paper shows that South Africa is principally a supplier of natural resources to both industrialised and emerging economies. With respect to its African neighbours South Africa has a more advantageous trading position. More general this paper shows that an indicator reaches significant different values, if different trading partners or industries are analysed.
    JEL: F14
    Date: 2007–12
  3. By: Calvin A. McDonald; Liliana Schumacher
    Abstract: This paper investigates the role of creditor rights and information sharing in explaining why some financial markets in sub-Saharan Africa have remained shallow. The paper finds that while financial liberalization and macroeconomic stability promote financial deepening, they are not enough. For countries with similar financial liberalization efforts, those with stronger legal institutions and information sharing have deeper financial development. This result is consistent with a growing body of research for other regions of the world. The main policy implications are that (1) creditor rights legislation should be reinforced, the law reformed, and efficient property registries established; and (2) governments should sponsor credit bureaus where private bureaus might not be commercially viable.
    Keywords: Working Paper , Financial systems , Sub-Saharan Africa , Capital markets , Credit policy ,
    Date: 2007–08–21
  4. By: Bichaka Fayissa; Badassa Tadasse
    Abstract: We evaluate the impact of the unilateral trade policy concession known as African Growth and Opportunity Act (AGOA) on U.S. imports from eligible Sub-Saharan African (SSA) countries. Using U.S.-SSA countries’ trade data that span the years 1991-2006, we find that AGOA has contributed to the initiation of new and the intensification of existing U.S. imports in both manufactured and non-manufactured goods and several product categories. However, compared to its import initiation impact, the import intensification effect of the Act has been marginal. Our results have important policy implication for further intensification of African exports to the U.S. markets.
    Keywords: AGOA, Trade Agreements, Trade Initiation, Trade Intensification
    JEL: F13 F14 F15
    Date: 2007–12
  5. By: Fukunishi, Takahiro
    Abstract: It has been argued that the slow growth of productivity is one of critical sources of stagnation of the African manufacturing sector but empirical supports are limited. Using the inter-regional firm data of the garment industries, productive efficiency and its contribution to unit costs are compared between Kenya and Bangladesh which is the one of the largest exporters in the world. Our estimates have indicated that there is no clear gap in the average technical efficiency of the two industries despite conservative estimation, while allocative efficiency is significantly lower in the Kenyan industry. Unit costs greatly differ between the two industries, where impact of inefficiency on unit costs is small and labour cost appears to have the largest impact. Productivity accounts little for the stagnation in the garment industry.
    Keywords: Technical efficiency, Allocative efficiency, Manufacturing, Sub-Saharan Africa, Productivity, Manufacturing industries, Kenya, Bangladesh
    JEL: D24 L67 O33
    Date: 2007–12
  6. By: Takane, Tsutomu
    Abstract: Using data obtained from a survey carried out in six villages in various parts of rural Malawi, this paper examines some of the main characteristics of female-headed households. In the study villages, most female-headed households are in a disadvantageous position relative to their male counterparts in terms of labour endowment, farm size, and agricultural productivity. The high cost of inputs, especially of fertilizer, prevents resource-poor female-headed households from improving maize self-sufficiency through increased productivity and from engaging in high-return agriculture such as tobacco production. The paper also shows that there are marked disparities within the category of female-headed households. Factors that enable some female-headed households to achieve high income include the availability of high-return nonfarm income opportunities, use of social networks to obtain labour and income opportunities, land acquisition through flexible applications of inheritance rules, and the existence of informal tobacco marketing. Livelihood diversification is adopted by both male- and female-headed households, but many of the female-headed households engage in low-return and low-entry-barrier activities such as agricultural wage labour. On the other hand, the high off-farm income in the wealthier female-headed households enables them to purchase fertilizer for own-farm production, contributing to an improvement in productivity and resultant increases in their total income.
    Keywords: Gender, Livelihoods, Farm income, Off-farm income, Poverty, Malawi, Africa, Household, Women, Agriculture
    JEL: Q12
    Date: 2007–10
  7. By: Marie-Anne Valfort (Paris School of Economics)
    Abstract: In an ethnically polarized country, does aversion towards inter-ethnic inequity induce citizens to vote for a party promoting an equitable allocation of national resources among ethnic groups? We base our analysis on a survey that we conducted among 331 students from Addis Ababa University. We show that aversion towards inter-ethnic inequity does exert a significant influence on university students’ vote. Yet, its relative impact is small in comparison to the impact of ethnic group loyalty which determines ethnic voting. We provide confirmation that some specific sociodemographic characteristics significantly (i) increase the degree of aversion towards inter-ethnic inequity and (ii) lower ethnic group loyalty. Those characteristics have in common that they reduce the ‘psychological’ distance between ethnic groups, like living in a cosmopolitan city and having parents belonging to different ethnic groups.
    Keywords: Africa, Ethiopia, ethnic conflict, voting behavior, aversion towards inter-ethnic inequity.
    JEL: D02 D63 D64 D72 H77 N47
    Date: 2007–11
  8. By: Turner, Ginger; Shah, Manju Kedia; Ramachandran, Vijaya; Gelb, Alan
    Abstract: Can perceptions data help us understand investment climate constraints facing the private sector? Or do firms simply complain about everything? In this paper, the authors provide a picture of how firms ' views on constraints differ across countries in Sub-Saharan Africa. Using the World Bank ' s Enterprise Surveys database, they find that reported constraints reflect country characteristics and vary systematically by level of income-the most elemental constraints to doing business (power, access to finance, ability to plan ahead) appear to be most binding at low levels of income. As countries develop and these elemental constraints are relaxed, governance-related constraints become more problematic. As countries move further up the income scale and the state becomes more capable, labor regulation is perceived to be more of a problem-business is just one among several important constituencies. The authors also consider whether firm-level characteristics-such as size, ownership, exporter status, and firms ' own experience-affect firms ' views on the severity of constraints. They find that, net of country and sector fixed effects and firm characteristics, firms ' views do reflect their experience as evidenced by responses to other questions in surveys. The results suggest that there are both country-level and firm-level variations in the investment climate. Turning to the concept of " binding constraints, " the Enterprise Surveys do not generally suggest one single binding constraint facing firms in difficult business climates. However, there do appear to be groups of constraints that matter more at different income levels, with a few elemental constraints being especially important at low levels and a few regulatory constraints at high levels, but a difficult range of governance-related constraints at intermediate levels. Adjusting to a constraint does not mean that firms then do not recognize it-for example, generator-owning firms are not distinguishable from other firms when ranking electricity as a constraint. Overall, firms do appear to discriminate between constraints in a reasonable way. Their views can provide a useful first step in the business-government consultative process and help in prioritizing more specific behavioral analysis and policy reforms.
    Keywords: ,Emerging Markets,Microfinance,Governance Indicators,Access to Finance
    Date: 2007–12–01
  9. By: Olumuyiwa Adedeji; Oral Williams
    Abstract: The stance of fiscal policy in CEMAC and WAEMU is strongly influenced by fiscal effort in the previous period. This persistence underscores the risks of a procyclical fiscal policy stance, given these countries' high degree of dependence on primary commodities and exposure to terms of trade shocks. This paper finds that the coefficient of the lagged debt stock was significant and positive, consistent with the theory that higher levels of debt warrant greater fiscal effort. Various measures of economic performance, as captured by economic growth and per capita GDP, openness, and the terms of trade were also found to be important factors in explaining fiscal performance. As fiscal performance seems to be strongly affected by both real GDP growth and terms of trade fluctuations, there appears to be a need to develop supplementary fiscal-related criteria that take into account the influence of output and the terms of trade.
    Keywords: Working Paper , Fiscal policy , Central African Economic and Monetary Community , West African Economic and Monetary Union , Debt sustainability analysis , Economic growth , Economic models ,
    Date: 2007–10–04
  10. By: Tobias Knedlik; Rolf Scheufele
    Abstract: In this paper we test the ability of three of the most popular methods to forecast the South African currency crisis of June 2006. In particular we are interested in the out-ofsample performance of these methods. Thus, we choose the latest crisis to conduct an out-of-sample experiment. In sum, the signals approach was not able to forecast the outof- sample crisis of correctly; the probit approach was able to predict the crisis but just with models, that were based on raw data. Employing a Markov-regime-switching approach also allows to predict the out-of-sample crisis. The answer to the question of which method made the run in forecasting the June 2006 currency crisis is: the Markovswitching approach, since it called most of the pre-crisis periods correctly. However, the “victory” is not straightforward. In-sample, the probit models perform remarkably well and it is also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. It can, therefore, not be recommended to focus on one approach only when evaluating the risk for currency crises.
    Date: 2007–12
  11. By: Stijn Claessens; Danny Cassimon; Bjorn Van Camperhout
    Abstract: We study how 22 donors allocate their bilateral aid among 147 recipient countries over the 1970- 2004 period to investigate whether changes in the international aid architecture?at the international and country level?have led to changes in behavior. We find that after the fall of the Berlin wall, and especially in the late nineties, bilateral aid responds more to economic need and the quality of a recipient country's policy and institutional environment and less to debt, size, and colonial linkages. Importantly, we find that when a country uses a PRSP and passes the HIPC decision point the perverse effect of large bilateral and multilateral debt shares on aid flows is reduced, suggesting less defensive lending. Overall, it appears international aid architecture changes have led to more selectivity in aid allocations. The specific factors causing these changes remain unclear, however. Furthermore, there remain large differences among donors in selectivity that appear to relate to donors' own institutional environments. Together this suggests that further reforms will have to be multifaceted.
    Date: 2007–12–14
  12. By: Mathema, Ashna S.; Buckley, Robert M.
    Abstract: A recent study of house price behavior in U.S. cities by Gyourko, Mayer, and Sinai (2006) raises questions about so-called superstar cities in which housing is so inelastically supplied that it becomes unaffordable, as higher-income families outbid residents. We consider the case of Accra, Ghana, in this light, estimating the elasticity of housing supply and discussing the implications for growth and income distribution. There is not a great deal of data available to examine trends in Accra, so our method is indirect. First, we use a variant of the traditional monocentric city model to calculate the elasticity of Accra ' s housing supply relative to those of other similarly-sized African cities. This suggests that housing supply responsiveness is much higher elsewhere. This muted supply responsiveness is consistent with the observed higher housing prices. Second, we estimate a number of traditional housing demand equations and reduced form equations. Placing a number of restrictions on the equations allows us to infer Accra ' s housing supply elasticity. Taken together, our approaches suggest that lower-income families in Accra have such poor housing conditions because the market is extremely unresponsive to demand. Although the outcomes we have traced-high housing prices and low quality-are not unusual relative to the other developed country superstar cities, they are extreme. The welfare costs are considerable, so much so that in addition to direct housing market effects, these policies also appear to have potentially significant implications for the achievement of more equitable growth.
    Keywords: Economic Theory & Research,Housing & Human Habitats,Banks & Banking Reform,,Public Sector Management and Reform
    Date: 2007–12–01
  13. By: Rowe, Francis; Li, Ying
    Abstract: Tanzania is well placed to receive a significant increase in aid inflows in coming years. Despite the potential for the additional aid inflows to raise income levels in the country, increasing them may bring about structural changes in the economy that may be unwelcome. One such change is an appreciation of the real exchange rate that leads to a contraction of traditional export sectors and a loss of export competitiveness. This paper employs a reduced-form equilibrium real exchange rate approach to explain movements in Tanz ania ' s real effective exchange in recent decades. Particular attention is paid to the relationship between aid inflows and the real effective exchange rate. The authors find that the long-run behavior of the real effective exchange rate is influenced by terms of trade movements, the government ' s trade liberalization efforts, and aid inflows. Positive terms-of-trade movements are associated with an appreciation, periods of improving trade liberalization are associated with a depreciation, and increases in aid inflows are associated with a depreciation in the real effective exchange rate. Although the last result is non-standard, it is not empirically unique and does have theoretical underpinnings. A detailed analysis of this relationship over the last decade shows that the Bank of Tanzania ' s response to aid inflows is likely the main reason for the finding.
    Keywords: Currencies and Exchange Rates,Debt Markets,Economic Theory & Research,Emerging Markets,Economic Stabilization
    Date: 2007–12–01
  14. By: Noha Farrag (Faculty of Management Technology, The German University in Cairo); Ahmed Kamaly (American University in Cairo)
    Abstract: The past few years have witnessed a trend of increased delegation of authority to central banks. Increasing central bank independence is a recommended strategy for governments to establish a credible commitment to price stability as the final objective of the monetary authority, even at the cost of other objectives that may be more appealing to the political authorities. Existing literature on measuring central bank independence focuses on developed countries where quantifying the independence of central banks is easier, since quantifying the legal charter is sufficient to reflect the degree of central bank independence. However, in developing countries this task is thorny as quantifying the legal charter is often insufficient, since laws are often incomplete, ambiguous, or simply not respected. Thus, quantifying other indicators that reflect actual practice is required to capture any divergence between legal and actual practices. This paper attempts to quantify the degree of independence in the central bank of Egypt (CBE), from both a legal and behavioural context, since its establishment in 1961 until 2004. The study uses four indices in line with the work of Jacome (2001), Cukierman, et al. (1992), and Cukierman and Webb (1995), where each index is designed in such a way to capture a somewhat different aspect of independence. This study captures the discrepancies between the degree of independence conferred to the CBE by law and actual practice. The empirical findings of this paper offers insights about the direction of efforts that should be made to enhance central bank independence which is the key to achieving price stability and the stability of the financial system in general.
    Keywords: Central bank independence, Central Bank of Egypt, price stability, central bank credibility, indices of central bank independence, monetary policy
    JEL: E42 E52 E58
    Date: 2007–12
  15. By: El-Sharkawy, Omneya Khairy
    Abstract: Tourist Guides, like all employees within the travel (Tourism) industry must be aware of the needs of travelers (Tourists) and adjust their service and products accordingly, to accomplish this goal TGs are expected to process knowledge of guiding. This paper measures the degree of the influence of the area of study and the level of knowledge on experienced TGs through a study conducted on 200 of 6846 the working population of TGs in 2005, licensed to work in the field by the Ministry of Tourism in Egypt. The study used a self-administered questionnaire that revealed important results showing defects in the areas of study and shortage in the knowledge background of the TGs to a certain extend. The conclusion of the study will propose a guiding scheme to develop a certain standard of education and knowledge needed by TGs in Egypt in their drive towards professional recognition, in order to be able to perform effectively in an increasingly competitive field.
    Keywords: tour guides (TG); area of study; knowledge background; Egypt
    JEL: M0 L83
    Date: 2007–11

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