nep-afr New Economics Papers
on Africa
Issue of 2012‒12‒22
nineteen papers chosen by
Quentin Wodon
World Bank

  1. Does Famine Matter For Aggregate Adolescent Human Capital Acquisition In Sub-Saharan Africa? By Julius A. Agbor and Gregory N. Price
  2. Does the Leader’s Ethnicity Matter? Ethnic Favoritism, Education and Health in Sub-Saharan Africa By Raphaёl Franck; Ilia Rainer
  3. Ecology, trade and states in pre-colonial Africa By James Fenske
  4. The Diffusion of Military Dictatorships By Raul Caruso; Ilaria Petrarca; Roberto Ricciuti
  5. Graduate unemployment in South Africa: A much exaggerated problem By Servaas van der Berg; Hendrik van Broekhuizen
  6. Effect of Perceptions and Behaviour on Access to and Use of Financial Service: Evidence from South Africa By Annim, Samuel Kobina; Arun, Thankom; Kostov, Philip
  7. Testing for Persistence with Breaks and Outliers in South African House Prices By Luis A. Gil-Alana; Goodness C. Aye; Rangan Gupta
  8. Evaluating the Prospects of Benefit Sharing Schemes in Protecting Mountain Gorillas in Central Africa By Samson Mukanjari, Edwin Muchapondwa, Precious Zikhali and Birgit Bednar-Friedl
  9. Africa, a young but ageing continent By Valérie Golaz; Laurent Nowik; Muriel Sajoux
  10. Climate, ecosystem resilience and the slave trade. By James Fenske; Namrata Kala
  11. Working Paper 160 - Infrastructure Investment and Economic Growth in South Africa a Granger Causality Analysis By Kumo Wolassa L.
  12. Sustainable Agriculture and Food Security in Africa: An Overview By Linda Kleemann
  13. Heterogeneity in Subjective Wellbeing: An Application to Occupational Allocation in Africa By Falco, Paolo; Maloney, William F.; Rijkers, Bob; Sarrias, Mauricio
  14. Working Paper 161 - The Impact of Euro Area Monetary and Bond Yield Shocks on the South African Economy Structural Vector Autoregression Model Evidence By Ncube, Mthuli; Eliphas Ndou; Nombulelo Gumata
  15. Impacts of Agricultural Extension on Crop Productivity, Poverty and Vulnerability: Evidence from Uganda By Md. Faruq Hasan; Katsushi S. Imai; Takahiro Sato
  16. A Model of Comparative Advantage with Matching in the Urban Tanzanian Labour Market. By Andrew Kerr
  17. Modelling the Tax Burden on Labour Income in Brazil, China, India, Indonesia and South Africa By Luca Gandullia; Nicola Iacobone; Alastair Thomas
  18. Institutional dynamics and capital accumulation: Evidence from Namibia and Tanzania By B.P. Zaaruka
  19. Is the Burden Too Small? – Effective Tax Rates in Ghana By David Nguyen-Thanh; Christoph Strupat

  1. By: Julius A. Agbor and Gregory N. Price
    Abstract: To the extent that in utero and childhood malnutrition negatively affects later stage mental and physical health, it can possibly constrain later stage human capital acquisition, which is an important driver of economic growth. This paper considers the impact of famine on aggregate adolescent human capital formation in Sub-Saharan Africa. We parameterize a joint adolescent human capital and food nutrition production function to estimate the effects of famine on primary school completion rates of individuals age 15 - 19. Mixed fixed and random coefficient parameter estimates for 32 Sub-Saharan African countries between 1980 - 2010 reveal that primary school completion rates of adolescents are proportional to the quantity of food and nutrition produced during childhood and in utero. This suggests that declines in food production and nutrition associated with famine in Sub-Saharan Africa have large negative effects on the acquisition of human capital by adolescents and on long-run material living standards. Our findings also suggest that policy makers in Sub-Saharan Africa should prioritize food security policies that prevent food shortages and famines, which would increase long-run economic growth and material living standards.
    Keywords: Human Capital, Famine, Nutrition, Sub-Saharan Africa
    JEL: C33 I15 I25 O10 O15 O55 Q18
    Date: 2012
  2. By: Raphaёl Franck (Bar-Ilan University); Ilia Rainer
    Abstract: In this paper we reassess the role of ethnic favoritism in Sub-Saharan Africa. Using data from 18 African countries, we study how primary education and infant mortality of ethnic groups were affected by changes in the ethnicity of the countries’ leaders during the last fifty years. Our results indicate that the effects of ethnic favoritism are large and widespread, thus providing support for ethnicity-based explanations of Africa’s underdevelopment. We also conduct a crosscountry analysis of ethnic favoritism in Africa. We find that ethnic favoritism is less prevalent in countries with one dominant religion. In addition, our evidence suggests that stronger fiscal capacity may have enabled African leaders to provide more ethnic favors in education but not in infant mortality. Finally, political factors, linguistic differences and patterns of ethnic segregation are found to be poor predictors of ethnic favoritism.
    Date: 2012–03
  3. By: James Fenske
    Abstract: State capacity matters for growth. I test Bates’ explanation of pre-colonial African states. He argues that trade across ecological boundaries promoted states. I find that African societies in ecologically diverse environments had more centralized states. This is robust to reverse causation, omitted heterogeneity, and alternative interpretations of the link between diversity and states. Ecological diversity also predicts states outside of Africa. I test mechanisms connecting trade to states, and find that trade supported class stratification between rulers and ruled. I underscore the importance of ethnic institutions and inform our knowledge of the effects of geography and trade on institutions.
    Date: 2012
  4. By: Raul Caruso (Catholic University of the Sacred Heart); Ilaria Petrarca (Department of Economics (University of Verona)); Roberto Ricciuti (Department of Economics (University of Verona))
    Abstract: In this note we show the existence of a diffusion process of military dictatorships in Sub-Saharan Africa from 1970 through 2007, using panel data probit estimation. We also find that Manufacturing share of GDP and Primary share of GDP positively affect the probability of military dictatorship, whereas Openness to trade and the UK colonial origin are negatively associated.
    Keywords: Military rule, Africa, diffusion of government institutions.
    JEL: D74 P48 Q34
    Date: 2012–12
  5. By: Servaas van der Berg (Department of Economics, University of Stellenbosch); Hendrik van Broekhuizen (Department of Economics, University of Stellenbosch)
    Abstract: Increasing reference in the media and public discussions to high and rising levels of graduate unemployment in the South African labour market has raised concern about the functionality of South Africa’s higher education system and the employability of the graduates that it produces. While such references are generally premised on the findings of a handful of published research studies that have made reference to rising graduate unemployment, the results of those studies are subject to a number of criticisms, ranging from inadequate definitions of “graduates” to the use of incomplete, dated, or unrepresentative data. This paper reviews the existing evidence on graduate unemployment in South Africa and analyses levels of, and trends in, graduate unemployment in the country since 1995. To overcome the deficiencies of previous studies, “graduates” are explicitly defined as individuals with bachelor’s degrees or equivalents and higher educational qualifications (honours, Masters, and doctorate degrees) and all of the available nationally representative labour force survey data for South Africa between 1995 and 2011 is exploited. In contrast to what appears to be a growing consensus regarding the extent of graduate unemployment in the country, the analysis conducted shows no evidence of a high level or a markedly upward trend in graduate (i.e. degreed) unemployment. Instead levels and rates of graduate unemployment are found to be quite low in an international context, revealing that there is little cause for concern about broad trends in graduate unemployment.
    Keywords: graduate unemployment, higher education, graduate employability
    JEL: I23 J01 J21
    Date: 2012
  6. By: Annim, Samuel Kobina (University of Central Lancashire); Arun, Thankom (University of Central Lancashire); Kostov, Philip (University of Central Lancashire)
    Abstract: This study investigates the effect of financial perception and behaviour on; (a) general accounts and services, (b) investment/savings and (c) insurance/assurance Using FinScope dataset from South Africa over the period 2003 to 2009,ordered probit, generalized ordered probit and pseudo panel micro-econometric techniques have been employed. Results based on all three estimations support the hypothesis that financial perception has a greater effect on the decision to access and use general accounts and services. The cross section and pooled models confirm the hypothesis that the effect of financial behaviour is greater than financial perception when making decisions on the take-up and use of investment financial services. It is also observed that the degree of responsiveness of financial perception on access to, and use of financial services decreases as the depth of usage deepens from basic to advance levels of financial products. In a policy context, targeting demand-side factors to increase access to and use of financial services should be financial type and level specific. Furthermore, the approach should be based on an understanding of the experiences of borrowers.
    Keywords: financial, perception, behaviour, general accounts, investment, insurance, South Africa
    JEL: O16 O17 O55
    Date: 2012–11
  7. By: Luis A. Gil-Alana (University of Navarra, Faculty of Economics, Edificio Biblioteca, Entrada Este, E-31080 Pamplona, Spain); Goodness C. Aye (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This study examines the time series behaviour of South African house prices within a fractional integration modelling framework while identifying potential breaks and outliers. We used quarterly data on the six house price indexes, namely affordable, luxury, middle-segment (all sizes, large, medium and small sizes), covering the periods 1966:Q1-2012:Q1 for the different middle-segments, 1966:Q3-2012:Q1 for the luxury segment and 1969:Q4-2012:Q1 for the affordable segment. In general, there is persistence in South African house prices with breaks identified. Our results show that in the cases of affordable and luxury, shocks will be transitory, disappearing in the long run, while for the remaining four series of the middle-segment, shocks will be permanent. Hence, for the middle-segment series strong policy measures must be adopted in the event of negative shocks, in order to recover the original trends.
    Keywords: House prices, persistence, breaks, fractional integration, South Africa
    JEL: C16 R21
    Date: 2012–12
  8. By: Samson Mukanjari, Edwin Muchapondwa, Precious Zikhali and Birgit Bednar-Friedl
    Abstract: Presently, the mountain gorilla in Rwanda, Uganda and the Democratic Republic of Congo is endangered mainly by poaching and habitat loss. This paper sets out to investigate the possible resolution of poaching involving the local community by using benefit sharing schemes with local communities. Using a bioeconomic model, the paper demonstrates that the current revenue sharing scheme yields suboptimal conservation outcomes. It is however shown that a performance-linked benefit sharing scheme in which the Park Agency makes payment to the local community based on the growth of the gorilla stock can achieve socially optimal conservation. This scheme renders poaching effort by the local community, and therefore poaching fines and anti-poaching enforcement towards the local community unnecessary. Given the huge financial outlay requirements for the ideal benefit sharing scheme, the Park Agencies in central Africa could reap more financial benefits for use in conservation if they employ an oligopolistic pricing strategy for gorilla tourism.
    Keywords: Benefit sharing, bioeconomic model, conservation, mountain gorilla, performance payment
    Date: 2012
  9. By: Valérie Golaz; Laurent Nowik; Muriel Sajoux
    Abstract: The countries of Africa have young populations today, but progress in life expectancy and the sharp drop in birth rates will lead to population ageing. This change will be incomparably faster than the slow ageing process observed in developed countries in the nineteenth and twentieth centuries: by 2050, the number of persons aged 60 and over will increase four-fold in Africa, raising yet another social challenge for the continent. At present, old persons in Africa are supported primarily through private solidarity. In the future, it will be increasingly difficult for families to meet the special needs of growing numbers of older adults unless public policies can provide the necessary backup.
    Date: 2012
  10. By: James Fenske; Namrata Kala
    Abstract: African societies exported more slaves in colder years. Lower temperatures reduced mortality and raised agricultural yields, lowering slave supply costs. Our results help explain African participation in the slave trade, which predicts adverse outcomes today. We use an annual panel of African temperatures and port-level slave exports to show that exports declined when local temperatures were warmer than normal. This result is strongest where African ecosystems are least resilient to climate change. Cold weather shocks at the peak of the slave trade predict lower economic activity today. We support our interpretation using the histories of Whydah, Benguela, and Mozambique.
    Date: 2012
  11. By: Kumo Wolassa L. (African Development Bank)
    Abstract: This paper conducted pairwise Granger causality tests between economic growth, economic infrastructure investment, and employment in South Africa for the period 1960-2009 using bivariate vector autoregression (VAR) model with and without a structural break. The result indicates that there is a strong causality between economic infrastructure investment and GDP growth that runs in both directions implying that economic infrastructure investment drives the long term economic growth in South Africa while improved growth feeds back into more public infrastructure investments. We also found a strong two way causal relationship between economic infrastructure investment and public sector employment reflecting the role of such investments on job creation through construction, maintenance and the actual operational activities, while increased employment could in turn contribute to further infrastructure investments indirectly through higher aggregate demand and economic growth. Further, there is a strong unidirectional causal link between economic growth and public sector employment that runs from the former to the latter; and a strong one way causal link between private sector employment and economic growth that runs from the former to the latter. Economic growth appears to be one of the main drivers of public sector jobs but not the private sector ones and that while the private sector employment remains one of the key drivers of growth, the latter does not seem to have translated into more jobs, reflecting the much criticized scenario of jobless growth in the economy. The pairwise causality test results were assessed further using autoregressive distributed lag (ARDL) or bounds testing approach for cointegration to assess both the short-and long-run relationships among the variables in question. The bounds test results indicate the presence of steady-state long-run equilibrium relationship between economic growth, economic infrastructure investment, formal employment, and exports and imports of goods and services providing a theoretical foundation for the empirical results of the pairwise Granger causality tests.
    Date: 2012–12–10
  12. By: Linda Kleemann
    Abstract: The development of the agricultural sector and the improvement of the food security situation are seen as essential components to sustainable development in Africa. However, continuing population growth, impacts of climate change and environmental degradation add to an unprecedented combination of pressures that threaten existing efforts and solutions. This article discusses the challenges of meeting the food security needs in a sustainable way. Due to its involvement of all three dimensions of sustainable development, economic, social and ecological, we argue that organic farming could be one possible approach to create a more sustainable agricultural system
    Keywords: sustainability, organic agriculture, food security
    JEL: O13 Q01 Q56
    Date: 2012–12
  13. By: Falco, Paolo (University of Oxford); Maloney, William F. (World Bank); Rijkers, Bob (World Bank); Sarrias, Mauricio (Universidad Catolica del Norte)
    Abstract: By exploiting recent advances in mixed (stochastic parameter) ordered probit estimators and a unique longitudinal dataset from Ghana, this paper examines the distribution of subjective wellbeing across sectors of employment and offers insights into the functioning of developing country labor markets. We find little evidence for the overall inferiority of the small firm informal sector: there is not a robust average satisfaction premium for formal work vis a vis self-employment or informal salaried work and, in fact, informal firm owners who employ others are on average significantly happier than formal workers. Moreover, the estimated underlying random parameter distributions unveil substantial latent heterogeneity in subjective wellbeing around the central tendency that fixed parameter models cannot detect. All job categories contain both relatively happy and disgruntled workers. Concretely, roughly 67%, 50%, 40% and 59% prefer being a small firm employer, sole proprietor, informal salaried, and civic worker respectively, to formal work. Hence, there is a high degree of overlap in the distribution of satisfaction across sectors. The results are robust to the inclusion of fixed effects, and using alternate measures of satisfaction. Job characteristics, self-perceived autonomy and experimentally elicited measures of attitudes toward risk do not appear to explain these distributional patterns.
    Keywords: subjective wellbeing, mixed ordered probit, self-employment, informality, developing country labor markets, Africa
    JEL: C35 J2 J3 J41 L26 I32 O17
    Date: 2012–11
  14. By: Ncube, Mthuli; Eliphas Ndou; Nombulelo Gumata
    Abstract: Structural vector autoregression (SVAR) models were used in this study to investigate how unexpected increases in euro area bond yields and monetary stimulus are transmitted to the South African economy using data from January 1999 to June 2008. Firstly, evidence is found that this is consistent with the predictions of the capital flow effects on asset prices, which include depressed bond yields, evaluation of stock prices and exchange rate appreciation due to euro area monetary stimulus. Secondly, the perverse effects of a large economy’s monetary stimulus into a small open economy predicted by the Mundell–Fleming model was assessed. A significant drop was found in the growth of broad money supply, interest rates declined and the trade balance deteriorated. Thirdly, the study finds that a positive shock to euro area bond yields leads to an increase in nominal bond yields and a significant, but delayed, depreciation in the exchange rate of the rand. The results of a model that extended the sample to May 2011 to include the current period of economic instability and applying counterfactual analysis thereafter suggest that the exchange rate was overvalued between 2010 and 2011.
    Date: 2012–12–10
  15. By: Md. Faruq Hasan (Department of Agricultural Extension, Hajee Mohammad Danesh Science and Technology University, Bangladesh); Katsushi S. Imai (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Takahiro Sato (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: The present study examines whether agricultural extension improves household crop productivity, reduces poverty as well as vulnerability in rural Uganda drawing upon Uganda National Panel Survey data in 2009-10. We first estimate household crop productivity using stochastic frontier analysis that can allow for stochastic shocks in the production function. Then, the effect of different types of agricultural extension programmes on the crop productivity is estimated by treatment effects model which controls for the sample selection associated with household participation in agricultural extension. In this model, the distance to agricultural extension service centre is used as an instrument for participation in agricultural extension. It is found that household crop productivity was significantly raised by household participation in all types of agricultural extension programs except NGO programs, while household expenditure per capita was also significantly increased by participation in most cases. This is consistent with the central objectives of agricultural extension to improve productivity and reduce poverty. Further evidence is provided on the role of extension in reducing vulnerability as expected poverty associated with extension programs of NAADS, large farmers and other types of extension service providers.
    Keywords: Agricultural Extension, Poverty, Vulnerability, Treatment Effects Model, Uganda
    JEL: C31 I32 N57 O13
    Date: 2012–12
  16. By: Andrew Kerr
    Abstract: In this paper I build an equilibrium search model of the urban Tanzanian labour market that explains the choice between wage and self-employment and the variation in earnings across and within these sectors. Self-employment is very common in urban Tanzania and survey data show both that there are large overlaps in the distribution of earnings in private wage employment and self-employment and that there is little movement between wage and self-employment. This suggests that self-employment represents a worthwhile alternative to wage employment in small, low-productivity firms for the majority of urban Tanzanians, in contrast to the traditional view of African labour markets in which wage employment in small firms and self-employment are lumped together as the informal sector.
    Date: 2012
  17. By: Luca Gandullia; Nicola Iacobone; Alastair Thomas
    Abstract: This paper examines the taxation of labour income in five key emerging economies: Brazil, China, India, Indonesia and South Africa (the “BIICS” countries). The paper highlights the key features of the taxation of labour income in these countries, and then uses this information to model the tax burdens on labour income in each country following the OECD's Taxing Wages methodology. Average and marginal tax wedges in Brazil and China (Shanghai) are found to be similar in size in 2010 to those of many OECD countries. In contrast, India, Indonesia and South Africa (as well as rural China) impose very low average and marginal tax wedges compared to the vast majority of OECD countries. These relatively low tax wedge results are not altogether surprising given that these countries also currently have lower tax-to-GDP ratios than the OECD average. However, the results suggest that, in the long-term, reforms will be necessary in most of the BIICS countries if the labour income base is to significantly contribute to funding the substantial increases in public expenditure, particularly on infrastructure and social insurance, that will inevitably come as these countries continue to grow.<P>Modéliser la charge fiscale pesant sur les revenus du travail en Afrique du Sud, au Brésil, en Chine, en Inde et en Indonésie<BR>Ce document propose un examen de la taxation des revenus du travail dans cinq grandes économies émergentes, à savoir l’Afrique du Sud, le Brésil, la Chine, l’Inde et l’Indonésie. Il met l’accent sur les principales caractéristiques des régimes d’imposition en vigueur dans ces pays, les informations correspondantes étant ensuite utilisées pour modéliser la charge fiscale pesant sur les revenus du travail dans chaque pays à l’aide de la même méthodologie que celle suivie par l’OCDE pour sa publication intitulée Les impôts sur les salaires. Il apparaît qu’au Brésil et en Chine (Shanghai), les coins fiscaux moyens et marginaux sont du même ordre que ceux d’un grand nombre de pays de l’OCDE en 2010. En Afrique du Sud, en Inde et en Indonésie (ainsi qu’en Chine rurale) en revanche, les coins fiscaux moyens et marginaux sont très faibles en comparaison de ceux de la grande majorité des pays de l’OCDE. Le niveau relativement bas de ces chiffres n’est pas vraiment surprenant étant donné que ces pays affichent actuellement des rapports impôt/PIB inférieurs à la moyenne de l’OCDE. Il donne cependant à penser que, sur le long terme, des réformes seront nécessaires dans la plupart de ces économies si la taxation des revenus du travail doit apporter une contribution notable au financement des hausses considérables des dépenses publiques, en particulier dans les domaines des infrastructures et de la sécurité sociale, qu’elles devront inévitablement assumer à mesure qu’elles continueront à croître.
    Keywords: personal income tax, tax wedge, social security contributions, labour income, coin fiscal, cotisations de sécurité sociale, revenus du travail, impôt sur le revenu des personnes physiques
    JEL: H24 H55
    Date: 2012–12–12
  18. By: B.P. Zaaruka
    Abstract: The purpose of this study is to examine the impact of institutions on fixed capital accumulation over time in two developing countries, both former German colonies: Namibia and Tanzania. This is motivated by two recent underpinning theories: the new institutional theory, which views institutions as fundamental determinants of economic outcomes and income variations among countries (the institutional hypothesis); and the theory of irreversible investment under uncertainty, which emphasis the impact of uncertainty on investment and capital-stock accumulation. Using the theoretical framework of irreversible investment under uncertainty, we apply the Vector Error Correction Model (VECM).The findings highlight the importance of uncertainty (political instability) in explaining capital accumulation over time in Namibia. The empirical evidence for Tanzania indicates the importance of property rights in explaining capital accumulation over time.
    Keywords: Namibia, Tanzania, institutional indicators, capital stock, irreversible investment, uncertainty
    JEL: E02 K00 N4 O1
    Date: 2012
  19. By: David Nguyen-Thanh; Christoph Strupat
    Abstract: This paper examines capital income taxation in Ghana. We calculate effective marginal tax rates (EMTR) and effective average tax rates (EATR) using an extended Devereux-Griffith methodology to accommodate for tax incentives - an exercise that has not been done so far for Ghana. We find that the wide range of tax incentives leads to a high variation of effective average tax rates in Ghana. Tax holidays and preferential income tax rates lower the effective tax burden to a significant extent and encourage individual tax avoidance strategies. Furthermore our results confirm previous findings that tax holidays, effectively reducing EATR, favor high-profit short-lived investment projects raising doubts about their rationale.
    Keywords: Effective tax rates; tax holidays; Ghana
    JEL: H23 H25 H10
    Date: 2012–12

This nep-afr issue is ©2012 by Quentin Wodon. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.