nep-afr New Economics Papers
on Africa
Issue of 2013‒03‒16
twenty-two papers chosen by
Quentin Wodon
World Bank

  1. Poverty and inequality estimates of National Income Dynamics Study revisited By Derek Yu
  2. Crises, Economic Integration and Growth Collapses in African Countries By Abdilahi Ali; Katsushi S. Imai
  3. How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence By Asongu, Simplice A
  4. Youth unemployment in South Africa since 2000 revisited By Derek Yu
  5. Outward FDI from developing countries : a case of Chinese firms in South Africa By Kimura, Koichiro
  6. Black economic empowerment in the South African agricultural sector : a case study of the wine industry By Sato, Chizuko
  7. How do financial reforms affect inequality through financial sector competition? Evidence from Africa By Asongu , Simplice A
  8. Evidence on key policies for African agricultural growth: By Diao, Xinshen; Kennedy, Adam; Badiane, Ousmane; Cossar, Frances; Dorosh, Paul; Ecker, Olivier; Hagos, Hosaena Ghebru; Headey, Derek; Mabiso, Athur; Makombe, Tsitsi; Malek, Mehrab; Schmidt, Emily
  9. Impact of food price changes on household welfare in Ghana: By Minot, Nicholas; Dewina, Reno
  10. Caught in a productivity trap: a distributional perspective on gender differences in Malawian agriculture By Kilic, Talip; Palacios-Lopez, Amparo; Goldstein, Markus
  11. Some factors influencing the comparability and reliability of poverty estimates across household surveys By Derek Yu
  12. Does Forced Solidarity Hamper Investment in Small and Micro Enterprises? By Grimm, Michael; Hartwig, Renate; Lay, Jann
  13. Do Safety Nets Promote Technology Adoption? Panel data evidence from rural Ethiopia By Alem, Yonas; Broussard, Nzinga H.
  14. Impact evaluation of free-of-charge CFL bulb distribution in Ethiopia By Costolanski, Peter; Elahi, Raihan; Iimi, Atsushi; Kitchlu, Rahul
  15. The Dynamics of Electric Cookstove Adoption: Panel data evidence from Ethiopia By Alem, Yonas; Hassen, Sied; Köhlin, Gunnar
  16. Extreme weather and civil war in Somalia: Does drought fuel conflict through livestock price shocks? By Maystadt, Jean-Francois; Ecker, Olivier; Mabiso, Athur
  17. Macroeconomic Development and Stock Market Performance: A Non-Parametric Approach By George Adu; George Marbuah; Justice Tei Mensah; Prince Boakye Frimpong
  18. Corruption et Etats fragiles africains By Oasis, Kodila-Tedika; Remy, Bolito-Losembe
  19. Measuring catch-up growth in malnourished populations By Kalle Hirvonen
  20. Does Democratization Spur Growth? An Examination over Time and Space By Andreas Assiotis
  21. Price vs. weather shock hedging for cash crops: ex ante evaluation for cotton producers in Cameroon By Antoine Leblois; Philippe Quirion; Benjamin Sultan
  22. The impact of social capital on children educational outcomes: The case of Tanzania By Youyou BAENDE BOFOTA

  1. By: Derek Yu (Departments of Economics, Universities of Stellenbosch and Western Cape)
    Abstract: The National Income Dynamics Study (NIDS), introduced since 2008, has become an alternative data source for the South African poverty and inequality analyses. In addition to the fact that NIDS is the first national panel study of individuals in South Africa, it is also the only survey that allows the respondents to report income and expenditure as both a single estimate, ‘one-shot’ amount and an aggregate amount derived from the sum of the amounts for sub-categories. The latter variable, after imputations, was the preferred variable for deriving the poverty and inequality estimates. This paper examines if the poverty and inequality estimates are significantly different, using both the single estimate and the aggregate (before and after imputations) income and expenditure variables.
    Keywords: Poverty, Inequality, National Income Dynamics Study, Household surveys, measurement, South Africa
    JEL: I32
    Date: 2013
  2. By: Abdilahi Ali (School of Social Sciences, University of Manchester, UK); Katsushi S. Imai (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan))
    Abstract: In the past few decades, many African countries have implemented policies of trade and financial liberalisation. As a result, Africa is today more integrated into the global economic system than it was a few decades ago. Yet, like developing countries in other regions, African economies have also encountered their share of economic and financial crises. The objective of this paper is to explore the (independent) effects of crises and openness on a large sample of African countries. Focusing on sudden stops, currency, twin and sovereign debt crises, the paper shows that crises are associated with growth collapses in Africa. In contrast, openness is found to be beneficial to growth. More specifically, we find that, consistent with standard Mundell-Flemming type models, greater openness to trade and financial flows mitigates the adverse effects of crises. These findings are robust to various measures of both openness and crises as well as to endogeneity concerns.
    Keywords: Financial crises, Economic integration, Growth, Africa
    JEL: G01 F15 F43
    Date: 2013–03
  3. By: Asongu, Simplice A
    Abstract: This paper investigates how financial, trade, institutional and political liberalization policies have affected financial efficiency in Africa. It uses updated data to appraise second generation reforms in order to gather fresh evidence and derive more updated policy implications. The ‘freedom to trade’ and ‘economic freedom’ indices are also employed. The following findings are established. (1) Financial liberalization mitigates financial allocation efficiency, with the magnitude of the de jure indicator (KAOPEN) higher than that of the de facto measurement (FDI). (2) Exports significantly improve financial efficiency. (3) Institutional liberalization has a positive effect on the efficiency of allocation while the effect of political liberalization is not significant. (4) Freedom of trade decreases (improves) financial (banking) system efficiency. (5) Economic freedom facilitates the transformation of mobilized financial resources (deposits) into credit for economic operators. Justifications for these nexuses are provided.
    Keywords: Liberalization policies; Capital allocation; Africa
    JEL: D6 F3 F4 F5 O55
    Date: 2013–01–03
  4. By: Derek Yu (Departments of Economics, Universities of Stellenbosch and Western Cape)
    Abstract: One of the most pressing socio-economic problems of the South African economy is high youth unemployment. Recent studies only briefly examined how the youths fared since the transition by comparing the 1995 October Household Survey (OHS) with a Labour Force Survey (LFS), and hardly investigated whether the discouraged workseekers are different from the unemployed. Moreover, a new labour market status derivation methodology has been adopted since the inception of Quarterly Labour Force Survey (QLFS) in 2008. Although the unemployed in QLFSs are derived similarly as in OHSs and LFSs, the discouraged workseekers are distinguished very differently. This paper applies the QLFS methodology with minor revisions on all LFSs to derive comparable youth labour market trends since 2000, before re-examining the extent of youth unemployment. The characteristics of discouraged workseekers and narrow unemployed are then compared, before investigating whether different policies are needed to boost youth employment in each group.
    Keywords: Youths, employment, unemployment, discouraged workseekers, wage subsidy, labour market trends South Africa
    JEL: J00 J21
    Date: 2013
  5. By: Kimura, Koichiro
    Abstract: Outward foreign direct investment (FDI) from developing countries is increasing. In the research on FDI, it has been considered that only competitive and productive firms can invest in foreign countries. However, since the differences in competitiveness and productivity between multinational enterprises (MNEs) from developed and developing countries have not been explicitly investigated, we cannot say whether MNEs from developing countries can or cannot survive in competition with MNEs from developed countries as well as against competitive and productive indigenous firms in host countries. To examine the activities of MNEs from developing countries, this study investigates Chinese firms in South Africa. It reveals that in order to compensate for the weak brand recognition of Chinese products and to expand sales, Chinese firms have mainly been making products that are sold under the brand names of indigenous South African firms. Chinese firms have expanded their business in South Africa relying on the business resources of indigenous firms in the host country. This indicates that business with indigenous firms is significant for MNEs from developing countries in boosting competitiveness.
    Keywords: China, South Africa, Foreign investments, International business enterprises, Foreign direct investment (FDI), Multinational enterprise (MNE)
    JEL: F23 M16
    Date: 2013–02
  6. By: Sato, Chizuko
    Abstract: This paper explores the extent and forms of black economic empowerment (BEE) in the South African agricultural sector through a case study of the wine industry in the Western Cape. Compared to the mining and fisheries sectors, the progress of BEE in the agricultural sector is still in the early stage. However, various forms of black entry into the wine industry, not limited to BEE deals by large corporations, began to emerge, especially since the enactment of the Broad-based Black Economic Empowerment Act (BBBEE Act), Act 53 of 2003. This paper identifies two types of BEE wineries as unique forms of black entry into the wine industry and investigates in detail their features, backgrounds and challenges by referring to several prominent examples of each type of BEE winery.
    Keywords: South Africa, Brewing industry, Liquor, Economic policy, Agricultural policy, Black economic empowerment(BEE), Wine industry
    JEL: L66 Q18
    Date: 2013–02
  7. By: Asongu , Simplice A
    Abstract: In the first empirical study on how financial reforms have been instrumental in mitigating inequality through financial sector competition, we contribute at the same time to the macroeconomic literature on measuring financial development and respond to the growing field of economic development by means of informal sector promotion. Hitherto, unexplored financial sector concepts of formalization, semi-formalization and informalization are introduced. Four main findings are established: (1) while formal financial development decreases inequality, financial sector formalization increases it; (2) whereas semi-formal financial development increases inequality, the effect of financial semi-formalization is unclear; (3) both informal financial development and financial informalization have an income equalizing effect and; (4) non-formal financial development is pro-poor. Policy implications are discussed.
    Keywords: Financial Development; Shadow Economy; Poverty; Inequality; Africa
    JEL: E00 G20 I30 O17 O55
    Date: 2013–01–01
  8. By: Diao, Xinshen; Kennedy, Adam; Badiane, Ousmane; Cossar, Frances; Dorosh, Paul; Ecker, Olivier; Hagos, Hosaena Ghebru; Headey, Derek; Mabiso, Athur; Makombe, Tsitsi; Malek, Mehrab; Schmidt, Emily
    Keywords: Agricultural policy, CAADP, input policy, Land tenure, Nutrition policy, policy evidence, Private sector,
    Date: 2013
  9. By: Minot, Nicholas; Dewina, Reno
    Keywords: Food prices, maize, rice, welfare impact,
    Date: 2013
  10. By: Kilic, Talip; Palacios-Lopez, Amparo; Goldstein, Markus
    Abstract: In targeting poverty gains, sub-Saharan African governments have emphasized the alleviation of gender differences in agricultural productivity. The empirical studies on the gender gap, however, have frequently used data that were limited regarding geographic and topical coverage, and/or details on intra-household dynamics. The study provides a nationally-representative analysis of the gender gap in Malawi, and decomposes it, for the first time, at the mean and at selected points of the agricultural productivity distribution into (i) a portion driven by gender differences in levels of observable attributes (the endowment effect), and (ii) a portion driven by gender differences in returns to the same set of observables (the structure effect). Sequentially, the authors unpack the relative contributions of different factors towards the gender gap, and suggest future research priorities to inform policy interventions. The authors find that while female-managed plots are, on average, 25 percent less productive, 82 percent of this differential is explained by differences in endowments, mainly due to high-value crop cultivation and levels of household adult male labor inputs. The factors driving the structure effect include child dependency ratio and effectiveness of household adult male labor and inorganic fertilizer. The gender gap increases across the productivity distribution, ranging from 22 percent at the 10th percentile to 37 percent at the 90th percentile. While it is explained predominantly by the endowment effect in the first half of the distribution, the contribution of the structure effect towards the gender gap increases steadily above the median, standing at 34 percent at the 90th percentile.
    Keywords: Gender and Development,Housing&Human Habitats,Gender and Health,Rural Development Knowledge&Information Systems,Gender and Law
    Date: 2013–03–01
  11. By: Derek Yu (Department of Economics, University of Stellenbosch)
    Abstract: In order to evaluate the extent to which a country achieves the objectives of poverty and inequality reduction, up-to-date, reliable and comparable survey data is required. This paper critically reviews the factors which could affect the comparability and reliability of poverty estimates and trends across various household surveys. First, whether income or expenditure variable should be used for the analyses and whether the diary approach is associated with more reliable capture of income and expenditure information compared with the conventional recall method are looked at. If the respondents are asked to declare the income and expenditure in exact amounts, whether they are asked to report these as ‘one-shot’ amounts (single estimation approach) or aggregate amount derived from the sum of the amounts for sub-categories (aggregation approach) could affect the poverty estimates. If the respondents are asked to report income and expenditure in intervals, issues that could affect the reliability of this approach, such as the number and width of the intervals, the appropriate method used to approximate the income (expenditure) amount in each interval, as well as the possible methods to deal with households reporting zero or unspecified income (expenditure) are investigated. In addition, survey data is validated against external sources such as national accounts data to investigate if it would lead to improved reliability of the former data for the subsequent poverty analyses. Furthermore, since the survey data are, strictly speaking, not time-series data, the data are re-weighted by means of the cross entropy approach in order to be consistent with demographic and geographic numbers presented by the Actuarial Society of South Africa (ASSA) model and Census data so as to find out if the comparability and reliability of the poverty estimates and trends are improved.
    Keywords: poverty, income, expenditure, recall method, diary method, imputations, ASSA model, South Africa
    JEL: I32
    Date: 2013
  12. By: Grimm, Michael (University of Passau); Hartwig, Renate (University of Passau); Lay, Jann (German Institute of Global and Area Studies (GIGA))
    Abstract: Sharing is a norm in many societies. We present a theoretical model on the trade-off between sharing and investment which we test on data from tailors in Burkina Faso. The empirical results support the idea that there are two behavioural patterns: entrepreneurs following an 'insurance regime' comply with sharing norms, are insured but reduce investment in their firm, whereas entrepreneurs in the 'growth regime' are not insured but take undistorted investment decisions. The choice of regime depends on the redistributive pressure, the willingness to take risk, and the return on investment.
    Keywords: forced solidarity, informal insurance, investment, micro and small enterprises, sharing, Sub-Saharan Africa
    JEL: D13 D22 D92 O12 O43
    Date: 2013–02
  13. By: Alem, Yonas (School of Business, Economics and Law); Broussard, Nzinga H. (The Ohio State University)
    Abstract: We use panel data from rural Ethiopia to investigate if participation in a safety net program enhances fertilizer adoption. Using a difference-in-difference estimator and inverse propensity score weighting we find that participation in Ethiopia’s food-for-work program increased fertilizer adoption. Results also indicate that the likelihood of adopting and the intensity of fertilizer usage increased with livestock holdings for food-for-work-participant households providing some evidence that the intervention helped asset-rich farm households more than asset-poor households. We find no significant effects of free distribution on fertilizer adoption or intensification. Our results are consistent with the hypothesis that safety nets can be viewed as mechanisms that allow households to take on more risk to pursue higher profits. The paper highlights important policy implications related to the inter-related dynamics of safety nets and extension services that aim at promoting productivity enhancing modern agricultural technologies.<p>
    Keywords: Safety Net; Fertilizer Use; Inverse Propensity Score Weighting
    JEL: O12 O33 Q12 Q16
    Date: 2013–02–28
  14. By: Costolanski, Peter; Elahi, Raihan; Iimi, Atsushi; Kitchlu, Rahul
    Abstract: Electricity infrastructure is one of the most important development challenges in Africa. While more resources are clearly needed to invest in new capacities, it is also important to promote energy efficiency and manage the increasing demand for power. This paper evaluates one of the recent energy-efficiency programs in Ethiopia, which distributed 350,000 compact fluorescent lamp bulbs free of charge. The impact related to this first phase is estimated at about 45 to 50 kilowatt hours per customer per month, or about 13.3 megawatts of energy savings in total. The overall impact of the compact fluorescent lamp bulb programs, thanks to which more than 5 million bulbs were distributed, could be significantly larger. The paper also finds that the majority of the program beneficiaries were low-volume customers -- mostly from among the poor -- although the program was not targeted. In addition, the analysis determines the distributional effect of the program: the energy savings relative to the underlying energy consumption were larger for the poor. The evidence also supports a rebound effect. About 20 percent of the initial energy savings disappeared within 18 months of the program's completion.
    Keywords: Energy Production and Transportation,Climate Change Economics,Climate Change Mitigation and Green House Gases,Energy and Environment,Environment and Energy Efficiency
    Date: 2013–03–01
  15. By: Alem, Yonas (School of Business, Economics and Law); Hassen, Sied (School of Business, Economics and Law); Köhlin, Gunnar (School of Business, Economics and Law)
    Abstract: Previous studies on improved cookstove adoption in developing countries use cross-sectional data, which makes it difficult to control for unobserved heterogeneity and investigate what happens to adoption over time. We use robust non-linear panel data and hazard models on three rounds of panel data from urban Ethiopia to investigate the determinants and dynamics of electric cookstove adoption. We find the price of electricity and firewood, and access to credit as major determinants of adoption and transition. Our findings have important implications for policies aiming at promotion of energy transition and reduction of the pressure on forest resources in developing countries.<p>
    Keywords: Cookstoves; Electric Mitad; Firewood; Panel data; Random-Effects Probit
    JEL: Q40 Q41 Q42 Q48
    Date: 2013–02–28
  16. By: Maystadt, Jean-Francois; Ecker, Olivier; Mabiso, Athur
    Keywords: civil war, Climate change, Conflict, drought, livestock, Prices,
    Date: 2013
  17. By: George Adu; George Marbuah; Justice Tei Mensah; Prince Boakye Frimpong
    Abstract: This paper applies a local-linear non-parametric kernel regression technique to examine the effect of macroeconomic factors on stock market performance in Ghana. We show that the popular parametric specification in the existing literature suffers from functional misspecification. The evidence suggests that the relationship is non-linear and hence the implied elasticities are non-constant, contrary to findings in the literature. The main finding of the study suggests that stock prices are significantly affected by macroeconomic fundamentals and oil price shocks albeit weakly. This reinforces the need to closely monitor behaviour of macroeconomic indicators while sustaining prudent macroeconomic policy management.
    Keywords: Bandwidth, Ghana stock exchange, local-linear kernel regression, nonparametric
    JEL: C13 C14 G00 O55
    Date: 2013–01–01
  18. By: Oasis, Kodila-Tedika; Remy, Bolito-Losembe
    Abstract: Drawing from the literature on the determinants of corruption, this article examines the relationship between corruption and the nature of state of fragility. Robust empirical evidence shows a correlation between the level of corruption and state fragility. In a further assessment with the econometrics of instrumental variables we find evidence of causality neither flowing from state fragility to classical corruption nor to extreme corruption. S’enregistrant dans la littérature sur les déterminants de la corruption, cet article a pour objectif d’étudier la relation entre la corruption et la nature de l’Etat, à savoir ici : sa fragilité. De manière empirique et robuste, nous trouvons une corrélation entre le niveau de la corruption et la fragilité de l’Etat. Qui plus est, nos résultats suggèrent, après manipulation de l’économétrie des variables instrumentales, aucune causalité allant de la fragilité étatique au niveau de la corruption « classique » d’une part et une causalité allant de la fragilité étatique à l’extrême corruption d’autre part.
    Keywords: corruption, institutions, failed State, frica
    JEL: D02 D73 H11 O20 O43 O55
    Date: 2013–03–01
  19. By: Kalle Hirvonen (Department of Economics, University of Sussex)
    Abstract: Chronic malnutrition during early childhood hinders growth and causes children to fall into a lower growth trajectory. In order to recover, children need to experience growth rates that are above the expected rate for their age. Several studies have analysed the extent of such catch-up growth by regressing adult height on early childhood height. In this paper, I show that these studies confuse catch-up growth with within-population convergence and are further plagued by a well-known statistical fallacy of regression-to-the-mean. This calls for a re-evaluation of the existing evidence. In the empirical part of the paper, I use data from the Philippines and the Kagera region in Tanzania to study catch-up growth. I find limited recovery in the Philippines cohort. In Kagera, almost 75 per cent of the children experience catch-up growth. The mean height-for-age z-score improves from -1.87 in early childhood to -1.20 by adulthood. Graphical analysis reveals that this catch-up growth takes place in puberty.
    Keywords: height, undernutrition, catch-up growth, children, African height puzzle
    JEL: I10 I12 J13
    Date: 2013–02
  20. By: Andreas Assiotis
    Abstract: Many studies have considered how democratization affects economic growth. We expand this work by allowing short and long run effects of democracy upon growth to differ since effects during political transitions need not coincide with those under established democracies. We also allow these short and long run effects to differ across world regions since the effects of democracy upon economic growth need not be the same across countries, either. Using annual, cross-county data from 1960 to 2010, we find that democratizations increased growth rates in sub-Saharan Africa both in the short run and in the long run but lowered them in Europe. Effects in other regions appear less strong. Our results suggest that democratizations could be most beneficial for growth in poorer, less stable regions. We also do not find any evidence of a transitional cost. Finally, some support though mixed suggests that democracy’s ability to mitigate effects of ethnic heterogeneity provides a partial explanation for the cross regional heterogeneity.
    Keywords: Democratization, Democracy, Economic Growth
    Date: 2013–03
  21. By: Antoine Leblois (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech, Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech); Benjamin Sultan (LOCEAN - Laboratoire d'Océanographie et du Climat : Expérimentations et Approches Numériques - IRD - INSU - CNRS : UMR7159 - Université Paris VI - Pierre et Marie Curie - Muséum National d'Histoire Naturelle (MNHN))
    Abstract: In the Sudano-sahelian zone, which includes Northern Cameroon, the inter-annual variability of the rainy season is high and irrigation is scarce. As a conse- quence, bad rainy seasons have a detrimental impact on crop yield. In this paper, we assess the risk mitigation capacity of weather index-based insurance for cotton farmers. We compare the ability of various indices, mainly based on daily rainfall, to increase the expected utility of a representative risk-averse farmer. We first give a tractable definition of basis risk and use it to show that weather index-based insurance is associated with a large basis risk. It has thus limited potential for income smoothing, whatever the index or the utility function. Second, in accordance with the existing agronomical literature we find that the length of the cotton growing cycle, in days, is the best performing index considered. Third, we show that using observed cotton sowing dates to define the length of the grow- ing cycle significantly decreases the basis risk, compared to using simulated sowing dates. Finally we found that the gain of the weather-index based insurance is lower than that of hedging against cotton price fluctuations which is provided by the national cotton company. This casts doubts on the strategy of international institutions, which support weather-index insurances in cash crop sectors while pushing to liberalisation without recommending any price stabilization schemes.
    Keywords: Agriculture, weather, index-based insurance.
    Date: 2013–03–04
  22. By: Youyou BAENDE BOFOTA (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper presents an empirical analysis of the relationship between social capital and children’ educational outcomes in Tanzania, using panel data from the Kagera Health and Development Survey (KHDS). By exploiting the panel structure of the data, we use several econometric techniques - fixed effect, first difference and 2SLS - to address social capital endogeneity issue and omitted variable bias. We find evidence that social capital available in the family affects significantly student attainment and that the magnitudes are large enough to explain a substantial proportion of variation in children schooling in Tanzania in the short term. More importantly, this positive impact lasts over the long term.
    Keywords: Social capital, Education, Developing countries, Tanzania
    Date: 2013–02–18

This nep-afr issue is ©2013 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.