nep-afr New Economics Papers
on Africa
Issue of 2013‒12‒29
thirty-one papers chosen by
Quentin Wodon
World Bank

  1. Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter? By Issiaka Coulibaly; Blaise Gnimassoun
  2. Corruption, good governance, and the African state: A critical analysis of the political-economic foundations of orruption in Sub-Saharan Africa By Joseph Patrick Ganahl
  3. Testing Finance-Led, Export-Led and Import-Led Growth Hypotheses on Four Sub-Saharan African Economies By Evans, Olaniyi
  4. Working Paper 185 - Remittances and the Voter Turnout in Sub-Saharan Africa: Evidence from Macro and Micro Level Data By Ebeke Christian; Yogo Urbain Thierry
  5. Importing, Productivity and Absorptive Capacity in Sub-Saharan African Manufacturing Firms By Neil Foster-McGregor; Anders Isaksson; Florian Kaulich
  6. Working Paper 192 - Empirical Analysis of Agricultural Credit in Africa: Any Role for Institutional Factors By Salami, Adeleke Oluwole; Damilola Felix Arawomo
  7. Working Paper 188 - Remittances and their Macroeconomic Impact: Evidence from Africa By Ncube, Mthuli; Brixiova Zuzana
  8. Fiscal policy during business cycles in developing countries: The case of Africa By Leibfritz, Willi; Rottmann, Horst
  9. Neopatrimonialism and the political economy of Economic Permormance in Africa: Critical Reflections By Mkandawire, Thandika
  10. Aid and Development: Issues and Reflections By Michael, Tribe
  11. Promoting productive employment in Sub-Saharan Africa: A review of the literature By Szirmai, Adam; Gebreeyesus, Mulu; Guadagno, Francesca; Verspagen, Bart
  12. Working Paper 184 - Does Oil Wealth Affect Democracy in Africa? By Anyanwu John; Andrew E. O. Erhijakpor
  13. Working Paper 190 - Early Warning Systems and Systemic Banking Crises in Low Income Countries: A Multinomial Logit Approach By Giovanni Caggiano; Calice Pietro; Leone Leonida
  14. Working Paper 189 - An Empirical Investigation of the Taylor Curve in South Africa By Eliphas Ndou; Nombulelo Gumata; Ncube, Mthuli; Eric Olson
  15. Mitigating Long-run Health Effects of Drought: Evidence from South Africa By Taryn Dinkelman
  16. Two Africas? Why Africa’s ‘Growth Miracle’ is barely reducing poverty By Paul Mosley
  17. Growth Effects of Financial Integration and Financial Deepening in Selected Sub-Saharan African Economies: a Panel-Data Approach By Evans, Olaniyi
  18. Working Paper 187 - The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia By Brixiova Zuzana; Balázs Égert; Thouraya Hadj Amor Essid
  19. Searching for the Relative Potency of Monetary and Fiscal Policies in Selected African Countries: A Panel Data Approach to St. Louis Equation By Adeniji, Sesan; Evans, Olaniyi
  20. The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia By Brixiova, Zuzana; Égert, Balázs; Hadj Amor Essid, Thouraya
  21. Financial Innovations and Monetary Policy in Kenya By Nyamongo, Esman; Ndirangu, Lydia Ndirangu2
  22. Working Paper 186 - Balancing Development Returns and Credit Risks: Evidence from the AfDB’s Experience By Yannis Arvanitis; Stampini Marco; Désiré Vencatachellum
  23. International Financial Integration and The Nigerian Economic Performance: a Var Modeling Approach By Evans, Olaniyi
  24. The Monetary Model of Exchange Rate in Nigeria: an Autoregressive Distributed Lag (ARDL) Approach By Evans, Olaniyi
  25. Can subjective questions on economic welfare be trusted ? evidence for three developing countries By Ravallion, Martin; Himelein, Kristen; Beegle, Kathleen
  26. The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia By Haile, Getinet Astatike; Srour, Ilina; Vivarelli, Marco
  27. Working Paper 191 - Do Firms Learn by Exporting or Learn to Export: Evidence from Senegalese Manufacturers’ Plants By Cisse Fatou; Ji Eun Choi
  28. Testing Augmented Wagner’s Law for Nigeria Based on Cointegration and Error-Correction Modelling Techniques By Alimi, R, Santos
  29. The intermediary role of microloan officers: Evidence from Ethiopia By Shchetinin, Oleg; Wollbrant, Conny
  30. Nonlinearities and the nexus between inflation and inflation uncertainty in Egypt: New evidence from wavelets transform framework By Bouoiyour, Jamal; Selmi, Refk
  31. Estimating informal trade across Tunisia's land borders By Ayadi, Lotfi; Benjamin, Nancy; Bensassi, Sami; Raballand, Gael

  1. By: Issiaka Coulibaly; Blaise Gnimassoun
    Abstract: This paper aims at studying the sustainability of current accounts in Sub-Saharan Africa and determining whether this sustainability depends on the exchange rate regime. Relying on a formal theoretical framework and recent panel cointegration techniques, our findings show that current accounts have been globally sustainable in Sub-Saharan Africa countries over the 1980-2011 period. However, this sustainability has been lower for countries operating a fixed exchange rate regime or belonging to a monetary union. We also find that the difference in the level of sustainability could be explained by a higher persistence in the current account adjustment of countries operating under rigid exchange rate regimes.
    Keywords: Current account, Exchange rate regime, Panel cointegration tests, Sub-Saharan Africa
    JEL: F31 F33 C33
    Date: 2013
  2. By: Joseph Patrick Ganahl
    Abstract: African states are often called corrupt indicating that the political system in Africa differs from the one prevalent in the economically advanced democracies. This however does not give us any insight into what makes corruption the ruling norm of African statehood. Thus we must turn to the overly neglected theoretical work on the political economy of Africa in order to determine how the poverty of governance in Africa is firmly anchored both in Africa’s domestic socioeconomic reality, as well as in the region’s role in the international economic order. Instead of focusing on increased monitoring, enforcement and formal democratic procedures, this book integrates economic analysis with political theory in order to arrive at a better understanding of the political-economic roots of corruption in Sub-Saharan Africa.
    Keywords: Corruption, Good Governance, African States, Political Economics, Development Economics
    JEL: O55 N97
    Date: 2013–12
  3. By: Evans, Olaniyi
    Abstract: This study carries out an empirical examination of the finance-led, export-led and import-led growth hypothesis for four of the largest Sub-Saharan African economies namely South Africa, Nigeria, Ghana and Kenya. Within a multivariate Vector-Auto Regressive (VAR) framework, the concept of Granger causality is employed to determine the direction of causation between exports and output, duly taking into account the stationarity properties of the time series data. With further substantiation from impulse response function and variance decomposition, the empirical evidence shows (i) finance-led, export-led and import-led growth in South Africa and Kenya, (ii) finance-led and imports-led growth in Nigeria, and (iii) only finance-led growth in Ghana. These four Sub-Saharan African nations, with the help of reforms, have experienced expanding exports, increased financial development and accelerated GDP growth rates. Yet, these have yielded varying degrees of success. The agenda for economic growth is a long one in Sub-Saharan Africa. Reforms would require preconditions in the wider economic and political environment, without which they will be ineffective or even counterproductive.
    Keywords: exports, Sub-Saharan African, Granger causality, multivariate Vector-Auto Regressive (VAR), impulse response function, variance decomposition, finance-led, export-led and import-led growth hypothesis
    JEL: F22 F23 F41 F42 O24
    Date: 2013–12
  4. By: Ebeke Christian; Yogo Urbain Thierry
    Abstract: Using both cross-country and individual level African data, this paper demonstrates that remittance inflows significantly lower the propensity to vote during national elections in Sub-Saharan Africa. This effect is robust to empirical specifications aimed at dealing with the endogeneity of remittance inflows at both country and household level data. This result adds to the literature highlighting the potential damaging effects of remittances on long term development.
    Date: 2013–12–19
  5. By: Neil Foster-McGregor (The Vienna Institute for International Economic Studies, wiiw); Anders Isaksson; Florian Kaulich
    Abstract: Our study extends the recent literature on the importer-productivity relationship to a firm-level dataset for sub-Saharan Africa. Using a cross-section sample of 3090 firms in 19 countries, we find that importers are more productive than non-importers. The observed importer premium is found to be robust to firm-specific characteristics and to a number of alternative estimation methods. Furthermore, we examine the importance of absorptive capacity in enhancing the benefits from importing. Using recently developed quantile threshold regression methods, we find that higher levels of absorptive capacity, as measured by human capital, are associated with a stronger relationship between importing and productivity.
    Keywords: importing, productivity, sub-Saharan Africa, absorptive capacity, human capital
    JEL: D24 F10 M20 L10
    Date: 2013–11
  6. By: Salami, Adeleke Oluwole (African Development Bank); Damilola Felix Arawomo
    Abstract: A strong and efficient agricultural sector has the potential to enable a country feed its growing population, generate employment, earn foreign exchange and provide raw materials for industries. It is however ironical that despite the great potentials Africa has in agricultural production; the continent is a net importer of food. Aside the problem of poor access to land and modern technology, the major bane of Africa’s agricultural development commonly cited in the literature is low investment or credit. It is in the light of the above that this study examined the extent of agricultural credit and the factors responsible for the level of agricultural credit in Africa. The agricultural credit model was estimated using the panel data covering 1990-2011 generated for ten countries selected across the five sub-regions in the continent. Both fixed and random effects models were estimated and compared with the Pooled OLS. Our finding reveals that higher savings rate produces greater agricultural credit in the continent. Although, savings rate is generally low in Africa, the impact of savings on agricultural credit is still massive. All the four governance variables- Corruption index, Rule of Law index, Regulatory quality index, and Government Effectiveness index- have negative impact on agricultural credit in the continent. The interest rates being charged by the various financial institutions especially commercial banks have adverse effects on credit to the agriculture sector. Land available for agriculture has positive significant impact on agricultural credit in Africa. Overall, governance issues are crucial to addressing the challenges of low and dwindling agricultural credit in Africa.
    Date: 2013–12–19
  7. By: Ncube, Mthuli; Brixiova Zuzana
    Abstract: This paper examines macroeconomic trends, drivers and impact of remittances in Africa. First, it documents the increasing share of remittances relative to other foreign capital flows to Africa, distribution of remittance inflows across countries, and some key properties. This is followed by some analysis of the macroeconomic drivers of remittances in recipient countries, such as the level of income, inflation and nominal exchange rate depreciation. Specifically, remittances are positively impacted by higher income, but deterred by an unstable macroeconomic environment, pointing to the investment motive in remitting to Africa. The paper also examines the role of remittances in funding Africa’s external balances. Finally, drawing on the case of Egypt, the paper shows the positive impact that rising remittances can have on public debt sustainability.
    Date: 2013–12–19
  8. By: Leibfritz, Willi; Rottmann, Horst
    Abstract: Fiscal positions of African countries have improved significantly during the past decade. Higher economic growth, better terms of trade, improved donor support notably through debt relief and better control of expenditure contributed to this improvement. But at the same time government revenue and expenditure have become more volatile. The paper explores behaviour of government spending during business cycles. It finds that spending has on average been since 1980 broadly a-cyclical thus neither significantly aggravated nor mitigated cyclical fluctuations. But when comparing the two sub-periods before and after 2000 we find that before 2000 spending was on average (moderately) procyclical. While from 1980 to 2000 in almost two thirds of the 46 countries, which we examined, spending was procyclical this share declined to less than 40 percent after 2000 and in the majority of countries spending was a-cyclical or countercyclical. As more countries escaped from procyclicality Africa's resilience against external shocks improved. This also helped to better cope with the Great Recession of 2009. --
    Keywords: developing countries,Africa,fiscal policy,business cycles
    JEL: O11 O23 H3 H5
    Date: 2013
  9. By: Mkandawire, Thandika (The London School of Economics and Political Science)
    Abstract: During the last two decades the idea that neopatrimonialism is central to unravelling the facts behind Africa’s poor economic performance has been advanced by what this study will refer to as the “Neopatrimonialism School”. This paper will argue that while providing descriptions of the styles of exercise of authority, idiosyncratic mannerisms of certain colourful individual leaders, or the socio-cultural practices of states and individuals occupying different positions within them, the concept has little analytical content and no predictive value with respect to economic policy and performance. As the concept is also deployed in comparative analyses, in order to explain why Africa underperforms when compared to other regions in the developing world, this paper touches upon a number of comparisons between Africa and other parts of the developing world
    Keywords: neopatrimonialism;
    JEL: N17
    Date: 2013–04–22
  10. By: Michael, Tribe
    Abstract: The paper has three main sections. The first is a review of two particular propositions which appear in Dambisa Moyo’s 2009 book Dead Aid which were not subjected to rigorous analysis in the reviews which appeared following its publication. The finding is that neither proposition survives serious scrutiny – that aid is responsible for most of sub-Saharan Africa’s economic woes and that the international bond market represents a viable alternative to foreign aid for the finance of development-oriented investment. The second questions some of the characteristics and uses of the World Bank’s Country Policy and Institutional Assessment (CPIA), particularly focussing on the use of an essentially ordinal measure in cardinal applications. The third subjects the UK Department for International Development’s Needs-Effectiveness Index to critical review, concluding that further consideration of its attributes is necessary.
    Keywords: developing countries, development, foreign aid, sub-Saharan Africa, book review,
    Date: 2013
  11. By: Szirmai, Adam (UNU-MERIT / MGSoG); Gebreeyesus, Mulu (UNU-MERIT / MGSoG); Guadagno, Francesca (UNU-MERIT / MGSoG); Verspagen, Bart (UNU-MERIT / MGSoG)
    Abstract: This report provides an overview of current research on and knowledge about employment trends and policies in sub-Saharan Africa. Access to productive employment is seen as essential for poverty reduction and the inclusion of the poor in wider society. Productive employment is characterised by a. Sufficient income to permit workers and their dependents a level of consumption above the poverty line; b. Stability of this income over time (absence of vulnerability; c. Decent working conditions and working hours. The challenge of African economies lies not so much in open unemployment, as in the quality of employment as defined by earnings, vulnerability and working conditions. Much employment is located in the informal sector, where vulnerability is a serious problem. High youth employment in young populations is another serious challenge. Causes of employment problems include: lack of the right kinds of structural change, skill mismatches on the labour market, insufficient attention for SMEs with growth potential and insufficient innovation. The paper discusses a wide range of policies to promote productive employment including trade policies, sectoral policies, innovation policies, population policies and employment and labour market policies. The paper concludes with a discussion of emerging debates and contrasting views with regard to productive employment. It summarises the debates on agricultural led industrial development, resource based industrialisation, emergence of non-traditional exports, employment in labour intensive modern commercial agriculture, the role of manufacturing in growth and employment creation, the exploitation of unlimited supplies of labour, role of FDI and promoting pro-poor innovation in the informal sector.
    Keywords: productive employment, vulnerability, working conditions, unemployment, structural change, skill mismatches, employment policies
    JEL: J21 J24 J28 O2 O4
    Date: 2013–11–20
  12. By: Anyanwu John (African Development Bank); Andrew E. O. Erhijakpor
    Abstract: Understanding the effect of oil wealth on democracy is important. National democratic institutions provide a check on governmental power and thereby limit the potential of public officials to amass personal wealth and to carry out unpopular policies. Democracy promotion has thus been at the top of the US and West European foreign policy agenda since the end of the Cold War. Recently rising coups d’états attempts and oil discoveries in some African countries, high energy prices and the North African and Middle East situation characterized by revolutions have made the question of the link between oil wealth and democracy timelier than ever. This paper uses recent data on historical oil wealth to provide new evidence on the effect of oil wealth on democracy in Africa from 1955 to 2008. We find that oil wealth is statistically associated with a lower likelihood of democratization when we estimate the relationship in a pooled cross-sectional and time-series setting. In addition, when estimated using fixed effects, the strong negative statistical association continues to hold. Indeed, this result is robust to the source of oil wealth data, the choice and treatment of the variables set, and the sample selection. Our results also show other interesting and important results. The cross-country evidence examined in the study confirms that the “Lipset/Aristotle/modernization hypothesis” (that prosperity stimulates democracy) is a strong empirical regularity. Also, the propensity for democracy rises with population size, population density, ethnic fractionalization, having British legal origin or colonial heritage, and having a supportive institutional environment in the form of maintenance of the rule of law. However, apart from oil wealth, democracy tends to fall with linguistic fractionalization and rough (mountainous) terrain. Moreover, consistent with the data, North Africa consistently fails to favor democratic development.
    Date: 2013–12–19
  13. By: Giovanni Caggiano; Calice Pietro (African Development Bank); Leone Leonida
    Abstract: This paper estimates an early warning system for predicting systemic banking crises in a sample of low income countries in Sub-Saharan Africa. Since the average duration of crises in this sample of countries is longer than one year, the predictive performance of standard binomial logit models is likely to be hampered by the so-called crisis duration bias. The bias arises from the decision to either treat crisis years after the onset of a crisis as non-crisis years or remove them altogether from the model. To overcome this potential drawback, we propose a multinomial logit approach, which is shown to improve the predictive power compared to the binomial logit model. Our results suggest that crisis events in low income countries are associated with low economic growth, drying up of banking system liquidity and widening of foreign exchange net open positions. JEL Classification: C52, G21, G28, E58.
    Keywords: Banking crises, Systemic risk, Early warning systems, Low income countries, Sub-Saharan Africa, Logit estimation, Financial regulation.
    Date: 2013–12–19
  14. By: Eliphas Ndou; Nombulelo Gumata; Ncube, Mthuli; Eric Olson
    Abstract: This paper investigates the policy trade-off between inflation volatility and output volatility, also referred to as the Taylor curve. In so doing, the paper assesses whether the Taylor curve has shifted over time, how demand and supply shocks affect the volatilities of inflation and the output gap, and the optimality of monetary policy using the Taylor principle. We use multivariate GARCH estimation. The results show that the Taylor curve has shifted over the sample period and shifted inwards under the inflation-targeting regime relative to prior regimes. Furthermore, the results indicate that economic growth performance is superior in periods in which the Taylor curve relationship holds. The effects of demand and supply shocks on both conditional volatilities are transitory. In policy terms, the inward shift of the Taylor curve and evidence based on the Taylor principle suggests optimal monetary policy settings or conduct during the inflation-targeting regime relative to earlier regimes.
    Date: 2013–12–19
  15. By: Taryn Dinkelman
    Abstract: Drought is Africa’s primary natural disaster and a pervasive source of income risk for poor households. This paper documents the long-run health effects of early life exposure to drought and investigates an important source of heterogeneity in these effects. Combining birth cohort variation in South African Census data with cross-sectional and temporal drought variation, I estimate long-run health impacts of drought exposure among Africans confined to homelands during apartheid. Drought exposure in early childhood significantly raises later life male disability rates by 4% and reduces cohort size. Among a subset of homelands – the TBVC areas – disability effects are double and negative cohort effects are significantly larger. I show that differences in spatial mobility restrictions that influence the extent of migrant networks across TBVC and non-TBVC areas contribute to this heterogeneity. Placebo checks show no differential disability impacts of drought exposure across TBVC and non-TBVC areas after the repeal of migration restrictions. The results show that although drought has significant long-run effects on health human capital, migrant networks in poor economies provide one channel through which families mitigate these negative impacts of local environmental shock.
    JEL: I15 J61 N37 O15
    Date: 2013–12
  16. By: Paul Mosley
    Abstract: Abstract India has one of the highest underweight burdens in the world, with signs of rising obesity. Coexistence of underweight and overweight women is symptomatic of the double burden of malnutrition. The present study aims to throw new light on the double burden of malnutrition among Indian women in the age group 22-49 years. The analysis is based on a nationally representative household survey, InAlthough growth has improved substantially in most African countries in recent years, poverty across the continent has fallen very little in the aggregate, even though there have been outstanding performances by some countries. Indeed, some African countries have slipped back, and exhibit higher poverty rates than in 1990. This paper seeks to understand the reasons for this variance between countries; the reasons why, certainly if one uses headcount poverty data, there are ‘two Africas’, one with powerful ability to reduce poverty and one without. We argue that some of the reasons for this difference are rooted in colonial times, and those countries which developed dynamic exports of smallholder cash crops, the ‘peasant export economies’, received a headstart in relation to mineral- and large farm-based economies, because of the more equitable income distribution which labour-intensive, smallholder-based economies generate. However, in the post-colonial period, many peasant export economies wasted this headstart, and some mine/plantation economies were able to transcend the limitation of not having received one. The key reasons for this evolution, we argue, lie in the motivation and ability of African elites to form pro-poor coalitions, which in some cases were then able to implement tax and expenditure policies with the ability to bring a pro-poor pattern of growth into being. This story is tested both econometrically and by means of four contrasted country case studies.dia Human Development Survey, 2005. The results indicate that the factors underlying this burden include socio-economic status (SES), location, marital status, age, education, physical activity, media exposure, and dietary composition and frequency of eating. We find that there is a socio-economic patterning of underweight and overweight women, with a large concentration of underweight women among those with a low SES and of overweight women among high SES. Given that the health implications of being underweight and overweight are grim, it is imperative that there is a simultaneous increase in the focus on the health needs of overweight and obese people and on the needs of the large number of severely undernourished people in society. For Indian women, the glaring health/nutrition disparities are matched only by the grimness of their existence and survival prospects.
    Date: 2013
  17. By: Evans, Olaniyi
    Abstract: This paper investigates the growth effects of financial integration and financial deepening in selected SSA economies, using a panel dataset of 10 SSA countries from 1970-2012. We use ratio of net FDI inflow to GDP (proxy for financial integration), ratio of gross capital formation to GDP (proxy for investment) and ratio of domestic credit to GDP (proxy for level of financial deepening) as documented in Gregorio (1998). We also incorporated the random effects and Wald tests. The study finds that financial integration and financial deepening play positive and significant roles in boosting the economic growth of SSA countries. It also emphasizes that these countries have been relatively successful over the last decade in attracting international capital inflows which have been crowding out domestic investment. This fact reinforces the fact that SSA economies which open themselves to the world economy need at first abolish domestic distortions to reap the benefits of globalization. It is even more imperative to upgrade the essential frameworks for sound, efficient, and inclusive financial systems. It is up to SSA’s financial sector stakeholders – bankers, donors, and policymakers – to pilot financial sector reforms in a way that amplifies SSA’s opportunities, learning both from their own experience over the past 50 years and the experience in other emerging and developed economies.
    Keywords: Growth effects, financial integration, financial deepening, FDI, international capital inflows, domestic investment, financial systems
    JEL: G11 G14 G18 G2 G21 G23
    Date: 2013–12
  18. By: Brixiova Zuzana; Balázs Égert; Thouraya Hadj Amor Essid
    Abstract: Egypt, Morocco and Tunisia face challenges competing on the global markets, as shown by their relatively low and stagnant export shares. The limited export competitiveness has hampered external demand, growth and employment. Applying, for the first time to North Africa, the stock-flow approach to the real equilibrium exchange rate, this paper evaluates the countries’ real exchange rate misalignments during the past three decades. While Egypt experienced periods of substantial misalignment, including in recent years, the exchange rates in Morocco and Tunisia have broadly reflected the underlying fundamentals. In all three countries structural factors are key to boosting exports, alongside of avoiding sizeable future misalignments. Intra-regional trade – both with North Africa and the rest of the continent – together with greater orientation to fast growing emerging markets could also raise countries’ external competitiveness.
    Date: 2013–12–19
  19. By: Adeniji, Sesan; Evans, Olaniyi
    Abstract: With the aid of the St. Louis equation, this study applies panel data technique to real variables of some selected African countries with extended data from 1970 – 2012. The outcomes support both Keynesian and monetarist positive policy assertions. The monetary base and government expenditure are viable instruments to stabilize output. The study, as well, finds that utilizing the monetary base as a policy tool is more potent than using government expenditure. This is in line with the predictions of Milton Friedman and Schwartz (1963) and other advocates of the St. Louis equation. Therefore, in order to attain higher output growth, these economies should rely more on monetary policy as compared with fiscal policy.
    Keywords: Monetary Policy, Fiscal Policy, St. Louis Equation and Panel Data
    JEL: C01 E52 E62
    Date: 2013–12–22
  20. By: Brixiova, Zuzana (African Development Bank); Égert, Balázs (OECD); Hadj Amor Essid, Thouraya (Monastir University)
    Abstract: Egypt, Morocco and Tunisia face challenges competing on the global markets, as shown by their relatively low and stagnant export shares. The limited export competitiveness has hampered external demand, growth and employment. Applying, for the first time to North Africa, the stock-flow approach to the real equilibrium exchange rate, this paper evaluates the countries' real exchange rate misalignments during the past three decades. While Egypt experienced periods of substantial misalignment, including in recent years, the exchange rates in Morocco and Tunisia have broadly reflected the underlying fundamentals. In all three countries structural factors are key to boosting exports, alongside of avoiding sizeable future misalignments. Intra-regional trade – both with North Africa and the rest of the continent – together with greater orientation to fast growing emerging markets could also raise countries' external competitiveness.
    Keywords: real exchange rate misalignment, stock-flow model, competitiveness, trade, employment, North Africa
    JEL: F3 F41 C5 O1
    Date: 2013–12
  21. By: Nyamongo, Esman; Ndirangu, Lydia Ndirangu2
    Abstract: The objective of this study is to analyze the effects of financial innovation in the banking sector on the conduct of monetary policy in Kenya during 1998-2012. The country has witnessed a number of financial innovations during this period. The study focuses on whether these wave of financial innovations have impacted on the transmission mechanism of monetary policy, and if so how. The results show that the innovations have improved the monetary policy environment in Kenya as the proportion of the unbanked population has declined coupled with gradual reduction in currency outside banks. However, the period post 2007 when the country has experienced the fastest pace of financial innovation, is associated with instability in the money multiplier, income velocity of money and the money demand. However, recent trends point towards stabilization pointing to the need for further examination establish whether indeed the break in trend is of structural or transitory in nature. A structural break raises questions on the credibility of the current monetary targeting framework in use in Kenya, in view of which a more flexible framework should be adopted. Overall, the results show that financial innovation has had positive outcomes and seems to improve the interestrate channel of monetary policy transmission.
    Keywords: Monetary policy, excess liquidity, Kenya, financial innovation
    JEL: E00 E02 E5
    Date: 2013–12
  22. By: Yannis Arvanitis; Stampini Marco (African Development Bank); Désiré Vencatachellum
    Abstract: Recent debates amongst civil society organizations focusing on the governance of multilateral development banks have expressed some concerns regarding institutional capacities to ensure project quality-at-entry in line with key developmental issues. The present paper delves upon the African Development Bank’s (AfDB) “Additionality and Development Outcomes” framework practice in that respect. By reviewing the concepts that underpin the AfDB’s project quality-at-entry framework, the paper brings out the importance of well-aligned appraisal criteria with institutional priorities. The paper’s main contribution is to provide empirical regarding the extent to which key components of project quality-at-entry criteria interrelate and how they balance against credit concerns. Results suggest that at appraisal the AfDB has played an active role in achieving development outcomes, increasing the development focus of portfolio decisions. Also, results highlight that the variables taken into account during appraisal – whether they pertain to development or risk concerns - are rather independent from each other and that no assumption should be made on one variable given information on the others. Finally, findings suggest that both development outcomes and additionality considerations are important for project approval at board level. More specifically, considerations regarding financial additionality matter when it comes to AfDB value-added in a project, and concerns over household benefits, gender & social effects, government revenues and private sector development matter most when it comes to overall development outcomes. While some caveats remain to be addressed, the overall conceptual and institutional framework now in place has laid strong foundations that will help measure how these projects have performed in practice.
    Date: 2013–12–19
  23. By: Evans, Olaniyi
    Abstract: Since it is believed that having access to a broader base of capital is a key requirement for economic growth, then financial integration is necessary because it expedites flows of capital from developed economies with rich capital to developing economies like Nigeria with limited capital. The major objective of this paper is to empirically investigate the relationship between international financial integration and the Nigerian economic performance, using annual time series data from 1970 to 2012. In order to do this, the study employs KPSS unit root test, Johansen cointegration test, VAR modeling, impulse response function, variance decomposition and granger causality. Empirical results show that there is a short-run relationship between international financial integration and economic growth. All the variables including, the ratio of net capital inflows to GDP and the ratio of FDI to GDP appear with the expected positive signs (except trade openness) and are statistically significant in the Nigerian economy. The findings have a strong implication on financial and international policy in Nigeria. The major implication is that further integration into the global economy would require sustained policy reforms, improved governance, and public-private investments in social, human, and physical infrastructure. The study suggests that rigorous efforts should be made by policy makers to improve infrastructural investment for the attraction of foreign capital.
    Keywords: financial integration, economic growth, FDI, GDP flows of capital, foreign capital, VAR modeling, impulse response function, variance decomposition and granger causality
    JEL: F2 F23 F34 F35 G14 G22 G28
    Date: 2013–12
  24. By: Evans, Olaniyi
    Abstract: This study examines the monetary model of exchange rate in Nigeria, using an Autoregressive Distributed Lag (ARDL) approach over the period 1998Q1 to 2012Q2. The estimation results show that there is long run relationship among variables of the monetary model of exchange rate for Nigeria. That is, the estimated coefficients of the money supply, income and interest rate differentials support the monetary exchange rate model. As well, the stability test of CUSUM shows that there exists a significant and stable monetary model of exchange rate determination for Nigeria. Therefore, this study recommends that market participants in the foreign exchange market may monitor and forecast future exchange rate movements using the money supplies, incomes and interest rates variables.
    Keywords: monetary model, exchange rate, Autoregressive Distributed Lag, money supply, income and interest rate differentials
    JEL: E4 E43 E47 E52 G1
    Date: 2013–12
  25. By: Ravallion, Martin; Himelein, Kristen; Beegle, Kathleen
    Abstract: While self-assessments of welfare have become popular for measuring poverty and estimating welfare effects, the methods can be deceptive given systematic heterogeneity in respondents'scales. Little is known about this problem. This study uses specially-designed surveys in three countries, Tajikistan, Guatemala, and Tanzania, to study scale heterogeneity. Respondents were asked to score stylized vignettes, as well as their own household. Diverse scales are in evidence, casting considerable doubt on the meaning of widely-used summary measures such as subjective poverty rates. Nonetheless, under the identifying assumptions of the study, only small biases are induced in the coefficients on widely-used regressors for subjective poverty and welfare.
    Keywords: Rural Poverty Reduction,Economic Theory&Research,Biodiversity,Poverty Lines,Regional Economic Development
    Date: 2013–12–01
  26. By: Haile, Getinet Astatike (University of Nottingham); Srour, Ilina (Università Cattolica del Sacro Cuore); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: There is a dearth of research on the impact of technological change on employment in the context of least developed countries (LDCs) embarking on globalization, which enhances the prospect of direct technological imports or embodied technological transfer. Using a sample of 1,940 enterprises from Ethiopia over the period 1996-2004 and deploying System Generalized Method of Moments (GMM-SYS), this paper attempts to establish the nature of manufacturing employment in Ethiopia and the role played by trade and FDI in determining employment. The empirical results obtained lend support to globalization having a labour-augmenting effect, increasing total manufacturing employment. The two-equation dynamic framework implemented to analyse enterprise-level employment trends by skill level provides some evidence of skill-bias specific to enterprises with higher share of foreign ownership and those that that are located in the vicinity of the capital city. Exporters are not found to benefit from "learning by exporting".
    Keywords: technological change, trade, FDI, globalization, skills, employment, Ethiopia
    JEL: O33 F16 L60 O55 C33
    Date: 2013–12
  27. By: Cisse Fatou; Ji Eun Choi
    Abstract: The increasing number of literatures investigating on the impact of trade openness on firm efficiency has not yet provided a definite prediction on the direction of causality (Rodrik, 1988, 1992, and Tybout 1992). We investigate the relation between exporting and productivity on the Senegalese manufacturing sectors. Using a unique firm-level panel data for the period 1998-2011, we estimate productivity and exporting dynamics, controlling for other unobserved effects, using simultaneous functions based on Bigsten and al. (2002). Our results indicate the evidences of both self-selection of the most efficient firms enter into the export market and effect of Learning in the export market. Our findings suggest that workers’ qualification and access to Patents and Licences have a positive effect on the process of learning. Also, small firms particularly learn more from exporting. From a policy perspective, this evidence of learning-by-exporting suggests that Senegal has much to gain from promoting its manufacturing sector towards exporting by supporting domestic firms to overcome the barriers to enter into foreign market, particularly by investing on skilled workers and promote access to Patents and Licences as well as disseminating benefits arising from exporting to non-exporters.
    Date: 2013–12–19
  28. By: Alimi, R, Santos
    Abstract: Wagner’s Law is the first model of public spending in the history of public finance. The study tests the validity of Wagner’s Law that there is a long-run tendency for public expenditure to grow relative to national income. This implies that public expenditure can be treated as an endogenous factor, not a cause of growth in national income. In contrast, Keynesian hypothesis treats public expenditure as an exogenous factor. “Augmented” version of Wagner’s Law, where public deficit appears as further explanatory variable, is also investigated. Assessing the empirical evidence of these hypotheses in Nigeria, for the period 1970-2012, the study employed Johansen Cointegration Techniques with its associated Error Correction Model for the short run dynamics. We found bi-directional causal relation for the short run dynamics for five out of seven formulations while the long run empirical evidence seems to be most favourable to Wagner’s hypothesis rather than the Keynesian one, therefore suggesting that causality run from real income to government expenditure.
    Keywords: public spending; economic growth; Wagner’s Law; error correction model
    JEL: C32 E0 H50 H6
    Date: 2013
  29. By: Shchetinin, Oleg (Department of Economics, School of Business, Economics and Law, Göteborg University); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Microfinance institutions are key financial intermediaries between donors and borrowers in developing countries. Loan officers are crucial for establishing and maintaining the relationship between borrowers and microfinance institutions. This paper studies the impact of loan officers on the loan portfolio. We use a survey and choice experiment of 800 loan officers to estimate loan officers’ preferences over loan allocation. We investigate how these preferences are affected by the organizational structure of the microfinance institution, for example, incentive provision. We pay special attention to monitoring of borrowers and loan officer discretion. The most important determinants of loan allocation are related to the financial viability of microfinance institutions rather than the pro-social mission of microfinance. We derive recommendations for the governance of microfinance institutions.
    Keywords: Financial intermediation; Microfinance; Loan officers; Loan allocation; Choice experiment
    JEL: G21 L31 O16
    Date: 2013–12–17
  30. By: Bouoiyour, Jamal; Selmi, Refk
    Abstract: How does inflation uncertainty interact with inflation rate? The purpose of this article is to assess this question in Egypt in a wavelets transform framework. We investigate the direction of causality in the relationship inflation-inflation uncertainty by combining component GARCH model, wavelets decomposition and scale-by-scale nonlinear causality test. We find a strong evidence in favor of Friedman-ball hypothesis in both time domain and the different frequencies. This study succeeds to resolve the inconsistencies and to point a robust nonlinear effect of inflation on inflation uncertainty, which is more intense at high frequency bands than at low ones. We attribute this result to the complexity in predicting how strongly and how quickly prices will respond to monetary policy, the asymmetry between inflation booms and recessions, the incidence of exogenous shocks, the co-movement of permanent shocks with inflation and the downward expectations of monetary authorities.
    Keywords: Inflation, inflation uncertainty, GARCH, wavelets, nonlinear causality.
    JEL: C1 C6 E3
    Date: 2013–11
  31. By: Ayadi, Lotfi; Benjamin, Nancy; Bensassi, Sami; Raballand, Gael
    Abstract: This paper uses mirror statistics and research in the field to estimate the magnitude of Tunisia's informal trade with Libya and Algeria. The aim is to assess the scale of this trade and to evaluate the amount lost in taxes and duties as a result as well as to assess the local impact in terms of income generation. The main findings show that within Tunisian trade as a whole, informal trade accounts for only a small share (5 percent of total imports). However, informal trade represents an important part of the Tunisia's bilateral trade with Libya and Algeria, accounting for more than half the official trade with Libya and more than total official trade with Algeria. The main reasons behind this large-scale informal trade are differences in the levels of subsidies on either side of the border as well as the varying tax regimes. Tackling informal trade is not simply a question of stepping up the number of controls and sanctions, because differences in prices lead to informal trade (and to an increase in corruption levels among border officials) even in cases where the sanctions are severe. As local populations depend on cross-border trade for income generation, they worry about local authorities taking action against cross-border trade. At the same time, customs officials are concerned about the risk of local protests if they strictly enforce the tariff regimes in place. This issue will become even more significant if fuel prices in Tunisia rise again as a result of a reduction in the levels of domestic subsidies.
    Keywords: Transport Economics Policy&Planning,Trade Law,Economic Theory&Research,Trade Policy,Emerging Markets
    Date: 2013–12–01

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