nep-afr New Economics Papers
on Africa
Issue of 2015‒09‒26
six papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. How Terrorism Explains Capital Flight from Africa By Uchenna EFOBI; Simplice Asongu
  2. How does petty corruption affect tax morale in sub-Saharan Africa? An empirical analysis. By Jahnke, Bjoern
  3. Exploring the oil prices and exchange rates nexus in some African economies By Vitaly Pershin; Juan Carlos Molero; Fernando Pérez de Gracia
  4. The value of democracy: evidence from road building in Kenya By Robin Burgess; Remi Jedwab; Edward Miguel; Ameet Morjaria; Gerard Padró i Miquel
  5. The Institutional Determinants of Private Equity Involvement in Business Groups: The Case of Africa By Hearn, Bruce; Oxelheim, Lars; Randøy, Trond
  6. Financial globalisation dynamic thresholds for financial development: evidence from Africa By Simplice Asongu; Lieven De Moor

  1. By: Uchenna EFOBI (Covenant University, Nigeria); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: We assess the effects of terrorism on capital flight in a panel of 29 African countries for which data is available for the period 1987-2008. The terrorism dynamics entail domestic, transnational, unclear and total terrorisms. The empirical evidence is based on Generalised Method of Moments (GMM) with forward orthogonal deviations and Quantile regressions (QR). The following findings are established. First, for GMM, domestic, unclear and total terrorisms consistently increase capital flight, with the magnitude relative higher from unclear terrorism. Second, for QR: (i) the effect of transnational terrorism is now positively significant in the top quantiles (0.75th and 0.90th) of the capital flight distribution, (ii) domestic and total terrorisms are also significant in the top quantiles and (iii) unclear terrorism is significant in the 0.10th and 0.75th quantiles. Policy implications are discussed.
    Keywords: Capital flight, terrorism, Africa
    JEL: C50 D74 F23 N40 O55
    Date: 2015–09
  2. By: Jahnke, Bjoern
    Abstract: Sub-Saharan Africa economies introduced extensive reforms of their tax systems in the last two decades. In most of these countries taxes are now remitted through the self-assessment system that relies on quasi voluntary compliance and audit selection by risk. However, the revenues from direct taxes remained fairly stable and tax/GDP ratios lack behind the industrialized world. Several scholars argue that corruption is one of the major obstacles to increase tax revenues but focus on perceived corruption and remain on the macro-level. This study uses mirco-level data from the Afrobarometer survey wave 5 and thus relates personal corruption experiences to tax morale. The nationally representative survey includes information about corruption experiences in everyday situations when people need to get access to public goods in 31 sub-Saharan African countries. The paper finds that these petty corruption experiences significantly reduce the peoples willingness to pay taxes and hence contribute to the state community. The survey also provides information about trust in tax department in general as well as the perceived number of corrupt tax officials. A mediation analysis estimates that petty corruption experiences not only cause a directly negative effect on tax morale but also have indirectly affect on tax morale via reduced trust in the tax department.
    Keywords: corruption, tax morale, institutional and governance quality, economic development
    JEL: D73 H26 K42
    Date: 2015–09
  3. By: Vitaly Pershin (University of Navarra); Juan Carlos Molero (University of Navarra); Fernando Pérez de Gracia (University of Navarra)
    Abstract: This paper investigates the relationship between oil prices and exchange rates in three African countries using a Vector AutoRegressive (VAR) model. We use daily dataset on nominal exchange rates, oil prices and short term interbank interest rates from 01/12/2003 to 02/07/2014. The results suggest that the exchange rate of three selected countries displayed differing in the event of an oil price shock, not only before and after the oil peak of July of 2008, but also between each other, implying that no general rule can be made for net oil importing sub-Saharan countries, such as Botswana, Kenya and Tanzania. From our analysis we conclude that after an oil price peak, the Botswanan pula clearly appreciates against the US dollar, the Kenyan and Tanzanian shilling.
    Keywords: oil prices, exchange rates, African economies, VAR model.
    JEL: F31 F41 Q43
    Date: 2015–08–27
  4. By: Robin Burgess; Remi Jedwab; Edward Miguel; Ameet Morjaria; Gerard Padró i Miquel
    Abstract: Ethnic favoritism is seen as antithetical to development. This paper provides credible quantification of the extent of ethnic favoritism using data on road building in Kenyan districts across the 1963–2011 period. Guided by a model it then examines whether the transition in and out of democracy under the same president constrains or exacerbates ethnic favoritism. Across the post-independence period, we find strong evidence of ethnic favoritism: districts that share the ethnicity of the president receive twice as much expenditure on roads and have five times the length of paved roads built. This favoritism disappears during periods of democracy.
    JEL: D72 H54 J15 O15 O17 O22 R42
    Date: 2015–06
  5. By: Hearn, Bruce (Sussex University); Oxelheim, Lars (Research Institute of Industrial Economics (IFN)); Randøy, Trond (Agder University)
    Abstract: This study examines the governance attributes of post-IPO (initial public offering) retained ownership of private equity in business group constituent firms in contrast to their unaffiliated counterparts, in 202 newly listed firms in 22 emerging African economies. We adopt an actor centred institutional-theoretic perspective in rationalizing institutional voids and the advantages of maintained governance by both business angels (BA) and venture capital (VC) private equity. Our findings reveal private equity retain higher post-IPO ownership in business group constituents compared to unaffiliated firms and that this is inversely moderated in the context of improving institutional quality. Our result adds to the literature on multifocal corporate governance mechanisms.
    Keywords: G10; G30; G32; G34; G38; K00
    JEL: G10 G30 G32 G34 G38 K00
    Date: 2015–09–08
  6. By: Simplice Asongu (Yaoundé/Cameroun); Lieven De Moor (Vrije Universiteit Brussel, Belgium)
    Abstract: Purpose - We investigate if financial development benefits from financial globalisation are questionable until certain thresholds of financial globalisation are attained. Design/methodology/approach - Financial globalisation is proxied with Net Foreign Direct Investment Inflows as a percentage of GDP (FDIgdp) whereas financial development entails dynamics of depth, efficiency, activity and size. The empirical evidence is based on; (i) data from 53 African countries for the period 2000-2011 and (ii) interactive Generalised Method of Moments with forward orthogonal deviations. Findings- The following findings are established. First, thresholds of FDIgdp from which financial globalisation increases money supply are 20.50 and 16.00 for below- and above-median sub-samples of financial globalisation respectively. Second, FDIgdp thresholds from which financial globalisation increases banking system activity and financial system activity for below-median sub-samples of financial globalisation are 13.81 and 13.29 respectively. Third, for financial size, there is evidence of: (i) a positive threshold of 21.30 in the full sample and (ii) consistent increasing returns without a modifying threshold for the above-median sub-sample. Practical implications- Evidence of a positive threshold implies that while the initial effect of financial globalisation on financial development is negative, there is a positive marginal effect, such that at a certain level of FDIgdp (or threshold), the overall effect of financial globalisation on the given financial development dynamic becomes positive. It follows that financial globalisation is both negative and positive for financial development, with a U-shaped relationship. Therefore the appropriate role of policy should neither be to stem the tide of capital flows nor to encourage them, but to understand what levels or thresholds of capital flows are required to benefit domestic financial development. Originality/value- We have extended the debate on initial or threshold conditions for the financial development benefits from financial globalisation by providing policy makers with levels of FDI (as percentage of GDP) that are required to start materialising financial development benefits from financial globalisation.
    Keywords: Banking; International investment; Financial integration; Development
    JEL: F02 F21 F30 F40 O10
    Date: 2015–09

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