nep-afr New Economics Papers
on Africa
Issue of 2018‒03‒26
ten papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. The Synergistic Effect of Insurance and Banking Sector Activities on Economic Growth in Africa By Mehmet Balcilar; Rangan Gupta; Chien-Chiang Lee; Godwin Olasehinde-Williams
  2. Credit risk and bank competition in Sub-Saharan Africa By M. Brei; L. Jacolin; A. Noah
  3. Demand for off-grid solar electricity: Experimental evidence from Rwanda By Grimm, Michael; Lenz, Luciane; Peters, Jörg; Sievert, Maximiliane
  4. Entrepreneurship and Sustainability: The Need for Innovative and Institutional Solutions By BEN YOUSSEF, Adel; Boubaker, Sabri; Omri, Anis
  5. The Chinese Export Displacement Effect Revisited By Christian Elleby; Wusheng Yu; Qian Yu
  6. Oil contracts and government take : Issues for Senegal and developing countries By Awa DIOUF; Bertrand LAPORTE
  7. Education is Forbidden: The Effect of the Boko Haram Conflict on Education in North-East Nigeria By Eleonora Bertoni; Michele Di Maio; Vasco Molini; Roberto Nisticò
  8. International Commodity Prices and Civil War Outbreak: New Evidence for Sub-Saharan Africa and Beyond By Antonio Ciccone
  9. South-South FDI: Is It Really Different? By Gold, Robert; Görg, Holger; Hanley, Aoife; Seric, Adnan
  10. Institutional Legitimacy, Cross-Border Trade and Institutional Voids: Insights from the Cocoa Industry in Ghana By Amankwah-Amoah, Joseph; Debrah, Yaw; Nuertey, Dorcas

  1. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey; Department of Economics, University of Pretoria, Pretoria, South Africa and Montpellier Business School, Montpellier, France); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Chien-Chiang Lee (Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan); Godwin Olasehinde-Williams (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey)
    Abstract: It is widely understood that the insurance and banking sectors of every economy perform some functions in driving economic growth. What is not yet well documented is whether their roles are complimentary or substitutive. With the aid of the dynamic panel-GMM estimation technique, this paper evaluates the synergistic effect of both sectors on economic growth in a panel of 11 African countries that are responsible for most of the activities in the continent’s financial sector. The insurance-banking-growth nexus was also examined through panel causality tests. The results show that life insurance market and the banking sector are complimentary and that the non-life insurance market and the banking sector are also complimentary. We find that overall, the relationship between the insurance and banking sectors in Africa is a complimentary one and that their synergistic impact on economic growth is positive. The feedback hypothesis was also confirmed in the relationship between the insurance sector and economic growth and between the banking sector and economic growth.
    Keywords: Synergistic effect, Insurance market, Banking sector, Africa, Dynamic GMM, Panel Granger causality
    JEL: C33 G21 G22
    Date: 2018–03
  2. By: M. Brei; L. Jacolin; A. Noah
    Abstract: This paper investigates the impact of bank competition in Sub-Saharan Africa on bank non-performing loans, a measure of credit risk. Using bank-level data for a sample of 221 banks from 33 countries over the period 2000-15, we find a non-linear or U-shaped relationship between bank competition (measured by the Lerner Index) and credit risk. In other words, increased bank competition has the potential to lower credit risk via efficiency gains (lower credit cost, operational gains). However, the positive effects may be outweighed by adverse effects of excessive competition (lower profit margins, increased risk incentives). We also find that credit risk in Sub-Saharan Africa is not only related to macroeconomic determinants, such as growth, public debt, economic diversification, financial deepening and inclusion, but also to the regulatory environment. These results may provide useful insights on how to design and adapt prudential and regulatory frameworks to the specific needs in developing countries.
    Keywords: Bank competition, Credit risk, Bank stability, Lerner index, Africa.
    JEL: G21 G28 D4 O55
    Date: 2018
  3. By: Grimm, Michael; Lenz, Luciane; Peters, Jörg; Sievert, Maximiliane
    Abstract: The cost of providing electricity to the unconnected 1.1 billion people in developing countries is significant. High hopes are pinned on market-based dissemination of offgrid technologies to complement the expensive extension of public grid infrastructure. In this paper, we elicit the revealed willingness-to-pay for different off-grid solar technologies in a field experiment in rural Rwanda. Our findings show that households are willing to dedicate substantial parts of their budget to electricity, but not enough to reach cost-covering prices. Randomly assigned payment periods do not alter this finding. We interpret the results from two perspectives. First, we examine whether the United Nations' universal energy access goal can be reached via unsubsidized markets. Second, in a stylized welfare cost-benefit analysis, we compare a subsidization policy for off-grid solar electrification to a grid extension policy. Our findings suggest that, for most of rural Africa, off-grid solar is the preferable technology to reach mass electrification, and that grid infrastructure should concentrate on selected prosperous regions.
    Keywords: public infrastructure,technology adoption,electrification,willingness-to-pay,energy access
    JEL: D12 H54 O13 Q28 Q41
    Date: 2018
  4. By: BEN YOUSSEF, Adel; Boubaker, Sabri; Omri, Anis
    Abstract: The role of innovation and institutional quality for achieving sustainability are important issues tackled by current sustainable development debates, particularly in developing countries. Using a modified environmental Kuznets curve model, the present study improves our understanding of the critical roles of innovation, institutional quality, and entrepreneurship in structural change toward a sustainable future for Africa. Our empirical results show that formal and informal entrepreneurship are conducive to reduced environmental quality and sustainability in 17 African countries however informal entrepreneurship contributes more than formal entrepreneurship to this environmental degradation. The relationship between entrepreneurship and sustainable development turns strongly positive in the presence of high levels of innovation and institutional quality. This study contributes to this emerging research strand by clarifying the conditions that allow African countries to move toward more sustainable economies. Our results highlight the important roles played by innovation and institutions for achieving sustainability in Africa.
    Keywords: Entrepreneurship; Sustainability; Innovation; Institutional quality.
    JEL: M21 O31 Q56
    Date: 2017–12–01
  5. By: Christian Elleby (Department of Food and Resource Economics, University of Copenhagen); Wusheng Yu (Department of Food and Resource Economics, University of Copenhagen); Qian Yu (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: China’s global export share has increased dramatically over the past decades. This development has prompted an empirical literature on whether Chinese exports displace those originated from elsewhere in various destination markets. In this paper we focus on the growth of China’s exports to the East African Community (EAC) countries and show how it has affected exports from the European Union (EU) to the EAC. Our main contribution to the literature on the displacement effect of Chinese exports is a set of total and relative displacement estimates based on different specifications of the gravity model where we control for country-year fixed effects so as to avoid the “gold medal mistake” of not accounting for time varying “multilateral resistance”. Our findings do not support the hypothesis that Chinese exports have displaced exports from other countries in general. Nor do they support the hypothesis that Chinese exports have displaced exports from EU countries to the EAC countries or elsewhere. There has been no displacement in the sense that, although exporters from the EU and elsewhere have lost market share to China, the value of their exports to the EAC and elsewhere have still increased.
    Keywords: habits, trade, gravity equation, export displacement, China, East African Community, European Union
    JEL: F13 F14 F15
    Date: 2018–03
  6. By: Awa DIOUF (CERDI Université Clermont Auvergne - CNRS); Bertrand LAPORTE (Université Clermont Auvergne – CERDI)
    Abstract: The challenge of developing countries that have natural resources is to attract international investors for the valuation of that wealth and to get a « fair » share of oil revenue. So, the « design » of the oil tax system determines the level of resource exploitation and the oil rent-sharing. The analysis of the Senegal oil tax regime is based on the assessment of oil revenue sharing between the government and the operating companies for a 2014 oil discovery, according to two types of contract: a concession contract and a production sharing contract. Regardless of the contract, average effective tax rates in Senegal are low, compared to other African producer countries, and the taxation regime is regressive. Developing countries must, therefore, be vigilant in defining the applicable tax regime, both for the oil sector and, more generally, for extractive industries. The choice of the production sharing contract is certainly the most widespread, but it does not guarantee either the tax system progressivity or a sufficient government take. The taxation rules that specify the production sharing contract must, therefore, be established by skilfully combining income-based taxes and production-based taxes to define a progressive and sufficiently remunerative tax system for both parties, the state and the investor. The balance between these two types of taxation should be systematically calibrated using a rent-sharing model. For Senegal, in particular, it involves a revision of the oil code in force.
    Keywords: extractive industries, oil contract, government take, Senegal, Developing countries
    Date: 2017–12
  7. By: Eleonora Bertoni; Michele Di Maio (Università di Napoli Parthenope; Inter American Development Bank.); Vasco Molini (World Bank); Roberto Nisticò (Università di Napoli Federico II and CSEF)
    Abstract: TThis paper quantifies the microeconomic impact of the Boko Haram conflict on various educational outcomes of children living in North-East Nigeria during the period 2009- 2016. Using an individual panel fixed-effects regression and exploiting both over-time and within-district variation in household-level conflict exposure, we show that conflict reduces school enrollment and increases the probability of school dropout. In addition, using a standard difference-in-difference estimation strategy, we show that conflict reduces the years of education completed. As for the mechanisms explaining the decision to abandon school, we document that conflict increases the child's probability of working in the household's non-farm enterprise, a choice likely to be motivated by the conflict -induced worsening in the quality of the school supply. Finally, we find that conflict also worsen the general health conditions of the students.
    Keywords: Boko Haram, conflict , education, Nigeria
    JEL: D22 D24 N45 O12
    Date: 2018–03–17
  8. By: Antonio Ciccone
    Abstract: A new dataset by Bazzi and Blattman (2014) allows examining the effects of international commodity prices on the risk of civil war outbreak with more comprehensive data. I find that international commodity price downturns sparked civil wars in Sub-Saharan Africa. Another finding with the new dataset is that commodity price downturns also sparked civil wars beyond Sub-Saharan Africa since 1980. Effects are sizable relative to the baseline risk of civil war outbreak. My conclusions contrast with those of Bazzi and Blattman, who argue that the new dataset rejects that commodity price downturns cause civil wars. The reason is that I calculate commodity price shocks using time-invariant (fixed) export shares as commodity weights. Bazzi and Blattman also calculate commodity price shocks using export shares as commodity weights but the exports shares they use are time-varying. Using time-invariant export shares as commodity weights ensures that time variation in price shocks solely reflects changes in international commodity prices. Price shocks based on time-varying export shares partly reflect (possibly endogenous) changes in the quantity and variety of countries’ exports, which jeopardizes causal estimation. I also show that setting time-invariant export shares equal to average export shares over the sample period, can be a way of dealing with attenuation bias due to mismeasured export shares. When I differentiate between agricultural commodities on the one hand and minerals, oil, and gas on the other, I find stronger increases in the risk of civil war outbreak following downturns in agricultural commodity prices.
    Keywords: civil wars, commodity price downturn
    JEL: E30
    Date: 2018
  9. By: Gold, Robert; Görg, Holger; Hanley, Aoife; Seric, Adnan
    Abstract: We compare the performance of Northern and Southern multinationals in Sub-Saharan Africa, and contrast it with local firms in the host country. Employing unique firm level data for 19 Sub-Saharan African countries, we show that firms receiving FDI outperform domestic ones, while the origin of the foreign investor is of minor importance. We use four different definitions of "South" to compare Northern and Southern FDI. Overall, we do not find strong differences in terms of firm productivity growth between Northern and Southern FDI, irrespective of how the latter is defined. We also find that employment growth is generally higher for firms receiving FDI from other African investors as compared to Northern FDI, and they also receive more technology transfer from their parent company abroad.
    Keywords: South-South FDI,productivity,performance differences,Africa
    JEL: F23 O14
    Date: 2017
  10. By: Amankwah-Amoah, Joseph; Debrah, Yaw; Nuertey, Dorcas
    Abstract: In spite of a growing body of literature on market opportunism in emerging markets, it remains unclear how supply chain partners abuse the institutional voids emanating from weak markets and legal enforcement mechanisms. This study attempts to integrate the concept of ‘institutional voids’ with that of ‘opportunism in inter-firm relationship’ literature to examine how they create space and conditions for illegitimate activities to occur in a supply chain. Using insights from cocoa production and distribution in Ghana, we uncovered activities such as tampering, adjustment of weighing scales and smuggling as examples of illegitimate activities and abuses in the supply chain. The study revealed that these activities are manifestations of institutional voids arising from weak markets and legal enforcement mechanisms. An analysis of the supply chain partners’ activities illuminates our understanding of the underlying processes inherent in market opportunism. Taken together, the study demonstrates how smuggling and theft-to-smuggle have taken on new prominence as an escape response to the institutional voids in the country. The implications for future research are examined.
    Keywords: Africa; Ghana; cocoa industry; cross-border trade; supply chain; trade.
    JEL: M0 M1 M2
    Date: 2018

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