nep-afr New Economics Papers
on Africa
Issue of 2019‒04‒29
five papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. Dynamics between Financial development, Energy consumption and Economic growth in Sub-Saharan African countries: Evidence from an asymmetrical and nonlinear analysis By Kassi, Diby François; Sun, Gang; Gnangoin, Yobouet Thierry; Edjoukou, Akadje Jean Roland; Assamoi, Guy Roland
  2. A Fresh Chance for Africa's Youth: Labour Market Effects of the African Continental Free Trade Area (AfCFTA) By Lungu, Ioana
  3. Trade Integration in the Economic Community of West African States: Assessing Constraints and Opportunities Using an Augmented Gravity Model By Abdelaaziz Aït Ali; Rim Berahab
  4. Economic Growth and Environmental Degradation: Investigating the existence of the environmental Kuznets curve for local and global pollutants in South Africa By Timothy Köhler; Martin de Wit
  5. The Role of a Flexible Foreign Exchange System in Macroeconomic Adjustment: The Case of Morocco By Abdelaaziz Aït Ali

  1. By: Kassi, Diby François; Sun, Gang; Gnangoin, Yobouet Thierry; Edjoukou, Akadje Jean Roland; Assamoi, Guy Roland
    Abstract: This paper analyzes the asymmetrical relationship between financial development, energy consumption and economic growth in twenty-one (21) sub-Saharan African (SSA) countries from 1990Q1 to 2014Q4. We used the nonlinear autoregressive distributed lag (NARDL) framework and asymmetrical causality tests to examine the relationship between the variables. First, the country-level analysis reveals that there is asymmetrical cointegration between the variables in some countries and mixed results of the causal effects of financial development and energy consumption on economic growth across countries. Second, the results of the panel data analysis confirm the asymmetrical cointegration in the SSA region, especially in lower-middle-income countries than in upper-middle-income countries. We find that positive changes in energy consumption significantly reduce economic growth, contrary to the negative changes in the long-term. Besides, positive shocks to financial development favor more economic growth than the adverse shocks in the long-term in the SSA region. However, financial development hurts economic growth, contrary to energy consumption in the short-term. Finally, the results show bidirectional causality between positive changes in energy consumption and economic growth, but unidirectional causality running from negative changes in energy consumption to economic growth in the SSA region. There is also bidirectional causality between positive and negative shocks to financial development and economic growth in SSA region, but mixed results across lower-income countries and upper-middle-income countries. Therefore, our study suggests that energy-saving policies such as renewable energies can be implemented in the SSA region to promote sustainable development. In addition, policy-makers should adopt an efficient allocation of the credits to the private sector supporting productive investments. They should also pay attention to the asymmetrical relationship between financial development, energy consumption and economic growth in most SSA countries in the conduct of economic policies.
    Keywords: Financial development; Energy use; Economic growth; NARDL; Sub-Saharan Africa.
    JEL: C13 G20 Q43
    Date: 2019–04–20
  2. By: Lungu, Ioana
    Abstract: The African Continental Free Trade Area marks a historic decision on the road to regional economic integration on the continent. If implemented, the agreement has the potential to make a significant impact on improving the livelihoods of the African people, by increasing intra-African trade and generating new employment opportunities on an integrated African labour market.
    Keywords: international trade,regional economic integration,Africa,development,labor market
    JEL: J21 J24 O10 O40 F15 F16
    Date: 2019
  3. By: Abdelaaziz Aït Ali; Rim Berahab
    Abstract: This study assesses and compares the determinants of intra-trade in the Economic Community of West African States (ECOWAS) and the Association of Southeast Asian Nations (ASEAN). Regarding the adopted methodology, we estimate two versions of the gravity model over intra-trade. For the two communities, the first model captures standard effects of the exporting and the importing economic size, the distance, contiguity, while the second model incorporates, as additional explanatory variables, the quality of infrastructure and the bilateral complementarity. The Pseudo Poisson Maximum Likelihood (PPML) technique is used to offset the systematic heteroscedasticity bias. The results show that the effort of export in ECOWAS captured through the elasticity to export is surprisingly higher than the ASEAN, once we control for the infrastructure and complementarity. Transaction costs, captured, inter alia, through the landlockness variable, are very informative in this case, as they has lost significance in the augmented gravity model mainly for the ECOWAS, meaning that what matters the most in this case is infrastructure base and complementarity index that allows the country to overcome geographic constraints. Then, we simulate the potential or the theoretical trade within the ECOWAS and compare it to observed data, using the coefficients estimated over the ASEAN. Results suggest that trade potential within the ECOWAS, remains below the potential given by the gravity model, especially for small economies in the community. This calls for pro-active strategic policies that aim to reap the benefits of trade liberalization and fulfill the potential. This comes through closing Africa’s infrastructure gap to reduce trade costs and the promotion of economic diversification. In fact, estimation results display higher sensitiveness to infrastructure and complementarity indexes in the ECOWAS than the ASEAN. Nonetheless, trade dynamics are more complicated and depend on several factors of which the centrality of local product competitiveness. The latter can indeed determine how far ECOWAS’s products can replace foreign products at least in the domestic market. A brief analysis of revealed comparative advantage (RCA) shows that aside from primary commodities, the majority of products imported by the ECOWAS are supplied by other countries who have a stronger RCA.
    Date: 2018–12
  4. By: Timothy Köhler (Department of Economics, University of Stellenbosch); Martin de Wit (School of Public Leadership, University of Stellenbosch)
    Abstract: Economic growth has been seen to be accompanied by surges in natural resource extraction rates or levels of pollution and waste. As such, many suggest that the pursuit thereof may lead to environmental degradation through increased waste generation and pollution, given a country’s technological constraints and environmental assimilative capacity. In the field of economics, the ‘Environmental Kuznets Curve’ (EKC) has served as arguably the most dominant approach to assess this relationship between economic growth and environmental degradation since its popularisation in the early 1990s (Stern, 2017:8). The EKC implies that economic activity is environmentally beneficial in the long-run, despite adversely affecting it in the short-run. International findings remain mixed at best, and only a limited amount of other studies which attempt to assess the existence of an EKC in South Africa’s context exist, all of which use the same global air pollutant for environmental quality. The aim of this paper is to contribute to the existing literature by investigating the presence of the EKC for a set of relatively diverse – three local and three global – air pollutants in South Africa for the period 1970 to 2010. This study serves as the first to estimate the relationship for any local pollutant, as well as two global pollutants, in South Africa through the EKC framework. Using OLS and ARDL regression techniques, the results of the 24 estimated models do not provide evidence of an EKC for any of the select pollutants. However, when using levels instead of logarithms, an EKC is found in one specification for one local pollutant (NH3). Otherwise, no distinction between local and global air pollutants is found. In contrast to the EKC’s inverted-U shape, the ARDL models for two global (CO2 and N2O) and two local (SO2 and PM10) pollutants indicate statistically significant U-shaped relationships at conventional significance levels. Unfortunately, the reduced-form approach utilised in this paper does not indicate any underlying causal relationship and as such, conclusive policy suggestions cannot be made.
    Keywords: environmental Kuznets curve, economic growth, economic development, environmental degradation, environmental quality, air pollution, South Africa
    JEL: O13 Q53 Q56
    Date: 2019
  5. By: Abdelaaziz Aït Ali
    Abstract: Morocco has moved towards a more flexible exchange rate system by widening its currency fluctuation bands to +/- 2.5% around a central price. This transition will, in time, equip the Moroccan economy with a macroeconomic instrument acting as a shock absorber and facilitating rapid adjustment at lower costs. In the absence of such a mechanism, adjustment to macroeconomic shocks at times requires a contraction in demand and thereby a cyclical downturn in growth to restore external balances. Broadening the fluctuation bands is a first step towards a long-term managed floating regime that nevertheless gives the central bank an important role in smoothing out exchange rate fluctuations.
    Date: 2019–01

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