nep-afr New Economics Papers
on Africa
Issue of 2019‒06‒17
three papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. South Africa’s Economic Slowdown and Its Policy Options By Mouhamadou M.Ly
  2. Governance and Domestic Investment in Africa By Chimere O. Iheonu
  3. The African Continental Free Trade Agreement: Welfare Gains Estimates from a General Equilibrium Model By Lisandro Abrego; Maria Alejandra Amado; Tunc Gursoy; Garth P. Nicholls; Hector Perez-Saiz

  1. By: Mouhamadou M.Ly
    Abstract: The economic picture in South Africa is clear and well known: low economic growth, high unemployment rates, and constrained fiscal policy threatened by rating agencies. The causes of such situations are diverse and both internal and external. How can growth be boosted? The African continental free trade area offers a great opportunity to South Africa to take advantage of the continent’s more than one billion of potential consumers and build a new growth paradigm based on export (rather than consumption “only”). To achieve that, and to overcome this economic situation, the country will need structural reforms especially in the labor market where the delicate issue of wages will have to be addressed. Additional to that, more counter-cyclical actions from the South African Reserve Bank could be effective in stimulating employment and manufacturing value added with direct effects on growth prospects. However, this approach will require the Central bank to be less focused on its inflation targeting policy.
    Date: 2019–04
  2. By: Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria)
    Abstract: The study empirically examined the impact of governance on domestic investment in 16 African countries with a balanced panel data set, between the years 2002 and 2015. The study employed six unbundled governance indicators from the World Bank, World Governance Indicators and constructed three bundled governance indicators using the Principal Component Analysis. The Driscoll and Kraay Fixed Effects model which accounts for serial correlation, groupwise heteroskedasticity and cross-sectional dependence were employed with empirical results revealing that all the indicators of governance positively and significantly influence domestic investment in Africa, except for government effectiveness which happens to be insignificant. Also, Voice/Accountability and the Control of Corruption exert more influence on domestic investment as indicated by their coefficient values. Furthermore, economic growth is also an important factor in explaining domestic investment in Africa. Policy recommendations are discussed.
    Keywords: Governance; Domestic Investment; Africa; PCA; Fixed Effects Model
    JEL: C1 E2 R5
    Date: 2019–01
  3. By: Lisandro Abrego; Maria Alejandra Amado; Tunc Gursoy; Garth P. Nicholls; Hector Perez-Saiz
    Abstract: In March 2018, representatives of member countries of the African Union signed the African Continental Free Trade Area (AfCFTA) agreement. This agreement provides a framework for trade liberalization in goods and services and is expected to eventually cover all African countries. Using a multi-country, multi-sector general equilibrium model based on Costinot and Rodriguez-Clare (2014), we estimate the welfare effects of the AfCFTA for 45 countries in Africa. Three different model specifications—comprising both perfect competition and monopolistic competition—are used. Simulations include full elimination of import tariffs and partial but substantial reduction in non-tariff barriers (NTBs). Results reveal significant potential welfare gains from trade liberalization in Africa. As intra-regional import tariffs in the continent are already low, the bulk of these gains come from lowering NTBs. Overall gains for the continent are broadly similar under the three model specifications used, with considerable variation of potential welfare gains across countries in all model structures.
    Date: 2019–06–07

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