nep-afr New Economics Papers
on Africa
Issue of 2019‒07‒22
seven papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. Governance and Domestic Investment in Africa By Chimere O. Iheonu
  2. Is favoritism a threat to Chinese aid effectiveness? A subnational analysis of Chinese development projects By Dreher, Axel; Fuchs, Andreas; Hodler, Roland; Parks, Bradley; Raschky, Paul A.; Tierney, Michael J.
  3. The impact of governance on poverty reduction : Are there regional differences in Sub-saharan Africa ? By Aloui, Zouhaier
  4. Capital Flight, Foreign Direct Investment and Natural Resources in Africa By Leonce Ndikumana; Mare Sarr
  5. The human capital-economic growth nexus in SSA countries: What can strengthen the relationship? By Natalya Apopo; Ronney Ncwadi; Andrew Phiri
  6. Using Survey Questions to Measure Preferences: Lessons from an Experimental Validation in Kenya By Bauer, Michal; Chytilová, Julie; Miguel, Edward
  7. Economic Development Thresholds for a Green Economy in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo

  1. 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
  2. By: Dreher, Axel; Fuchs, Andreas; Hodler, Roland; Parks, Bradley; Raschky, Paul A.; Tierney, Michael J.
    Abstract: Chinese aid comes with few strings attached, allowing recipient country leaders to use it for domestic political purposes. The vulnerability of Chinese aid to political capture has prompted speculation that it may be economically ineffective, or even harmful. We test these claims by estimating the effect of Chinese aid on subnational economic development - as measured by per-capita nighttime light emissions - and whether this effect is different in politically favored jurisdictions than in other parts of the country. Contrary to the conventional wisdom, we do not nd that the local receipt of Chinese aid undermines economic development outcomes at either the district level or provincial level. Nor does political favoritism in the allocation of Chinese aid towards the home regions of recipient country leaders reduce its effectiveness. Our results - from 709 provinces and 5,835 districts within 47 African countries from 2001-2012 - demonstrate that Chinese aid improves local development outcomes, regardless of whether such aid is allocated to politically consequential jurisdictions.
    Keywords: foreign aid,development finance,aid effectiveness,favoritism,economic growth,Africa,China
    JEL: D73 F35 O19 O47 P33 R11
    Date: 2019
  3. By: Aloui, Zouhaier
    Abstract: This article attempts to explore the relationship between governance and poverty reduction. Throughout this work, we have tried to clearly answer the following questions: What is the effect of governance indicators on poverty reduction in sub-Saharan Africa? In this framework, the basic assumption was the existence of a direct effect of governance on poverty reduction. The study of this hypothesis was formulated in a static model applied to the data available on the countries of sub-Saharan Africa between 1996-2016. The results of our regressions show that governance indicators have a positive and negative effect on poverty reduction in sub-Saharan African countries. This result implies that governance factors play an important role in poverty and the primary role of government effectiveness. The relationship between governance and poverty reduction varies by stage of development. But notes significant differences between African regions. This supports our contention that governance has more impact on poverty reduction in the poorer regions than in rich sub-Saharan Africa. For example, the relationship between government effectiveness and poverty reduction is positive and significant for Central and Eastern Africa, it is not significant in Southern Africa is negative and significant in west Africa.
    Keywords: Governance Indicators, Poverty, Regional Economic Integration, Africa.
    JEL: I32 O16
    Date: 2019–06–26
  4. By: Leonce Ndikumana (Department of Economics and PERI, University of Massachusetts Amherst); Mare Sarr (School of International Affairs, Pennsylvania State University)
    Abstract: This paper provides theoretical and empirical insights into the puzzling simultaneous rise in foreign direct investment inflows in Africa and capital flight from the continent over the past decades. Indeed, paradoxically, even as African countries have become more attractive to foreign private capital, they have continued to experience capital exodus in the context of improved economic performance, especially since the turn of the century. This paper explores three questions. First, does foreign direct investment fuel capital flight as has been established in the case of external borrowing? In other words, is there an FDI-fueled capital flight phenomenon akin to debt-fueled capital flight? Second, is natural resource endowment a possible channel for the capital flight-FDI link, given that resource-rich countries tend to be both preferred destinations of FDI and prominent sources of capital flight? Third, does the quality of institutions mitigate the impact of natural resources on capital flight? The paper develops a theoretical model that conceptualizes these linkages and sets the stage for an econometric investigation of these questions. The results from econometric analysis based on a sample of 30 African countries over the period 1970-2015 show that FDI flows are positively related to capital flight, suggesting a possible FDI-fueled capital flight phenomenon. However, there is no evidence for an FDI overhang effect; past stock of FDI has no impact on capital flight. High natural resource rents are associated with high capital flight and the quality of institutions does not mitigate this link. The paper offers some policy insights derived from the empirical results.
    Keywords: capital flight; foreign direct investment; natural resources; Africa
    JEL: F3 O16 O55
    Date: 2019
  5. By: Natalya Apopo (Department of Economics, Nelson Mandela University); Ronney Ncwadi (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: The World Bank has recently placed increasing emphasis on the role of human capital development in facilitating economic development in the Sub-Saharan African (SSA) region. Our study examines the impact of human capital on economic growth for a selected sample of 9 SSA countries between 1980 and 2016 using a panel econometric approach. Interestingly enough, our empirical analysis shows an insignificant effect of human capital on economic growth for our selected sample. These findings remain unchanged even after adding interactive terms to human capital which are representative of government spending as well as foreign direct investment. Nevertheless, we establish a positive and significant effect of the interactive term between urbanization and human capital on economic growth, a result which emphasizes the importance of developing urbanized, ‘smart’, technologically-driven cities within the SSA region as a platform towards strengthening the impact of human capital- economic growth relationship.
    Keywords: Efficient Market Hypothesis (EMH); Cryptocurrencies; Random Walk Model (RWM); Flexible Fourier Form (FFF) unit root tests; Smooth structural breaks.
    JEL: C22 C32 C51 E42 G14
    Date: 2019–07
  6. By: Bauer, Michal (Charles University, Prague); Chytilová, Julie (Charles University, Prague); Miguel, Edward (University of California, Berkeley)
    Abstract: Can a short survey instrument reliably measure a range of fundamental economic preferences across diverse settings? We focus on survey questions that systematically predict behavior in incentivized experimental tasks among German university students (Becker et al. 2016) and were implemented among representative samples across the globe (Falk et al. 2018). This paper presents results of an experimental validation conducted among low-income individuals in Nairobi, Kenya. We find that quantitative survey measures - hypothetical versions of experimental tasks - of time preference, attitude to risk and altruism are good predictors of choices in incentivized experiments, suggesting these measures are broadly experimentally valid. At the same time, we find that qualitative questions - self-assessments - do not correlate with the experimental measures of preferences in the Kenyan sample. Thus, caution is needed before treating self-assessments as proxies of preferences in new contexts.
    Keywords: preference measurement, experiment, survey, validation
    JEL: C83 D90
    Date: 2019–06
  7. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study investigates how increasing economic development affects the green economy in terms of CO2 emissions, using data from 44 countries in the SSA for the period 2000-2012. The Generalised Method of Moments (GMM) is used for the empirical analysis. The following main findings are established. First, relative to CO2 emissions, enhancing economic growth and population growth engenders a U-shaped pattern whereas increasing inclusive human development shows a Kuznets curve. Second, increasing GDP growth beyond 25% of annual growth is unfavorable for a green economy. Third, a population growth rate of above 3.089% (i.e. annual %) has a positive effect of CO2 emissions. Fourth, an inequality-adjusted human development index (IHDI) of above 0.4969 is beneficial for a green economy because it is associated with a reduction in CO2 emissions. The established critical masses have policy relevance because they are situated within the policy ranges of adopted economic development dynamics.
    Keywords: CO2 emissions; Economic development; Africa
    JEL: C52 O38 O40 O55 P37
    Date: 2019–01

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