nep-afr New Economics Papers
on Africa
Issue of 2021‒05‒10
six papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. Africa's Manufacturing Puzzle: Evidence from Tanzanian and Ethiopian Firms By Diao, Xinshen; Ellis, Mia; McMillan, Margaret; Rodrik, Dani
  2. On the desirability of the West African monetary union By Carl Grekou; Cécile Couharde; Valérie Mignon
  3. Africa's Latent Assets By Henn, Soeren; Robinson, James A
  4. Quality of sub-national government and regional development in Africa By Iddawela, Yohan; Lee, Neil; Rodríguez-Pose, Andrés
  5. Aid Grants vs. Technical Cooperation Grants: Implications for Inclusive Growth in Sub-Saharan Africa, 1984-2018 By Asongu, Simplice; Ezeaku, Hillary
  6. Foreign debt sustainability and human development in Sub Saharan Africa By Gianni Vaggi; Luca Frigerio

  1. By: Diao, Xinshen; Ellis, Mia; McMillan, Margaret; Rodrik, Dani
    Abstract: Recent growth accelerations in Africa are characterized by increasing productivity in agriculture, a declining share of the labor force employed in agriculture and declining productivity in modern sectors such as manufacturing. To shed light on this puzzle, we disaggregate firms in the manufacturing sector by size using two newly created panels of manufacturing firms, one for Tanzania covering 2008-2016 and one for Ethiopia covering 1996-2017. Our analysis reveals a dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. We suggest the poor employment performance of large firms is related to use of capital-intensive techniques associated with global trends in technology.
    JEL: O14 O33
    Date: 2021–02
  2. By: Carl Grekou; Cécile Couharde; Valérie Mignon
    Abstract: In this paper, we investigate from a policy coordination viewpoint the desirability of the West African monetary union project, ECO. Our approach is built around the inclusion of national objectives in the regional integration perspective. Thanks to cluster analysis, we identify two groups of countries with relatively homogenous sustainable exchange rate paths in West Africa. We also find that no single currency peg nor a freely floating exchange rate regime would be preferable for any of the countries or groups of economies. Overall, our findings argue in favor of two ECOs —at least in a first step, i.e., one for each of the two identified zones. Each ECO would serve as a virtual anchor —with some flexibility— for the considered group, and would be determined by a basket of currencies mainly composed of euro and US dollar.
    Keywords: Monetary integration; West Africa; CFA franc zone; ECOWAS.
    JEL: F33 F45 C38 O55
    Date: 2021
  3. By: Henn, Soeren; Robinson, James A
    Abstract: Despite the past centuries' economic setbacks and challenges, are there reasons for optimism about Africa's economic prospects? We provide a conceptual framework and empirical evidence that show how the nature of African society has led to three sets of unrecognized "latent assets." First, success in African society is talent driven and Africa has experienced high levels of perceived and actual social mobility. A society where talented individuals rise to the top and optimism prevails is an excellent basis for entrepreneurship and innovation. Second, Africans, like westerners who built the world's most successful effective states, are highly skeptical of authority and attuned to the abuse of power. We argue that these attitudes can be a critical basis for building better institutions. Third, Africa is "cosmopolitan." Africans are the most multilingual people in the world, have high levels of religious tolerance, and are welcoming to strangers. The experience of navigating cultural and linguistic diversity sets Africans up for success in a globalized world.
    Date: 2021–03
  4. By: Iddawela, Yohan; Lee, Neil; Rodríguez-Pose, Andrés
    Abstract: Despite widespread interest in government quality and economic development, the role of sub-national government has been largely overlooked. This represents an omission in Africa, given ongoing processes of devolution in much of the continent. In this article, we consider the impact of sub-national government institutions on economic development in 356 regions across 22 African countries. We create a novel index of sub-national government quality based on large-scale survey data and assess its impact on regional economies using satellite data on night light luminosity. To address causality concerns, we instrument sub-national government quality with data from pre-colonial societies. Our results show a positive and significant relationship between sub-national government quality and regional economic development, even when controlling for the quality of national level institutions. Better sub-national governments are a powerful but often overlooked determinant of development in Africa.
    Keywords: Africa; Decentralisation; institutions; quality of government; regions
    JEL: E02 N97 O43
    Date: 2021–01
  5. By: Asongu, Simplice; Ezeaku, Hillary
    Abstract: This study investigates the effects of aid grants on inclusive growth in 37 Sub-Saharan African countries for the period 1984-2018. Grant aid is decomposed into aid grants and technical cooperation grants. Two inclusive growth indicators are used namely: gross domestic product (GDP) per capita growth and unemployment rate. The dynamic panel autoregressive distributed lag (ARDL) approach which is employed comprises three different estimators; the pooled mean group (PMG), mean group (MG), and dynamic fixed effect (DFE). The Hausman diagnostics were used to assess the efficiency and consistency of the estimators. Based on the PMG estimator, our findings show that aid grants and technical cooperation grants exert a positive influence on GDP per capita growth in the long-run. However, while the observed influence of aid grants is found to be significant, technical cooperation grants display insignificant effects. In the short run, however, the PMG estimates show that aid grants and technical cooperation grants have negative and insignificant effects on GDP per capita growth. On the other hand, results based the DFE estimators reveal that neither of the aid grants has influenced the unemployment rate positively in the short-run. However, whereasKumi, E., Ibrahim, M., &Yeboah, T. (2017). Aid Volatility and Structural Economic Transformation in sub-Saharan Africa: Does Finance Matter? ERSA Working Paper, (655), 1–27. aid grants contribute significantly to the reduction of the unemployment rate in the long run, technical cooperation grants do not. This study complements the attendant literature by assessing how aid grants versus technical cooperation grants affect inclusive growth. The findings are relevant to international policy coordination for the attainment of sustainable development goals.
    Keywords: Aid grants, Technical Cooperation grants, Inclusive growth
    JEL: B20 F35 F50 O10 O55
    Date: 2020–01
  6. By: Gianni Vaggi (University of Pavia); Luca Frigerio (University of Pavia)
    Abstract: Despite the debt relief initiatives at the turn of the century, the external debt of Africa is rising again with some new worrying features: diminishing concessionality, growing private component and a strong presence of opaque Chinese loans. Sub-Saharan countries devote a relevant portion of their fiscal resources to service the debt, this prevents them from increasing development expenditures. The 2020 Debt Service Suspension Initiative, DSSI, by the G20 recognizes these difficulties but it falls shorts from providing long term solutions. We evaluate external debt sustainability in four SSA countries: Cote D’Ivoire, Ethiopia, Ghana, and Kenya plus a composite country called Wakanda, representative of the whole region. We adopt a framework called geometry of Debt Sustainability, GDS, (Vaggi and Prizzon 2014) which focuses on some structural aspects of sustainability, in particular on the current account. We add a Human Development factor to the basic GDS model in order to evaluate how debt sustainability could change if these countries should improve spending on health and education. The results confirm a clear trade-off between debt service and human development expenditures. The model shows that even before the Covid-19 pandemic the four countries and Sub Saharan Africa were on unsustainable debt trajectories; the debt to GDP ratios would stabilize only at extremely high values. The results are coherent with the Debt Sustainability Analysis of the International Monetary Fund and the World Bank.
    Keywords: Debt relief, External debt sustainability, Development finance, Public Expenditure Allocation
    JEL: E60 F34 H63 O16
    Date: 2021–05

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