nep-afr New Economics Papers
on Africa
Issue of 2021‒07‒12
five 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 S.; Rodrik, Dani
  2. Catching The Drivers of Inclusive Growth in Sub-Saharan Africa: An Application of Machine Learning By Ofori, Isaac Kwesi
  3. In Gravity no Veritas: Dubious Trade Elasticity and Weak Effects of Regional Trade Agreements in Africa By Fabien Candau; G Guepie; R Kouakou
  4. Credit Information Sharing and Bank Stability: Evidence from SSA Countries By Beni Kouevi Gath
  5. Did the Cold War Produce Development Clusters in Africa? By Castaneda Dower, Paul; Gokmen, Gunes; Le Breton, Michel; Weber, Shlomo

  1. By: Diao, Xinshen; Ellis, Mia; McMillan, Margaret S.; 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.
    Keywords: TANZANIA; EAST AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; ETHIOPIA; manufacturing; growth; productivity; enterprises; firms; labour productivity; labour; technology; innovation; structural transformation
    Date: 2021
  2. By: Ofori, Isaac Kwesi
    Abstract: A conspicuous lacuna in the literature on Sub-Saharan Africa (SSA) is the lack of clarity on variables key for driving and predicting inclusive growth. To address this, I train the machine learning algorithms for the Standard lasso, the Minimum Schwarz Bayesian Information Criterion (Minimum BIC) lasso, and the Adaptive lasso to study patterns in a dataset comprising 97 covariates of inclusive growth for 43 SSA countries. First, the regularization results show that only 13 variables are key for driving inclusive growth in SSA. Further, the results show that out of the 13, the poverty headcount (US$1.90) matters most. Second, the findings reveal that ‘Minimum BIC lasso’ is best for predicting inclusive growth in SSA. Policy recommendations are provided in line with the region’s green agenda and the coming into force of the African Continental Free Trade Area.
    Keywords: Clean Fuel,Economic Growth,Machine Learning,Lasso,Sub-Saharan Africa,Regularization,Poverty
    JEL: C01 C14 C51 C52 C55 F43 O4 O55
    Date: 2021
  3. By: Fabien Candau (TREE - Transitions Energétiques et Environnementales - UPPA - Université de Pau et des Pays de l'Adour - CNRS - Centre National de la Recherche Scientifique); G Guepie (UNECA - United Nations Economic Commission for Africa - United Nations); R Kouakou (Université Alassane Ouattara)
    Abstract: This article puts into question the use of the gravity equation to analyze Regional Trade Agreements (RTAs) in Africa. By surveying the field qualitatively and quantitatively (via a meta-analysis) and by leading our own estimations (with bilateral fixed effects, exporter-time and importer-time effects) on different trade flow databases (UN COMTRADE, DOTS and BACI), we find that the RTAs elasticity of trade in Africa are unreliable due to their unrealistic high level. By introducing intranational trade and bilateral trends into the regression specification, we show that the coefficient of RTAs in Africa are either not significant or drastically reduced. Only COMESA is still significant. We then use a simple general equilibrium model to compare the results obtained with these new elasticities regarding the terms of trade and welfare for members of the COMESA. We find strong trade creation effects that are largely compensated by trade diversion. The welfare gain of COMESA is for most members very low (less than 0.2% of growth).
    Date: 2021–06–10
  4. By: Beni Kouevi Gath
    Abstract: We assess the effect of credit information sharing on bank stability for a sample of 161 banks located in 30 Sub-Saharan African (SSA) countries over 2004-2014. We find that banks become more stable as the quality of credit information sharing institutions improves. Moreover, despite foreign banks having an informational disadvantage with respect to domestic banks due to distance-related information frictions, and hence the assumption that they would benefit more from credit information sharing, the results indicate that both types of banks are affected in the same way. This suggests that foreign banks rely on alternative strategies to compensate for their informational disadvantage in local markets.
    Keywords: Information sharing offices; bank stability; credit markets
    JEL: G21 G28 D82
    Date: 2021–07–02
  5. By: Castaneda Dower, Paul (University of Wisconsin-Madison); Gokmen, Gunes (Department of Economics, Lund University); Le Breton, Michel (Toulouse School of Economics); Weber, Shlomo (New Economic School, Moscow)
    Abstract: This paper examines the lasting impact of the alignment of African countries during the Cold War on their modern economic development. We find that the division of the continent into two blocs (East/West) led to two clusters of development outcomes that reflect the Cold War’s ideological divide. To determine alignment, we introduce a non-cooperative game of social interactions where each country chooses one of the two existing blocs based on its predetermined bilateral similarities with other members of the bloc. We show the existence of a strong Nash equilibrium in our game and apply the celebrated MaxCut method to identify such a partition. The alignment predicts UN General Assembly voting patterns during the Cold War but not after. Our approach, linking global political interdependence to distinct development paths in Africa, relies on history to extract a micro-founded treatment assignment, while allowing for an endogenous, process-oriented view of historical events.
    Keywords: Cold War; Political Alliances; Africa; Blocs; Development Clusters; Strong Nash Equilibrium; Landscape Theory
    JEL: C62 C72 F54 F55 N47 N47 O19 O57 Y10
    Date: 2021–06–22

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