nep-afr New Economics Papers
on Africa
Issue of 2022‒12‒12
seven papers chosen by
Sam Sarpong
Xiamen University Malaysia Campus

  1. Do Sovereign Credit Ratings Matter for Foreign Direct Investment: Evidence from Sub-Sahara African Countries By Arogundade, Sodiq; Biyase, Mduduzi; Eita, Joel Hinaunye
  2. Working Paper 365 - Public Investment Efficiency, Economic Growth and Debt Sustainability in Africa By George Kararach; Jacob Oduor; Edward Sennoga; Walter Odero; Peter Rasmussen; Lacina Balma
  3. FDI and Environmental Sustainability Nexus: Testing the Pollution Haven Hypothesis in the Presence of Regulatory Quality By Yakubu, Ibrahim Nandom; Musah, Alhassan
  4. The Golden City on the Edge: Economic Geography and Jihad over Centuries By Masahiro Kubo; Shunsuke Tsuda
  6. Autonomous Expenditure Multipliers and Gross Value Added in South Africa By Arkadiusz J Derkacza; Santos Bila; Sodiq Arogundadec
  7. Structural change(s) in Ghana: A comparison between the trade, formal and informal sectors By Bernardo Caldarola

  1. By: Arogundade, Sodiq; Biyase, Mduduzi; Eita, Joel Hinaunye
    Abstract: This study examines the impact of sovereign credit ratings (SCR) on foreign direct investment (FDI) inflow of 20 SSA countries. In achieving this, the study uses the fixed effect model, fixed effect instrumental variable regression, and the bootstrap panel granger causality test proposed by Emirmahmutoglu and Kose (2011). There are three main important findings from this empirical study: (1) sovereign credit ratings have a significant and positive impact on FDI inflows in the region; this result is robust to sub-regional analysis, the instrumental regression model and an alternative measure of credit rating, (2) the impact of SCR on FDI increases after the global financial crises (GFC), and (3) there is a unidirectional causality running from SCR to FDI in SSA. In increasing foreign investors' appetite, this study recommends that SSA countries get rated, and the ones rated should put in place appropriate policies to get better ratings.
    Keywords: Foreign direct investment, Sovereign credit ratings, Global financial crises Bootstrap panel Granger causality test, and Sub-Sahara African Countries
    JEL: E00 F0 F30 G00 G01
    Date: 2022–11–18
  2. By: George Kararach (African Development Bank); Jacob Oduor (African Development Bank); Edward Sennoga (African Development Bank); Walter Odero (African Development Bank); Peter Rasmussen (African Development Bank); Lacina Balma (African Development Bank)
    Abstract: Investment is an important driver of economic growth with important implications for debt sustainability. Investment efficiency gaps adversely impact debt sustainability in Africa. The current heightened fiscal vulnerabilities can be attributed to external factors including volatile commodity prices particularly for commodity-exporting countries and health challenges like COVID-19 pandemic that weakened fiscal revenues and growth. In addition are domestic factors such as elevated government spending on the back of big-push investment expenditures to close infrastructure gap, increased security expenditures in response to conflict and social unrest in some countries. Using a dynamic stochastic general equilibrium (DSGE) framework, we estimate the role of debt in the provision of productive investments, driving economic growth and subsequent debt sustainability. To entrench fiscal sustainability, countries need to strengthen domestic resource mobilization and improve public investment management for greater efficiency. Measures to increase tax revenue collections, savings mobilization and efficiency of public spending are therefore critical. It is prudent for development partners to support debt reporting, data harmonisation, tax compliance, combating illicit financial flows and developing effective debt resolution frameworks.
    Keywords: Public investment, economic growth, debt sustainability, dynamic stochastic general equilibrium, Africa development1George Kararach is a Lead Economist, African Development Bank ( Visiting Professor, Wits School of Governance, university of Witwatersrand, South Africa; Jacob Oduor is a Chief Country Economist, African Development Bank (; Edward Sennoga is a Lead Economist, African Development Bank (; Walter Oderois a Principal Country Economist, African Development Bank(; Peter Rasmussen is a Principal Country Economist, African Development Bank (; Lacina Balma is a Senior Research Economist, African Development Bank ( views expressed here are those of the authors and do not represent the official policy of the Africa DevelopmentBankand the University of the Witwatersrand, Johannesburg, South Africa JEL classification: E6, H63, H4, O11
    Date: 2022–07–08
  3. By: Yakubu, Ibrahim Nandom; Musah, Alhassan
    Abstract: In this study, we examine the relationship between foreign direct investment (FDI) and environmental pollution within the context of the pollution haven hypothesis (PHH) in Ghana. We also investigate the role of regulatory quality in the FDI-pollution linkage. The study employs quarterly data spanning the period 2000Q1-2017Q4 and applies the fully modified least squares (FMOLS) technique. The empirical results show that FDI inflows significantly and positively drive environmental pollution. This result holds in the presence of regulatory quality. Accordingly, we confirm the validity of the pollution haven hypothesis in Ghana. The study also finds that industrialization increases pollution given its significant positive relationship with ecological footprint. We discuss relevant policy implications.
    Keywords: FDI, Pollution haven hypothesis, Ecological footprint, FMOLS, Ghana
    JEL: F2 F20 Q5 Q58
    Date: 2022–11–01
  4. By: Masahiro Kubo; Shunsuke Tsuda
    Abstract: This paper uncovers the evolution of cities and Islamist insurgencies, so called jihad, in the process of the reversal of fortune over the centuries. In West Africa, water access in ancient periods predicts the locations of the core cities of inland trade routes -- the trans-Saharan caravan routes -- founded up to the 1800s, when historical Islamic states played significant economic roles before European colonization. In contrast, ancient water access does not have a persistent influence on contemporary city formation and economic activities. After European colonization and the invention of modern trading technologies, along with the constant shrinking of water sources, landlocked pre-colonial core cities contracted or became extinct. Employing an instrumental variable strategy, we show that these deserted locations have today been replaced by battlefields for jihadist organizations. We argue that the power relations between Islamic states and the European military during the 19th century colonial era shaped the persistence of jihadist ideology as a legacy of colonization. Investigations into religious ideology related to jihadism, using individual-level surveys from Muslims, support this mechanism. Moreover, the concentration of jihadist violence in "past-core-and-present-periphery" areas in West Africa is consistent with a global-scale phenomenon. Finally, spillovers of violent events beyond these stylized locations are partly explained by organizational heterogeneity among competing factions (Al Qaeda and the Islamic State) over time.
    Date: 2022–11
  5. By: Gibogwe, Vincent; Nigo, Ayine; Kufuor, Karen
    Abstract: In this paper, we use the ARDL method to find the Impact of institutional quality on economic growth in Tanzania from 1990 to 2021. The ARDL technique frees variables from residual correlation as all variables are assumed to be endogenous. They distinguish between dependent and explanatory variables in any long-run relationship, identify the co-integrating vectors with multiple co-integrating vectors, and derive the Error Correction Model (ECM) or Error Correction Model (ECM) Vector Error Correction Model (VECM) by integrating short-run adjustments with long-run equilibrium without losing extended-run information. Our results show all adjustment terms in the respective models that have a long-run relationship have correct (negative) signs and are more than one, implying there is convergence in the long run; that is, the models returned to their long-run equilibrium; the rate (or speed) at which this happened ranged between 15% to 106.6% annually. Institutional quality has a significant affirmative (0.047) causal long-run effect on economic growth.
    Keywords: institutional quality, economic growth, the rule of law, market liberalization
    JEL: F63 O19 O47 O55
    Date: 2022–11–17
  6. By: Arkadiusz J Derkacza (Institute of Economics, University of Social Sciences, Warsaw, Poland); Santos Bila (College of Business and Economics, University of Johannesburg); Sodiq Arogundadec (College of Business and Economics, University of Johannesburg)
    Abstract: This study answers two main questions. What are the South African fiscal, export, and investment multipliers? Is obtaining the impact of autonomous expenditure on gross value-added growth rate possible? In answering these questions, we use the principle of aggregate demand and data spanning 1992 to 2019. The results suggest that autonomous expenditure multipliers exert a positive effect on the change in gross value added. These multipliers are however driven by several factors. First, the import intensity level - the import intensities of each autonomous expenditure reduce their significance. This means that the leakage of aggregate demand in the form of expenditure on the purchase of imported goods increases. Secondly, the value of the fiscal, investment and export multipliers is determined by the propensity for total private consumption. The value of the propensity for total private consumption depends on the household income taxes and the propensity to save. An increase in these two ratios decreases the value of the propensity to private consumption. This indicates that the leakage of aggregate demand is driven by a decline in total private consumption in the economy, and this may be caused by an increase in savings and/or an increase in the average household income tax.
    Keywords: Fiscal multiplier; export multiplier; investment multiplier; GVA; South Africa
    JEL: E0 E12 E20 E63
    Date: 2022
  7. By: Bernardo Caldarola
    Abstract: This paper uses the case of Ghana to unpack the role of the informal sector in the process of structural change. A structuralist view of structural change - framed as changes in the employment shares of different industries - is combined with the insight that countries strive to diversify towards more complex industries in pursuit of economic upgrading. The paper adopts and adapts the product space and complexity analytical frameworks to compare changes in the relative importance of industries across the trade, formal and informal sectors, over a ten-year period starting in 2003. To assess whether the Ghanaian labour force has moved towards more or less complex industries, the changes in relative shares of finely disaggregated industries are assessed against an employment-based industrial complexity index. The results indicate that Ghana’s export and formal sectors have moved towards more complex industries, although export specialisation has moved towards export of natural resources. While exports of manufactured goods have increased, employment in formal and informal manufacturing has contracted, although, in the former case, employment has relocated towards more complex manufacturing industries. In contrast, the informal sector has moved towards less complex activities. The results stress on the need to align the productive capabilities of the informal sector with the Ghana's productive structure in order to allow the participation of Ghanaian households to the process of structural transformation.
    Keywords: Structural change; industrial complexity; Ghana; employment; informality.
    Date: 2022–11–28

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