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1. Policy Briefs Concise summaries that present research findings and policy recommendations on key economic issues to inform policymakers and stakeholders.2. Research Papers In-depth studies and scholarly articles that explore various aspects of economic theories and empirical research, contributing to academic discourse and understanding.3. Working Papers Preliminary reports on ongoing research that are circulated to encourage discussion and suggestions for revision before final publication.4. Theses and Dissertations: CPP Thesis: Rigorous academic research focused on pertinent policy issues, typically by candidates of the Collaborative PhD Program. CMAP Thesis: Scholarly works by Master's candidates involved in the Collaborative Master's in Economics Program, showcasing original research in the Economics sector. CMAAE Thesis: Advanced research endeavors by Master's students under the Collaborative Master's in Agricultural and Applied Economics, contributing to knowledge in agricultural economics and related fields CMAAE Thesis5. Senior Policy Seminar papers African Economic Research Consortium (AERC) holds a Senior Policy Seminar annually. This conference is hosted by AERC and sometimes jointly with a partner. AERC convenes this forum to provide high level African policy makers the opportunity to come together to dialogue on the results of research conducted by AERC and its affiliates, exchange policy experiences and interact with the researchers in an atmosphere of peers. The themes of these seminars are selected on the basis of topicality and contemporary interest to African policy making.6. Other Publications A diverse range of documents including, but not limited to, conference papers, book chapters, and research updates that do not fall under the conventional categories.
Recent Submissions
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AERC Evaluation Report June 2024
(AERC, 2025) Haroon, Bhorat; Hoekman, Bernard
This report reviews changes in the external environment confronting the AERC and the objectives, programmes, structure, and capabilities of the AERC with a view to inform reflection on the strategic direction of the AERC looking forward. Our goal is to help sharpen the choices confronting the AERC in defining its vision and priorities, the strategy for realizing its goals, and the organization of its activities. We do so by providing a menu of options that can be considered to enhance the value proposition the AERC offers to its stakeholders—individual researchers, partner universities, and African governments. These options have a common denominator: making the AERC the regional leader for conducting independent, rigorous inquiry into problems pertinent to policy challenges confronting African economies, and ‘connecting’ research to African policymakers by leveraging its greatest asset; its extensive network of graduates and researchers that have benefitted from its programmes and participated in its activities.
The choices confronting the AERC are nested. First, a ‘top level’ decision is called for regarding the allocation of resources and effort to distinct components of the ‘production function’ of policy-relevant research. In helping AERC members make this top level decision, we pose a counter-factual question: would there be a compelling case for re creating the AERC structure as it is today if the organization did not exist? Are the gaps and weaknesses in the institutional environment for graduate training and research capacity that motivated the creation of the AERC still prevalent, and support of the type provided by the AERC still needed?
The AERC operates along the entire policy research ‘pipeline’ or ‘supply chain’, including upstream inputs into research capacity (graduate training and capacity building), midstream activities (generating high-quality research), and downstream activities associated with distributing research outputs to ‘consumers’ and ‘customers’ (national policy makers and civil society organizations and institutions working at the continental level). All three activities involve costs, and there are trade-offs across them, especially between general economics training and capacity-building that is not tied to specific policy research projects. Budget constraints and human resource implications of these different types of activities call for a decision whether to continue to support graduate training in Economics, with an associated set of metrics and performance targets, or instead focus capacity-building activities on researchers who contribute to research outputs and outreach and policy engagement activities.
Given this top-level decision, the second-level choices concern measures to improve the quality and impact of each of the component activities. We devote more attention in our discussion of these second-level decisions to research quality, its visibility, and policy impact-related activities. We do so because whatever the top-level decision regarding the balance of efforts and resource allocation for the different elements of the research production supply chain, there is substantial ‘low-hanging fruit’ (low cost, high impact changes to operating modalities) in the production of policy-relevant research and engagement with policy. Low-hanging fruit does not imply business as usual suffices: On the contrary, reaping the potential gains require changes in the organizational structure, governance, and management of the AERC.
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Rethinking Public Investment in Education in Africa: The Labor Market Response of Public Investment in Education in Ethiopia
(AERC, 2025) Adem, Jemal Mohammed; Weldesilassie, Alebel Bayrau
This study investigates the impact of education investments on economic outcomes in Ethiopia, grounded in human capital theory and the Mincerian earnings function. While substantial public expenditure on education has resulted in a significant increase in university graduates over the past two decades, a paradox persists: high unemployment rates among graduates coexist with a notable shortage of skilled labor in firms. This research employs longitudinal data from Ethiopia's national labor force survey to explore the complexities of education returns through an over-required-under-education model, which categorizes workers based on their educational qualifications relative to job requirements. The findings indicate that government investment has successfully mitigated under-qualification but has concurrently contributed to rising over qualification, with approximately 13% of workers classified as over-qualified in 2021. Productivity analysis reveals that workers with the required educational qualifications outperform both over-qualified and under qualified peers. Notably, while under-qualified workers see positive returns from additional schooling, over-qualified workers experience negative returns, suggesting diminishing benefits of excess education. These insights highlight the critical need for policymakers to link education investments with effective human capital utilization strategies to prevent counterproductive outcomes, ultimately fostering a more productive labor market in Ethiopia.
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Summary Policy Note on Tax Reforms in Kenya: Reforming Value Added Tax (VAT), Excise Taxes on Cigarettes and the Personal Income Tax (PIT)
(AERC, 2025) Ngugi, Rose; Tarp, Finn; Kedir, Abbi
Designing and implementing tax systems that are both efficient and effective are essential for revenue generation, economic growth, and equity as well as fairness across income groups in Kenya. The existing highly complex and outdated tax structures and the lack of effective digitization undermines compliance and limit revenue collection. This, in turn, severely constrains the amount and quality of public services the Government of Kenya (GOK) can finance in support of economic transformation and development, on the one hand, and the well-being of its citizens, on the other. It has also led to a public debt level that is at high risk of distress, and harsh liquidity constraints due to the reliance on short-term borrowing instruments.
The overarching goals of the tax reform process in Kenya are to maximize revenues without distorting markets, and to ensure that the design of tax policy and tax instruments do not raise incentives to avoid and/or evade taxes. Simplification and unification of tax structures aimed at reducing government expenditures and the burden placed on taxpayers is central to achieving these goals. Therefore, this summary note (and the underlying policy notes) explores whether and how a re-design of taxes can help support change towards a combination of lower tax rates and higher revenue, and points to the associated needed range of adjustment in each of the tax instruments.
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Economic Complexity and Industrial Policy in Kenya
(AERC, 2025) Malot, Kenneth; Mutuku, Cyrus; Otindo, Clement; Rand, John; Shibia, Adan; Sørensen, Bjørn Bo
Kenya Vision 2030 aims to transform Kenya into a globally competitive economy, but its current export performance constitutes a significant impediment to realizing this objective. By systematically accounting for supply- and demand-side factors, this study identifies new products that can help to diversify and upgrade Kenya’s economy. In a supply-side analysis, we first use economic complexity methods to identify 70 complex target products - primarily in the Machinery & Electronics and Metals sectors - that Kenya can learn to export competitively given the current structure of its economy. In a demand-side analysis, we then use gravity models to predict a high export potential among target products in sectors like Vehicles & Transport Equipment, Machinery & Electronics, Chemicals, and Metals. We predict that many of Kenya's current trade partners could be key importers of the target products, but we also find a high demand in several underexploited markets such as Australia, Canada, Italy, Japan, Nigeria, South Africa, Spain, and Zambia.
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Assessing the Impact of Personal Income Tax Reform in Kenya with Administrative Data: Behavioral Responses and Distributional Implications
(AERC, 2025) Kanina, Jane; Mugure, Josephine; Nato, Jacob; Urzainqui, David Garcés; Fisker, Peter
This paper leverages administrative tax data from Kenya to make several contributions to our understanding of personal income taxation in developing countries. First, we exploit recent tax reforms to credibly estimate the elasticity of income to changes in marginal tax rates from a taxpayer panel with state-of-the-art methods, a novelty in the context of Sub-Saharan Africa. We find a value of 0.3 for our sample of individuals in the upper half but not at the top of the income distribution, which conceals large disparities between inelastic public workers and a rather elastic private sector. Second, we combine administrative tax data with household survey data to address the shortcomings of each of these data sources in measuring income inequality and assess the success of income taxes and potential modifications to them in reducing post-tax income inequality. We also triangulate these data sources to quantify the compliance gap due to compliance at 23% of potential revenue, mainly attributable to self-employed workers. Finally, we rely on these tools to investigate the possibilities Kenyan policymakers have and the trade-offs they face when aiming to collect further revenue in an efficient and progressive manner.
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Reforming Excise Taxation on Tobacco Products in Kenya
(AERC, 2025) Oguso, Alex; Ochieng’, James; Remcho, Nathan; Eldrup, Magnus; Chemnyongo, Hellen
This paper explores the excise taxation systems for tobacco products in Kenya, focusing on reform of the tobacco taxation system to achieve equity in taxation by changing the tax structure to be based on optimal tax rates and reviewing the considerations for filter and non-filter cigarettes. Utilizing a proprietary elasticity estimation nuanced by a literature review to generate joint Laffer curves, we identify potential adjustments that could increase government revenue without causing significant market disruptions. From the comprehensive review of the excise tax system on tobacco products, there are strong arguments in favor of equal treatment of cigarette brands and a uniform tax structure for filter and non-filter cigarettes. The empirical analysis suggests that there is a scope to raise taxes on tobacco, which could not only boost fiscal income but also improve public health outcomes by discouraging excessive consumption. However, it is worth considering that the policy considerations and the resulting revenue projections will change depending on the enforcement policies accompanying them. Therefore, it is important for the government to strengthen enforcement measures to curb illicit tobacco trade and protect the legal market.
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Reforming Excise Taxation on Alcohol Products in Kenya
(AERC, 2025) Oguso, Alex; Ochieng', James; Remcho, Nathan; Eldrup, Magnus; Chemnyongoi, Hellen
This paper explores the excise taxation systems for alcohol products in Kenya, focusing on optimizing tax policy to enhance revenue generation and further mitigate negative externalities. Utilizing a proprietary elasticity estimation nuanced by a literature review to generate joint Laffer curves, we identify potential adjustments that could increase government revenue without causing significant market disruptions. Our findings suggest that there is a scope to raise taxes on alcohol products, which could not only boost fiscal income but also improve public health outcomes by discouraging excessive consumption. The paper proposes practical mechanisms that include a move to alcohol content-based excise system for taxation of alcoholic products in Kenya. The recommendations in the paper highlight the potential for excise taxes to contribute to economic growth and public welfare in Kenya while emphasizing the importance of stakeholder engagement and data-driven policy making.
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A Comprehensive Analysis of the Kenyan VAT System
(AERC, 2025) Kiringai, Jane; Mutuku,Cyrus; Muchiri, Benjamin; Basescu, Simon; Remcho,Nathan
Value-Added Tax (VAT) is a cornerstone of Kenya’s Medium-Term Revenue Strategy (MTRS) and the Government of Kenya’s (GoK) domestic revenue goals. It plays a pivotal role, not only in raising domestic revenues, but also in developing a broader economic landscape that stimulates growth and diversification (The National Treasury and Economic Planning, 2023). However, despite a growing Gross Domestic Product (GDP) and broadening of the VAT base, the performance of the tax has not reached its potential. This paper provides a comprehensive analysis of the VAT architecture, identifies the VAT gap, and provides detailed policy recommendations to close the existing VAT gap.
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Understanding the Public Revenue System in Kenya: An Overview of the Tax System
(AERC, 2025) Kiriga, Benson; Nato, Jacob; Remcho, Nathan; Eldrup, Magnus
This paper provides a high-level analysis of Kenya’s tax system, examining structures, performance, and potential reforms to enhance domestic revenue mobilization for economic development. Synthesizing data from national agencies, we identify the central challenges facing the tax systems in Kenya including compliance levels, a significant informal sector, and economic shocks. Our analysis underscores the need for data-driven policymaking, emphasizing Kenya’s Medium-Term Revenue Strategy (MTRS) 2024-2027, aimed at reversing declining tax-to-Gross Domestic Product (GDP) ratios through a comprehensive modernization of the public revenue system. Our study further highlights major revenue streams such as income taxes and value added tax to show how a few taxes make up a large portion of domestic revenues and the urgency for optimization within these taxes. The stagnant or declining performance of many tax structures in Kenya reveal a need for comprehensive reviews and updates that enhance progressivity, encourage compliance, and raise revenues relative to GDP.
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Digital Financial Services through Mobile Phones: Status and Challenges Faced by Rural Women in Tanzania
(AERC, 2025) Daniel, Lanta; Mwighusa, Dennis; Diyamett, Bitrina
Financial services are key to economic growth and societal well-being, boosting access to credit, savings, and overall development. Despite progress in mobile phone and mobile money adoption in Sub- Saharan Africa particularly Tanzania, financial exclusion in the country remains high compared to other East African countries, with significant gender and urban-rural disparities. This study examines digital financial inclusion in Tanzania, focusing on rural women's experiences and challenges. Using focus group discussions and policy analysis, the study highlights major gaps in awareness, usage, and understanding of mobile money services, as well as overlooked policy aspects. Key findings reveal that while awareness of digital financial services is widespread, rural communities—especially women—lack a thorough understanding of these services. This gap in comprehension limits their usage, indicating that mere awareness is insufficient. The study underscores the importance of tailored interventions, such as community engagement, capacity building for agents, and targeted policy frameworks, to address these challenges. Recommendations are provided for both the public sector and the private sector on how to enhance financial inclusion, ensuring that no one is left behind in the digital financial landscape.
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The Monetary Economics of e-Money and Policy Implications: Evidence from Uganda
(AERC, 2025) Okot, Nicholas; Shinyekwa, Isaac M. B.; Bulime, Enock N. W.; Luwedde, Justine
The fourth-generation technological innovations coupled with Fintech has evolved into global transition to e-money. In Uganda the uptake and usage of e-money services have exponentially grown since the introduction of mobile money services in 2009. This study examines the theoretical foundation of e-money economics and employs time-series econometric approaches on Uganda data for the period 2009Q1-2022Q4 to assess their implication on the stability of the money demand function and transmission of monetary policy. The test for stability following the estimation of the money demand function with autoregressive distributed lag (ARDL) and transmission mechanisms in the vector autoregressive (VAR) model indicate that, e-money distorts the stability of the money demand function in the short-run and is procyclical with monetary policy shock (policy interest rates adjustments). These attributes of e-money are likely to adversely affect the effectiveness of monetary policy transmissions.
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The Monetary Economics of E-money and Implications for Monetary Policy in Uganda
(AERC, 2025) Okot, Nicholas; Shinyekwa, Isaac; Luwedde, Justine; Bulime, Enock W. N.
The policy brief summarizes findings from a study titled, “The Monetary Economics of E-money and Policy Implications: Evidence from Uganda.’’ The study examines the monetary economics of e-money and its policy implications for over the period 2009Q1-2022Q4. The research approach involves theoretical and empirical literature reviews. Quantitatively estimated and tested the stability of the money demand function using the Autoregressive Distributed Lag (ARDL) model and the monetary transmission through Vector Autoregressive (VAR) model. The qualitative aspect is based on the key informant interviews.
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Financial Inclusion and Market Development in South Sudan
(AERC, 2025) Joseph, Samson Taban; Ajongo, Jacqueline Benjamin
Among the many problems facing the economy, financial exclusion is one of the major issues facing South Sudan in recent times. About 80% of the country’s adult population lack bank accounts, leaving them financially excluded from accessing and using financial products, services, and information. This is a concerning statistic, as financial inclusion is crucial for economic growth and societal development. This issue was engineered by the country’s high financial illiteracy rate (73%), who are mostly women, and people with special needs. Furthermore, limited financial infrastructure in various regions of the country, such as the insufficient number of bank branches in rural areas and strict Know Your Customer (KYC) regulations, remains a significant concern. Additionally, many adults lack the necessary documents to open bank accounts. As a result, the regulatory framework governing financial inclusion and the role of digital financial services in the country is inadequate.
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Financial Inclusion Primary in South Sudan
(AERC, 2025) Garang, James Alic
This policy brief addresses four key research problems: challenges in opening bank accounts and obtaining IDs, access to financial products and services, and financial literacy. One of the major barriers to accessing financial products, such as loans, is the requirement of a bank account, which in turn necessitates identification (ID). This issue is particularly critical in South Sudan, where only 37,000 people across the entire country possess IDs, highlighting a significant gap that must be bridged urgently. Due to the widespread financial illiteracy among much of the population, alternative mechanisms for issuing identity cards need to be introduced to include marginalized groups, such as women, people with disabilities, and those in rural areas.
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Digital Financial Services through Mobile Phones: Bringing Inclusivity to Tanzania’s Rural Women
(AERC, 2025) Daniel, Lanta
Financial inclusion, particularly through mobile money services, plays a vital role in fostering economic growth in developing economies by providing access to financial products and services. In Tanzania, where 88% of the population owns mobile phones, approximately 45% possess mobile money accounts. Nevertheless, there remains a notable disparity concerning gender (men and women) and geographical location (rural and Urban), with women in rural areas being more prone to exclusion.
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Enablers and Inhibitors for Access and Usage of Digital Financial Services in Uganda
(AERC, 2025) Shinyekwa, Isaac M. B.; Mpuuga, Dablin; Nattabi, Aida K.; Bulime, Enock W. N
Financial inclusion (FI) and specifically access to affordable financial services is very critical in reducing poverty, income inequality as highlighted in Sustainable Development Goals 1, 5 and 10; and accelerating economic growth. FI is therefore important for Uganda like any other country. Women and rural Ugandans are proportionately more included in informal financial groups, whereas men and urban dwellers have more access and usage of formal financial services. The low level of formal FI in rural areas is partly explained by the high cost of providing financial services. Commercial banks are faced with lack of the incentives, information, and sometimes the ability to mitigate the risks of operating beyond urban markets or with low-income clients. Consequently, a significant portion of rural and low-income Ugandans remain financially excluded. In this regard, DFS such as MM emerge as one of the ways to bridge the financial access gap between the financially included and excluded. It is however noted that little is known in Uganda’s context concerning the critical enablers as well as inhibitors to access and usage of DFS. The policy brief summarizes findings from the study titled, “Leveraging Digital Services and Market Development for Financial Inclusion: The Case of Uganda”.
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Digital Financial Services in Tanzania: Plight for the Poor
(AERC, 2025) Mwighusa, Dennis; Diyamett, Bitrina
There are glaring currently inclusion gaps associated with gender, social and economic status, and geographical location in the provision of financial services in Tanzania. For instance, while the World Bank (2018) reports a 9% gap between women and men in access to financial services worldwide, for Tanzania women exclusion stood at 39.3% percent, and that of men was 29.9% (FinScope, 2017). In addition, while 43.3% of the rural population was excluded from formal financial services, only 18.4 percent of urban were excluded (FinScope, 2017).
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From Cash to Cashless: Leveraging the Potential of Digital Financial services in Rwanda
(AERC, 2025) Munyengera, Ggombe Kasim; Agnes, Mutuyimana; Seth, Kwizera; Precious, Akampumuza
Digital financial inclusion in Rwanda has grown from 46% of adults in 2016 to 66% in 2020. The nature of payments has also evolved, shifting from peer-to-peer transactions to more sophisticated ones, such as tax payments. According to the 2020 Finscope survey, 94% of commercial banks now offer some form of electronic payment. This progress notwithstanding, cash remains the preferred method of payment for groceries (98% of respondents), electricity (52%), medical fees (60%), education (44%), and personal spending (60%). Critical impediments to further DFS development and adoption include limited interoperability among platforms and services of different service providers and low levels of digital literacy. The mid-term evaluation of the National Strategy for Transformation revealed that only 24% of adults were digitally literate in 2021, less than halfway to the target of 60% by 2024. Low levels of awareness of DFS products, unreliable networks, especially in rural areas, and low levels of trust partially motivated by cyber insecurity are additional impediments to being addressed.
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Disability is no Inability: Promoting Financial Inclusion and Digital Financial Services for PWDs in Rwanda
(AERC, 2025) Munyengera, Ggombe Kasim; Precious, Akampumuza; Seth, Kwizera
As financial inclusion rates rise to cover 93% of the adult population in Rwanda, one in four adults with disabilities has no access to either formal or informal financial services. People with disabilities have lower rates of mobile money account ownership (46%) compared to those without disabilities (59%). Overall rates of bank service usage, including accounts owned by others, were 30% among persons with disabilities and 37% among those without disabilities. Informal services are an inevitable option for people with disabilities whose usage rate is higher (17.9%) than among the rest of the population (14.9%), with substantial cost implications, especially regarding credit. Supply-side constraints include the physical inaccessibility of most financial institution and mobile network operator (MNO) premises, a lack of products tailored to the special needs of persons with disabilities (PWDs), disability-insensitive service delivery channels, and negative stereotypes and discrimination among some financial service providers.
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Behavioural Biases: Driving a Wedge Between Access and Usage of Financial Services
(AERC, 2025) Osoro, Jared; Bundi, Davis; Kiplangat, Josea
The noticeable strides that Kenya has made in financial inclusion underpins the assumption that access automatically translates into usage of digital financial services. The plausibility of this assumption is questionable given that demand for financial services is influenced by behavioural biases. Individual behavioural heterogeneity and self-exclusion attitude account for the differences in financial decision making, with biases creating the wedge that inhibit the usage of financial services even when there are no limitations of access. The implication of such biases is that households have a predisposition of making financial decisions that leads to less optimal welfare outcomes.