Thematic Policy Briefs (English)
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- ItemLong Term Effects of Free Primary Education on Educational Achievement: Evidence from Lesotho(African Economic Research Consortium, 2024-04-10) Moshoeshoe, RamaeleMany sub-Saharan African countries have instituted Free Primary Education (FPE) policies, which significantly increase primary school enrolment rates in developing countries. However, school attendance is different from learning. The main questions that still beg for answers are whether the many children in school are learning and whether the FPE learning effects are long-lasting. This paper attempts to estimate the long-term effects of the FPE programme on educational achievement in Lesotho. The programme was implemented grade by grade, beginning with grade one school fees abolition in 2000. The POLICY BRIEF Long Term Effects of Free Primary Education on Educational Achievement: Evidence from Lesotho Ramaele Moshoeshoe October 2023 / No.796 2 Policy Brief No.796 timing of the implementation created changes in programme coverage across age (and grade) groups over time. We employ a semi-parametric difference-in-differences strategy that exploits these variations to identify the long-term effects of the FPE policy on educational achievement, using university examinations record data for student cohorts that are FPE-treated and those that are FPE-untreated. The results indicate that the FPE effect on academic performance is between 2 percentage points (statistically insignificant) and 20 percentage points (statistically significant at a 1 percent level).
- ItemFinancial Openness and Remittances: Evidence from Sub-Saharan Africa(African Economic Research Consortium, 2024-04-10) Effiong, Ekpeno L.; Asuquo, Emmanuel E.Does financial openness matter for remittances? Are the effects of financial openness on remittance dependent on the levels of financial and institutional development? This paper investigates these questions using panel data for 31 sub-Saharan African countries over from 1990 to 2015 and using a dynamic panel system generalized method of moments (GMM) estimation technique. The results show that financial openness, albeit having a declining effect, does not significantly influence the inflow of remittances into the region. In contrast, when conditioned on the levels of financial development and institutional quality, POLICY BRIEF Financial Openness and Remittances: Evidence from Sub-Saharan Africa Ekpeno L. Effiong and Emmanuel E. Asuquo October 2023 / No.804 2 Policy Brief No.804 financial openness tends to significantly increase remittances. However, this effect declines with significant improvement in institutional quality and a well-developed financial sector. Thus, financial openness substitutes financial and institutional development in fostering remittances in the region.
- ItemSocio-Economic Status and Children’s Schooling Outcomes in Mozambique(African Economic Research Consortium, 2024-04-10) Bongai, MunguniThis study investigates the association between socio-economic factors and children’s schooling outcomes (school access as proxied by ever enrolled, dropping out and staying in school-current enrolled or still in school) for children in Mozambique using the probit model. The results show that there is not much difference between factors that affect access and those that affect dropping out or staying in school once enrolled. Children from the poorest families, with less educated parents, from the north region, who live far away from a water source and are not the biological children of the household POLICY BRIEF Socio-Economic Status and Children’s Schooling Outcomes in Mozambique Munguni Bongai October 2023 / No.789 2 Policy Brief No.789 head were found to be most disadvantaged in all the three schooling outcomes compared to their counterparts with educated parents, from wealthy families and with water at home. The rural–urban divide, availability of electricity and land or livestock at home had no significant correlation with children schooling outcomes. This study therefore argues that policy makers must implement policies that improve the socio-economic backgrounds of children, by dealing with the demand side factors particularly enhancing adult literacy programmes, providing water sources close to households, encouraging pre-primary education centres and improving the general welfare of households where children live. In a nutshell, results showed that demand side factors were strong factors that hinder children’s schooling and have to be prioritized in drafting and implementing of education policies.
- ItemThe FDI-Growth Nexus: A Comparative Analysis of Resource-Rich and Resource-Scarce African Economies(African Economic Research Consortium, 2024-04-10) Yimer, AddisTo capture the impact that cross-country resource endowment differences may have on the FDI‒growth relationship, this study investigates the FDI‒growth nexus in Africa by categorizing the countries as resource-rich and resource-scarce, for the period 2000‒2017. Thus, the study is a modest attempt to answer the following main questions: a) Does FDI inflows contribute to economic growth in the host country after controlling for endogeneity? b) Does being natural resource abundant/scarce country alter the FDI‒growth nexus? Using a System GMM, both the direct and interaction effects of FDI on growth are investigated in POLICY BRIEF The FDI-Growth Nexus: A Comparative Analysis of Resource-Rich and Resource-Scarce African Economies Addis Yimer October 2023 / No.788 2 Policy Brief No.788 a comparative framework across resource-rich and resource-scarce African countries. The results show that the effects of FDI on economic growth vary depending on resource richness of countries. While FDI is found to affect growth positively and significantly in resource-scarce African economies, no significant effect of FDI on growth is identified for the resource-rich category.
- ItemFinancial Inclusion and Entrepreneurship in Six sub-Saharan African Countries: Evidence from Finaccess and Finscope Survey Data(African Economic Research Consortium, 2024-04-10) Gakpa, Lewis-LandryThis paper investigates how financial inclusion affects individuals' decisions to start businesses in the context of six sub-Saharan African countries, using micro-data from the FinScope and FinAccess surveys. To do so, we use an instrumental variable (IV) technique to assess the empirical relationships. Overall, the results reveal that access to both banking services, formal non banking services, informal financial services and mobile money services positively and significantly influenced the decision to start businesses in the six countries. Furthermore, although the results show that a range of both demand POLICY BRIEF Financial Inclusion and Entrepreneurship in Six sub-Saharan African Countries: Evidence from Finaccess and Finscope Survey Data Lewis-Landry Gakpa October 2023 / No.793 2 Policy Brief No.793 and supply side barriers prevent individuals from accessing banking services for entrepreneurial purposes, supply side constraints are the most common barriers to individuals starting a business. In view of the above, policy interventions should first aim at creating an enabling environment to increase people's access to all types of financial services and secondly, address both supply and demand side constraints to promote entrepreneurship and economic growth. All of these measures should be aimed at increasing the level of financial inclusion with a view to stimulating entrepreneurial activities, which are the real pillars in the development and poverty reduction process in sub-Saharan African countries.
- ItemHabits, Rule-of-Thumb Consumption and Useful Public Consumption in sub-Saharan Africa: Theory and New Evidence(African Economic Research Consortium, 2024-04-10) Francois, John NanaI derive and estimate a structural consumption model for a panel of 34 sub-Saharan African countries from 1960–2018 to uncover three important aggregate consumption behaviours: habit formation, rule-of-thumb consumption, and the complementarity of government consumption in private utility. The following findings emerge: (1) There is evidence of habit formation in consumption. (2) Approximately 38% of consumers follow the rule of thumb of consuming their current income. This rule-of-thumb consumption behaviour in the data is driven by the period before the mobile POLICY BRIEF Habits, Rule-of-Thumb Consumption and Useful Public Consumption in sub-Saharan Africa: Theory and New Evidence John Nana Francois October 2023 / No.791 2 Policy Brief No.791 money era that emerged post-2000s. (3) Public consumption complements private consumption in an Edgeworth-Pareto sense. This suggests that increases in government consumption can stimulate aggregate demand via a positive marginal utility channel.
- ItemThe Impact of Conflict on Child Health Outcomes: Micro-level evidence from Nigeria(African Economic Research Consortium, 2024-04-10) Oyinlola, Mutiu A.; Adeniyi, Oluwatosin; Adedeji, Abdulfatai A.; Lipede, Omolola M.Globally, the prevalence of conflicts has taken different dimensions due to exposure to different forms of conflict. Also, extant studies have linked conflict with health outcomes. However, comprehensive information on different conflict types remaining a major challenge faced by existing studies. Thus, this study provides a comprehensive analysis of the impact of conflicts on child well-being in Nigeria. To achieve the goal, it classified the conflicts into three categories: aggregate, insurgency/terrorism, and herdsmen/farmers’ conflict. Furthermore, robust data are used by exploring four DHS waves (2003, 2008, POLICY BRIEF The Impact of Conflict on Child Health Outcomes: Micro-level evidence from Nigeria Mutiu A. Oyinlola, Oluwatosin Adeniyi, Abdulfatai A. Adedeji and Omolola M. Lipede October 2023 / No.792 2 Policy Brief No.792 2013, and 2018) and integrating three conflict data sets using the MELTT technique. We present three steps of analysis for conflicts and child well-being based on this robust information. The impact of aggregate conflicts on child health outcomes, mechanisms, and across different groups was first investigated. Second, the impact of insurgency/terrorism on child health outcomes, mechanisms, and across different groups was examined. Third, the impact of herdsmen/farmers' conflict on child health outcomes, mechanisms, and across various groups was investigated. The result of a difference-in-difference approach suggest that proximity and exposure to different types of conflict worsened child health outcomes (infant mortality, height-for-age z-score, weight-for-age z-score and weight-for-heigh z-score). Also, vaccination, hospital visitation, and mother’s education are significantly affected by conflict types. Proximity and exposure to different conflict types forced people to migrate to less conflict-affected areas.
- ItemThe Role of Mobile Money in International Remittances: Evidence from Sub-Saharan Africa(African Economic Research Consortium, 2024-04-10) Kirui, Benard KipyegonOver the past decade, remittance flows to sub-Saharan Africa grew at an average of 12.9% and is expected to increase in the coming decade, however, the high cost of remittances remains a constraint that limits regular remittance flows. About 9.1 percent of remittance flows to sub-Saharan Africa is absorbed by transfer cost making it the most expensive remittance recipient region. With evidence that mobile money services reduce transaction costs for internal remittances, the introduction of mobile money services in international remittances should have the same effect. Against this backdrop, this study investigates the effect POLICY BRIEF The Role of Mobile Money in International Remittances: Evidence from Sub-Saharan Africa Benard Kipyegon Kirui October 2023 / No.805 2 Policy Brief No.805 of introduction of mobile money services on international remittance transfer costs and determine the effect of international remittance transfer costs on international remittance flows. Least squares dummy variable model and a system GMM is applied to address the first and second objective, respectively. International remittance transfer cost is lower by 46% for corridors that incorporate mobile money in international money transfer channels compared to those that do not. Controlling for other factors, the gap between corridors that incorporate mobile money and those that do not goes down to 11.5%. Thus, a reduction in remittance transfer costs can be achieved by improving cross border mobile money services interoperability.
- ItemCrop Diversification, Household Nutrition, and Child Growth: Empirical Evidence from Ethiopia(African Economic Research Consortium, 2024-04-10) Tesfaye, Wondimagegn MesfinRecently, there is a resurgence of interest in crop diversification as a strategy to deal with a variety of issues, including malnutrition in the context of a changing climate and poorly developed markets. However, the empirical evidence base to justify this policy position is thin. This research seeks to contribute to the growing literature and the policy discourse by providing empirical evidence on the impact of crop diversification on child growth using panel survey data, combined with historical weather data. The study finds that crop diversification has a positive but small impact on child growth. Results from analysis of heterogeneous effects POLICY BRIEF Crop Diversification, Household Nutrition, and Child Growth: Empirical Evidence from Ethiopia Wondimagegn Mesfin Tesfaye October 2023 / No.795 2 Policy Brief No.795 show that the positive effects are more pronounced in areas with limited access to markets. The study demonstrates that the positive effects of crop diversification on child growth could be mediated through its positive impacts on household diet diversity, diet quality, and income.
- ItemThe Impact of Network Coverage on Adoption of Fintech Platforms and Financial Inclusion(African Economic Research Consortium, 2024-04-10) Mothobi, OnkokameThis paper analyses the effect of mobile network coverage on financial inclusion using the survey data of 12,735 individuals from nine sub-Saharan African countries conducted in 2017. We use the geolocation of respondents to combine the survey data with information on the proximity of mobile network towers. We estimate a two-stage model: in the first stage consumers decide to adopt a technology device, and in the second stage they decide whether to use digital financial services or not. The results show that financial inclusion is positively influenced by mobile network coverage. In counterfactual POLICY BRIEF The Impact of Network Coverage on Adoption of Fintech Platforms and Financial Inclusion Onkokame Mothobi October 2023 / No.798 2 Policy Brief No.798 simulations, we consider that the whole population lives within 2km of the towers of any of these networks and find that the adoption of digital financial services would increase by 2%, on average, depending on the country. Considering a case where the whole population lives within a 2km radius from the LTE tower, financial inclusion would increase by 6% in Mozambique and 3% in Ghana, Rwanda, and Senegal. In Tanzania, where mobile money is a common financial service, investment in GSM and UMTS would have a larger impact on financial inclusion than LTE. These results show that non-Internet-based digital financial technologies have a greater impact on financial inclusion in East African countries than those that require consumers to be connected to the Internet. The results also indicate that digital financial platforms act as substitutes for a bank account among the poor, and as a complement for those who own a bank account.
- ItemHow Does Adoption of Mobile Money Technology Affect Child Labour and School Enrolment?(African Economic Research Consortium, 2024-04-10) Massacky, Joseph B. Ajefuand FaleciaThis paper analyses the impact of adoption of mobile money services on child labour and educational outcomes in Tanzania using an instrumental variables strategy. We identify heterogenous impacts across child’s gender and age, and we find a positive and significant effect of mobile money adoption on educational outcomes, but the results reveal a negative and significant impact on child labour in the farm and households. Moreover, using mediation analysis, we identify remittances and education expenditure as the potential pathways through which mobile money adoption affects child labour and educational outcomes. POLICY BRIEF How Does Adoption of Mobile Money Technology Affect Child Labour and School Enrolment? Joseph B. Ajefuand Falecia Massacky October 2023 / No.806 2 Policy Brief No.806 Overall, the results suggest that policies that increase mobile money adoption can be effective in improving child educational outcomes and lead to a decline in the incidence of child labour
- ItemGender and Firm Performance in Africa: Does the Business Environment Play a Moderating Role?(African Economic Research Consortium, 2024-04-10) Okumu, Ibrahim Mike; Nathan, Sunday; Bbaale, EdwardThis paper examines the moderating role of the business environment in the relationship between the gender of the top manager and firm performance (measured as sales per employee), and whether female-managed firms perform better the higher the proportion of female employees in the firm. The paper uses World Bank Enterprise Survey data of 14,561 firms from 29 African countries collected between 2010 and 2016. The descriptive analysis reveals significant variation in the performance and experience of business environment constraints that disadvantage female-managed firms. Controlling for potential endogeneity POLICY BRIEF Gender and Firm Performance in Africa: Does the Business Environment Play a Moderating Role? Ibrahim Mike Okumu, Sunday Nathan and Edward Bbaale October 2023 / No.799 2 Policy Brief No.799 and country fixed effects, we show that female-managed firms are associated with lower performance compared to male-managed firms. Electricity outages, informal competition, and corruption account for the performance gap between female and male-managed firms. However, we show that large female-managed firms perform better than male-managed large firms. Overall, the results imply that strengthening Africa’s business environment is central to closing the performance gap between male and female managers.
- ItemFacilitating Regional Trade: Lessons from WAEMU and EAC on How to Increase Trade in CEMAC(African Economic Research Consortium, 2024-04-10) Bertrand, Nguenkwe RonieThis study explores the ways of facilitation and enhancing intra- Central African Economic and Monetary Community (CEMAC) trade, which has remained structurally weak over more than twenty years, by focusing on the East African Community and the West African Economic and Monetary Union (WAEMU). The study uses a descriptive analysis of trade and the indicators of facilitation of trade in those three communities. An econometric analysis of factors underlying the level of trade in those three communities is conducted using an augmented gravity model. The econometric results demonstrate that the number of POLICY BRIEF Facilitating Regional Trade: Lessons from WAEMU and EAC on How to Increase Trade in CEMAC Nguenkwe Ronie Bertrand October 2023 / No.807 2 Policy Brief No.807 documents and the number of days required to export has a negative and significant impact on trade in EAC and WAEMU, but a positive impact in CEMAC. Infrastructure services, notably the use of the Internet have a negative impact on intra-zone trade in EAC
- ItemSymmetric and Asymmetric Responses of Consumer Prices Index Inflation to Exchange Rates in Nigeria(African Economic Research Consortium, 2024-04-10) Eregha, Perekunah B.The question whether domestic prices respond to either official exchange rate or parallel exchange rate movements is a key research issue, especially in an oil-dependent developing country such as Nigeria that has rising fiscal pressures and a vibrant parallel foreign exchange market. From the monetary authority perspective, it is also imperative to know if prices respond symmetrically and/or asymmetrically to both official and parallel exchange rate movements. Consequently, this study examines the response of domestic prices to both official and parallel exchange rate movements for the period POLICY BRIEF Symmetric and Asymmetric Responses of Consumer Prices Index Inflation to Exchange Rates in Nigeria Perekunah B. Eregha October 2023 / No.801 2 Policy Brief No.801 1995Q1–2019Q1 using Shin et. al’s (2014) non-linear ARDL approach. The results show that the magnitude of the effect of parallel exchange rates on domestic prices is more than that of the official exchange rate’s effect in a symmetric case. However, only domestic prices respond differently to the depreciation and appreciation of the official exchange rate in Nigeria. Consequently, the government needs to ensure some level of fiscal austerity, and possibly exchange rate unification when the premium grows too big, if the intention is to insulate domestic prices from fiscal pressures. Also, the Central Bank of Nigeria needs to be aware of a possible asymmetric relationship in their decisions to ensure price stability so that it does not distort monetary policy effects.
- ItemSpatial Analysis of Climate Effect on Agriculture: Evidence from Smallholder Farmers in Côte d’Ivoire(African Economic Research Consortium, 2024-04-10) Ochou, Fabrice Esse; Ouattara, Pierre DignakouhoClimate change has been affecting the agriculture sector over the past few decades. This impact could have serious consequences for farmers in developing countries. This paper applies the spatial approach to assess the response of agricultural net revenue to climate change in Côte d’Ivoire. It first uses a simple static comparative approach, to show that market imperfection induces spatial heterogeneity in agricultural product prices and hence spatial autocorrelation. Taking these findings as a point of departure, empirical analysis uses a Spatial Durbin Error Model based on 2016 World Bank Smallholder Household Survey POLICY BRIEF Spatial Analysis of Climate Effect on Agriculture: Evidence from Smallholder Farmers in Côte d’Ivoire Fabrice Esse Ochou and Pierre Dignakouho Ouattara October 2023 / No.785 2 Policy Brief No.785 Data from Côte d’Ivoire. Results reveal that rainfall has a non-linear direct effect and positive linear spillover effects on agricultural net revenue. In addition, the paper shows that the total marginal effect of rainfall is positive in the central, eastern and northern regions of the country and negative in the coastal and western regions. Moreover, predictions indicate that a decrease in average precipitation of between 5% and 10% leads in general to a decrease in the average net agricultural income from about 0.45% to 1.38% while an increase in the same ranges leads to a decrease in the average net agricultural income from about 0.02% to 0.05%
- ItemGlobal Value Chains and Industrialization in Africa(African Economic Research Consortium, 2024-04-10) Nguekeng, Bernard; Mignamissi, DieudonnéThe objective of this study is to analyse the main effects of the integration of African countries in the global value chainsa (GVCs) on their industrialization level. To this effect, we have specified an industrialization equation that considers the economic characteristics of the continent. We have then estimated that equation by the system GMM estimator method on a sample of 51 African countries with panel data spanning the period 1996‒2018 sourced from international organization databases. The findings of the estimations are the following: (1) the participation and the position of African countries in GVC positively contribute POLICY BRIEF Global Value Chains and Industrialization in Africa Bernard Nguekeng and Dieudonné Mignamissi October 2023 / No.808 2 Policy Brief No.808 to their industrialization. The imports of intermediate goods facilitate the access to foreign machinery and technologies which stimulate local production. Furthermore, the position in value chains that are limited to assembling activities would also allow to achieve significant industrial progress; (2) the main factors influencing the indirect transmission of GVC to industrialization are the human capital and the physical capital; (3) the results are stable as shown by several robustness check tests related to different modalities of integration in GVC, to the conception of a new participation indicator in GVC, and to sub-regional specificities. Based on these results, we recommend policy actions to enhance participation, but also to improve the position in GVC, while at the same time an appropriate strategy would be designed to accumulate human capital and physical capital in the long term.
- ItemIdentification and Estimation of Quadratic Food Engel Curves: Evidence from Cameroon(African Economic Research Consortium, 2024-04-10) Wirba, Ebenezer LemvenIn this paper we estimate quadratic food Engel curves using data from the 2001, 2007 and 2014 Cameroon household consumption surveys. To address potential mismeasurement of regressors, we employ the heteroscedasticity based identification strategy. Exploratory non-parametric analyses suggest quadratic forms for the food Engel curves. The regression results in this study confirm these patterns. At lower spending levels, unit increases in total spending increase the food budget share, while at levels above the spending thresholds unit increases in total spending reduce the food budget share. We POLICY BRIEF Identification and Estimation of Quadratic Food Engel Curves: Evidence from Cameroon Ebenezer Lemven Wirba October 2023 / No.809 2 Policy Brief No.809 also find evidence of major shifts in the quadratic food Engel curves over time. These findings suggest that reducing taxes on food items would be more beneficial to poor households.
- ItemThe Impact of Agricultural Public Expenditure on Agricultural Productivity in Nigeria(African Economic Research Consortium, 2024-04-10) Alabi, Reuben Adeolu; Abu, Godwin AnjeinuThis study analyzes the impact of agricultural public expenditure on agricultural productivity in Nigeria. The relevant time series data for the study were obtained from secondary sources. The data ranged from 1981 to 2014. An instrumental variable two-stage least squares (IV-2SLS) econometric model was employed to investigate the endogeneity of public agricultural expenditure, and the autoregressive distributed lag (ARDL) econometric technique was used to determine the long and short-term effects of public agricultural expenditure on agricultural productivity. The study shows that 20% of agricultural public budgets POLICY BRIEF The Impact of Agricultural Public Expenditure on Agricultural Productivity in Nigeria Reuben Adeolu Alabi and Godwin Anjeinu Abu October 2023 / No.790 2 Policy Brief No.790 were not implemented in Nigeria. On average, agricultural public capital expenditure comprised 55% of total agricultural public expenditure in Nigeria, which is lower than the recommended 60% for effective agricultural sector performance. The study also reveals that while public agricultural capital expenditure and agricultural public total expenditure are strong determinants of agricultural productivity, agricultural public recurrent expenditure maintains a weak relationship with agricultural productivity in Nigeria. Finally, the study demonstrates that agricultural public spending on irrigation has the highest impact on agricultural productivity, while agricultural public spending on subsidies has the least impact on agricultural productivity. Among other recommendations, it is suggested that the agricultural public expenditure pattern should be realigned to favour investments in irrigation, research and development, and rural development, which currently attract lower budgetary allocations in Nigerian agricultural budgets.
- ItemExplaining Food Insecurity in Sub-Saharan Africa: The Role of Governance and Institutions(African Economic Research Consortium, 2024-04-10) Gafa, Dede; Chachu, DanielThe burgeoning literature on global food (in)security suggests that sub-Saharan Africa (SSA) is lagging the rest of the world despite a period of decline in the prevalence of severe undernourishment. Using panel data covering 34 countries in the region for the period 2000 to 2015, this study examined the correlates and causes of food insecurity in SSA with emphasis on the role of domestic food production, governance, and institutions. The report also provides evidence on the mediating role of governance by examining how the quality of governance and institutions influence the effectiveness of domestic food production on food insecurity in the region. The POLICY BRIEF Explaining Food Insecurity in Sub-Saharan Africa: The Role of Governance and Institutions Dede Gafa and Daniel Chachu October 2023 / No.797 2 Policy Brief No.797 paper uses an instrumental variable strategy. The findings suggest that domestic food production and improvements in governance quality, measured by economic freedom and government effectiveness, are fundamental drivers of food security in SSA. We also found that improving the quality of governance would enable countries to better translate domestic food production to reductions in the depth of food deficit and the prevalence of undernourishment. Nonetheless, in the absence of adequate domestic food production, governance reforms alone would be impotent in fostering food security in SSA. The paper further suggests that finding the right balance between State interventionism and market oriented policy reforms is essential to promote food security among African countries
- ItemWhat Explains Provisioning Behaviour in the Banking Industry? Evidence from an Emerging Economy(African Economic Research Consortium, 2024-04-10) Muriu, PeterExisting literature shows that several factors drive loan loss provisioning among banks. However, little is known on this topic in the African banking context and specifically Kenya's banking industry. Using hand-collected annual bank-level data for the period 2002 to 2018, this paper investigates whether provisioning behaviour depends on banks' idiosyncratic or systematic factors. The study also investigates whether provisioning is pro or counter-cyclical through business and credit cycles and whether provisioning behaviour is heterogeneous for different bank groups. Estimation results reveal that provisions are used for capital and POLICY BRIEF What Explains Provisioning Behaviour in the Banking Industry? Evidence from an Emerging Economy Peter Muriu October 2023 / No.787 2 Policy Brief No.787 earnings management, but the findings are sensitive to bank size and ownership status. Further, the evidence suggests that provisioning reflects changes in asset quality and is counter-cyclical to the business cycle.