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- ItemCorruption and Firm Export Performance in Fragile Economies: Evidence from Zimbabwe(AERC, 2021-05-22) Makochekanwa, AlbertIn this paper, we examine the relationship between corruption and firm export performance in Zimbabwe. Using a new panel data set of manufacturing and service firms from World Bank Enterprise survey and a methodology that relies on within-firm variation, we show that corruption increases the probability of exporting indirectly through intermediaries and decreases the probability of exporting directly. This result highlight that corruption is a cost to the economy in the absence of intermediaries. In addition, it highlights the importance of strong institutions that reduce corruption for business dynamism and economic growth.
- ItemDo Gold and Crude Oil Act as Portfolio Diversifiers, Safe Haven Assets or Hedge Instruments Against Volatility in Stock Markets and Exchange Rates? Evidence from sub-Saharan Africa(African Economic Research Consortium, 2022-01-12) Wafula, Martin; Alagidede, Imhotep; Simpasa, Anthony; NandelengaThis paper examines whether gold and crude oil are used as diversifying, hedging or as safe haven assets against stock markets and exchange rate volatility in selected African countries. We use daily data for South Africa, Kenya and Nigeria from 2005 to 2021 and apply different techniques, including the Dynamic Conditional Correlation and the Spillover Index to decipher the financial market characteristics of the two commodities during periods of market stress. The findings show that: (i) countries use gold and oil as diversifiers and safe haven assets rather than as a hedge instrument; (ii) the Nairobi Stock Exchange and Johannesburg Stock Exchange are the largest volatility contributors to other markets; (iii) while Nairobi stock exchange and gold are net transmitters of risk, and; (iv) currency markets are net receivers of risk transfer. We find heterogeneous results during periods of crisis. Specifically, during the period of COVID-19 pandemic, gold’s attributes of portfolio diversifier and safe haven instrument increase, and acting as a hedge asset. Similarly, the Nigeria currency market and Johannesburg Stock Market are the largest net volatility transmitters while the Kenyan currency market and Nairobi Stock Exchange are net receivers of volatility. Our results highlight the significance of the characteristics of the two commodity assets for investors and financial markets.
- ItemEffects of Public Expenditure on Economic Growth in the CEMAC Subregion: A Comparative Analysis between the Fragile and Non-fragile States(AERC, 2021-05-22) Luc, Nembot Ndeffo; André, Melachio Tameko; Kos, A Mougnol AliceChad, Central African Republic, and Congo have been identified by the African Development Bank as fragile states. Despite their socio-political stability, the other countries of the subregion, which are Cameroon, Gabon, and Equatorial Guinea, are exposed to risks of various kinds related to refugees from neighbouring countries and war against the Islamic sect Boko Haram. This study aims at carrying out a comparative analysis of the effects of public spending on economic growth in the aforementioned six countries by highlighting the differential effects of investment spending and consumption spending. The study covers the period 1975-2016. Time series regressions using the ARDL approach is applied. Taking into account the threshold effects for each country and each type of expenditure seems important for better formulation of policy recommendations. The results reveal a stable long-run relationship between public expenditure and the economic growth rate in the CEMAC subregion. Policies aiming at increasing the share of public investment expenditure to the detriment of public operating expenditure are recommended. Public expenditure should also be oriented towards productive development projects.
- ItemHeterogeneity of Inter-regional Efficiency of Education Public Spending in Fragile State: Evidence from Chad(AERC, 2021-05-22) Mallaye, Douzounet; Gadom, Gadom DjalThis study analyses the inter-regional efficiency of education public spending in Chad, which is characterized by a long history of armed conflict. Specifically, we investigate the institutional, political, and security dimensions of fragility influencing the interregional education public spending efficiency for the period 2007-2016. The data used are from the Ministry of National Education and the National Institute of Statistics, Economics and Demographic Studies (INSEED) and cover 23 regions of Chad. The education public sector efficiency scores is estimated in the first stage using the Data Envelopment Analysis (DEA) approach, while in the second stage, the panel data Tobit regression is used to evaluate the determinants of the efficiency of the education public spending. The mean efficiency score is 0.96 in primary education and 0.90 in secondary education. This means that the better management of the education sector may allow reducing the amount of public education spending by 4% in primary education sector and 10% in the secondary education sector, given the actual level of the quality and the quantity of education. With regard to these results, the primary sector is more efficient than the secondary sector. The Tobit estimates suggests that efficiency is negatively associated to head of region reshuffle, armed conflicts sequence, and the number of parliament member, which capture, respectively, the institutional, security, and political dimensions of fragility. Based on our findings, it is recommended to the government to reduce the central government instability in general, and specifically the recurrent turnover of the head of region, these being the main determinants of public spending inefficiency in Chad.
- ItemThe Impact of Fragility on Growth and Poverty in Nigeria: A Disaggregate State-level Analysis(AERC, 2021-05-22) Adedeji, Abdulfatai A.; Adeniyi, OluwatosinThis paper empirically investigated the fragility-growth nexus, as well as the fragilitypoverty nexus, in a sample of 36 states and Federal Capital Territory (FCT) in Nigeria. We further considered the macroeconomic and socio-political relationship in fragile and non-fragile states of Nigeria. Using data covering the period between 2011 and 2015, both the static approach (Ordinary Least Squares, Fixed Effect, and Random Effect) and dynamic approach (Difference and System Generalized Method of Moments) were explored to provide answers to some key questions in the study. The results showed that neoclassical approach and socio-political approach complement each other. We further observed that, economic growth and poverty need urgent attention in both fragile and non-fragile states, but special attention should be directed towards fragile states to move them above fragility trap for them to be more resilient. There is still high-level poverty coupled with declined growth in both regions.
- ItemInter-relationships between Fragility and Poverty: A Micro-level Analysis in Kenya(AERC, 2021-05-22) Kebede, Sindu; Baliki, Ghassan; Ngenoh, EvansThe relationship between fragility and poverty remains unexplored due to a number of factors. First, the concept of fragility and its measures have overlooked heterogeneity at the micro-level while focusing on fragility at the macro- or state-level. Second, due to plausible endogeneity in the relationship between fragility and poverty, as well as the lack of viable and strong instruments, it remains difficult to draw causality pathways. This study contributes to the fragility-poverty literature by taking a microlevel approach, proposing individual-level measure of fragility, namely the fragility exposure index, which measures individuals’ perceptions and experiences of fragility. This allows us to test the effect of poverty on the levels of fragility. We address the potential endogeneity of poverty by using a shock-related variable as an instrument, namely sum of prior climatic shocks faced by households in the past 12 months prior to the survey. This is made possible by a three-year panel data set, HORTINLEA household survey, conducted in rural and peri-urban areas of Kenya. The findings suggest that higher poverty rates increase perceptions and experiences of fragility at the micro-level. This strong association holds for different specifications, but more significant results are found using instrumental variable estimation approach. From the three dimensions of fragility, economic inclusion shows significance and strong relationship to poverty, while human security shows strong and significance association to poverty only in the IV-2SLS estimation. As such, our finding ascertains two outcomes: on the one hand, use of instrumental variable approach is a viable option to identify the link between poverty and fragility; on the other hand, there is indeed a strong and significant association between poverty and fragility, whereby better-off households (in terms of less poverty) are less likely to be fragile.
- ItemThe State of the Political Instability and Its Impact on Trade in South Sudan: A Critical Assessment(AERC, 2021-05-22) Seid, Edris H.; Kebret, Haile; Abdi, Ali IssaIn December 2013, South Sudan descended into a civil war following the long feud between the president and his vice president that has caused huge humanitarian crisis, not only in the country, but in the region. Close to two million South Sudanese are currently residing in neighbouring Uganda, Kenya, Ethiopia, and Sudan as refugees and asylum seekers. Hence, the study tries to assess the impact of the ongoing conflict on the country’s economy and trade in particular. The civil war has taken a huge toll on South Sudanese economy. Domestic oil production has plummeted considerably, which has led to deterioration of economic performance. The country’s GDP contracted by around 14% in 2006 and 6% in 2017. Foreign trade, especially exports (which is dominated by oil), has significantly been hindered by the conflict. Exports and episodes of conflict (measured by number of conflict induced fatalities) seem highly correlated, suggesting a possible rapacity (state prize) effect―a rise in contestable income may increase violence by raising gains from appropriation―as observed in other resource rich and conflict prone countries such as DRC. Furthermore, the civil war wreaked havoc to the physical infrastructure and also weakened the non-existent government institutions, which have made the Government of South Sudan to implement the necessary macroeconomic policies and advance its regional integration process.
- ItemUnderstanding the dynamics of the budget deficit and economic performance in Zimbabwe(African Economic Research Consortium, 2021-08-04) Kavila, WilliamThis study analyzes the relationship between fiscal deficits and the economic performance of Zimbabwe for the period 1980–2018. A descriptive approach is used to analyze developments in the Zimbabwean economy over the study period. The study also provides a descriptive analysis of the impact of external shocks, structural breaks and policy shifts on the Zimbabwean economy and their influence on the relationship between fiscal deficits, inflation and economic growth. The analysis indicates that there could be a two-way relationship between fiscal deficits and real GDP growth, with one possibly causing the other. High fiscal deficits, largely financed through borrowing from the central bank, resulted in high money supply growth, leading to high inflation and a negative impact on economic performance. Conversely, low economic growth resulted in low fiscal revenue inflows, against high government expenditure, leading to high fiscal deficits. External shocks such as droughts and the decline in international commodity prices of Zimbabwe’s export products negatively impacted on fiscal revenue inflows and economic performance. Developments in the country’s political economy also had an influence on its economic performance.