Estimating the trade-environmental quality relationship in SADC with a dynamic heterogeneous panel model

Author: Maxwell Chukwudi Udeagha and Marthinus Christoffel Breitenbach

Article history:
Received: 23rd April, 2020
Accepted: 20th November, 2020
Handling editor: Muazu Ibrahim (PhD)

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The paper revisits the dynamic relationship between trade openness and carbon dioxide (CO2) emissions for member countries of the Southern African Development Community (SADC) over the period 1960-2014. Our approach for SADC is uniquely different from others. For the SADC region, we find that: (i) increased trade openness improves environmental quality; (ii) the scale effect contributes to increase CO2 emissions while the technique effect reduces it, confirming an environmental Kuznets curve (EKC) hypothesis; (iii) the pollution haven hypothesis (PHH) holds; (iv) the technological innovation, composition effect, financial development, agricultural GDP, service sector GDP and Kyoto Protocol Commitment variable contribute to improve environmental quality; (v) energy consumption, the comparative advantage effect, industrial GDP and institutional quality deteriorate environmental quality. Our results are generally robust to different estimation techniques. Finally, this research suggests that trade policy should be aligned with other policies aimed at minimising CO2 emissions and promotion of new technologies to improve the region’s environmental quality.

Trade openness; international trade; CO2 emissions; EKC; SADC.

Credit risk and private sector loan growth under interest rate controls in Kenya

Author: Roseline Nyakerario Misati, Anne Kamau, Samuel Tiriongo and Maureen Were

Article history:
Received: 15th January, 2020
Accepted: 12th June, 2020
Handling Editor: Muazu Ibrahim (PhD)

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The study examined the effect of credit risk on loan growth in the banking system in Kenya using panel data constituting 40 commercial banks over the period 2009 to 2018. The study employed a dynamic panel data approach to analyze both aggregated banking sector and bank-tier level models before and during interest rate controls regimes. Findings of the study show that credit risk affects loan growth for all banks on aggregate, but these effects are heterogeneous across bank tiers. In particular, the effect of credit risk on loan growth is found to be stronger for large and small banks than for medium size banks, both in the period before and during interest rate controls. The results also show that other bank specific factors, mainly size and capitalization are important for loan growth while macroeconomic factors are not significant in explaining loan growth for all banks. In addition to credit risk, liquidity, deposit growth, inflation and economic growth are the most important factors determining loan growth for small banks in the period of interest rate controls. Whereas the impact of monetary policy rate changes on loan growth has the same effect across all bank tiers in the period before interest rate controls, it is heterogeneous across the bank tiers in the interest rate control period.

Non performing loans; interest rate controls; credit growth; Kenya.

Interest rates and FDI in some selected African countries: The mediating roles of exchange rate and unemployment

Author: Annette Serwaa Agyeman, Benedict Arthur and Bismark Addai

Article history:
Received: 12th March, 2020
Accepted: 7th January, 2021
Handling editor: Muazu Ibrahim (PhD)

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Capital chases higher returns, and African countries continuously strive to implement effective policies to attract more Foreign Direct Investments (FDI). Against this backdrop, we explore the relationship between interest rates and FDI inflows in Africa and how exchange rates and unemployment distinctively affect that relationship. We employ panel data on six major FDI-hub economies in Africa for the period 1990-2017. The results of the study suggest that interest rates have a statistically significant positive impact on FDI inflows. Also, the results indicate that when exchange rates interact with interest rates the effect of the latter on FDI is less positive especially in economies where exchange rates are high. On the other hand, when unemployment interacts with interest rates the impact of the latter on FDI is more positive. We conclude that policies that stabilize exchange rate and increase labor development should be fortified if an African economy wants to achieve and sustain long term inflows of FDI.

Foreign direct investment; Interest rate; Unemployment rate; Real exchange rate.

Investing in cocoa-gold sector and the crude oil price exchange rate uncertainty in Ghana: Volatility transmission and hedging approach

Author: Osman Tahidu Damba, Abdulbaki Bilgic, Joseph Amikuzuno and Muazu Ibrahim

Article history:
Received: 12th February, 2020 Accepted:
15th August, 2020 Online first Handling
Editor: Gideon Boako (PhD)

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Cocoa and gold are the major drivers of Ghana’s economic growth and hence these two sectors have been identified by potential investors as the best options for portfolio allocation. This paper assessed the best investments options between the cocoa and gold sectors with in a fluctuating world crude oil price and a fluctuating domestic currency against the United States (US) dollar. A VAR (1)-BEKK GARCH model was applied to returns from four sectors spanning January 1990 to December 2015. Results confirmed that with the unstable oil prices, the agriculture and mining sectors are directly influenced by the Ghana Cedi’s performance against the US dollar due to the stock market coupled with transportation and production costs. Cocoa presented the best option for investments compared to gold and this is attributed to improved premium prices for Ghana’s cocoa.

Volatility transmission; price uncertainty; cocoa; crude oil; exchange rate; gold; hedging.

Capital Account Liberalization, Capital Flows and Exchange Rates in Sub-Saharan Africa

Author: Tamara Esther Mughogo and Imhotep Paul Alagidede

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Capital account liberalization (CAL) is the removal of restrictions on capital accounts to allow for the free movement of capital across countries. It has been suggested that CAL can lead to exchange rate appreciation by promoting an influx of capital flows.  Evidence of this remains wanting, however, as few studies have been conducted with little consensus obtained.  This paper, therefore, aimed at investigating this conjecture in sub-Saharan Africa (SSA) for the period between 1996 and 2013. System-GMM estimation techniques are employed from which we find that CAL leads to an exchange rate appreciation in SSA. However, higher levels of financial sector development (FSD) help to attenuate the appreciation effects. Individual country analyses for South Africa and Nigeria are also performed using Autoregressive Distributed Lag models. From this, we find that CAL causes an appreciation of exchange rates, only in the short run. The study makes contributions to the body of knowledge by including interactive terms for CAL and FSD thus unearthing the non-linear dynamics in the CAL-exchange rate nexus in SSA. In doing so, this also controls some heterogeneous characteristics in the sample. Lastly, the study employs a new measure of CAL which, not only builds upon past measures and improves on them, but also disaggregates CAL based on several criteria such as asset type, the direction of liberalization, and whether liberalization is on residents or non-residents.

capital account liberalization, exchange rates, sub-Saharan Africa

Individual’s risk attitudes in sub-Saharan Africa: Determinants and reliability of self-reported risk in Burkina Faso

Author: Mohammad H. Sepahvanda and Roujman Shahbazian

Article history:

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Understanding individual risk taking is an important topic in Africa, as access to financial institutions and social security is scarce, and where markets and government policies largely fail to understand investment decisions of poor households. Data on risk attitudes in Africa is limited and the available data collected might not be reliable. We investigate the determinants of risk attitudes in different domains and the reliability of survey data in a sub-Saharan African country, Burkina Faso, using a large representative panel survey of 31,677 individuals from 10,800 households. Our results show that determinants such as individual’s sex and age are significantly associated with willingness to take risk. Reliability differs across determinants of risk taking and risk domains. Women, older individuals or those with high education have more reliable risk measures compared to men, younger individuals or people with low education. Risk taking in traffic has the highest test-retest reliability followed by willingness to take risk in general and financial matters.

Risk attitudes; determinants of risk taking; test-retest reliability; Burkina Faso

On fiscal dominance in Malawi

Author: Ronald Mangani

Article history:
Received: 23 October, 2019
Accepted: 31 August, 2020
Online first

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Keynesian economics postulates that increased government spending can stimulate growth and national economic transformation under conditions of deficient aggregate demand. This theoretical position is contrary to the orthodox neoclassical view which prioritises austerity. By this mainstream view, if government spending persistently exceeds government revenue, the resultant deficit may compromise the monetary policy objective of price stability by creating a regime of fiscal dominance, hence triggering inflation. In this paper, these contrasting positions are empirically verified for the case of Malawi. Inflation is modelled as an autoregressive distributed lag process, and the twostage least squares estimation method is employed alongside ordinary least squares estimation. The study finds no clear evidence to support the importance of fiscal deficits nor that of money growth in Malawi’s inflation process. On the other hand, external effects on domestic prices persist regardless of whether they are captured using the exchange rate or trade openness, suggesting the need for pragmatic solutions to external imbalances. These results also suggest the need to revisit the roles that orthodox economic theory and the International Monetary Fund (IMF) place on demand-side monetary policy in addressing inflation in economies like that of Malawi.

Fiscal dominance; ARDL process

Entrepreneurial Self Efficacy and Performance of Women-Owned SMEs

Author: Jabulile Msimango-Galawe and Nomusa Mazonde

Article history:
Received: 02 April, 2019
Accepted: 15 April 2020
Handling editor: Jones Odei Mensah, PhD

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Women-owned SMEs (WO-SMEs) have become an integral part of economic growth in emerging markets. However, extant literature suggests that they are not performing as best as their male counterparts; thus, the need for researchers to give them special attention. Multiple factors are cited as reasons for the poor performance, but this study opted to focus on one important factor, entrepreneurial self-efficacy of women entrepreneurs.

The purpose of this study was to determine the level of entrepreneurial self-efficacy (ESE) of women entrepreneurs. Secondly, it was to examine the impact ESE has on the performance of these Women-Owned SMEs in emerging markets. There are a plethora of studies that deal with entrepreneurial self-efficacy and performance of SMEs in general, but very few that focus on the ESE of women entrepreneurs in emerging markets. Even those that focus on women entrepreneurs tend to lean more on comparisons between women and men-owned businesses.

This is a quantitative study that used online questionnaires to collect primary data from 120 women entrepreneurs. It is a cross-sectional study that adopted the positivist paradigm. Data were analysed using primarily multiple linear regression. The results showed that the level of entrepreneurial self-efficacy of women entrepreneurs in South Africa is low, leading to low performance. There is evidence suggesting that the growth dimension of entrepreneurial self-efficacy influences performance and emerged as the strongest predictor of performance (business growth and financial satisfaction).

Entrepreneurial Self Efficacy, Financial Satisfaction, Women-Owned Businesses, Small and Medium Enterprises, SMEs, Growth, Women Entrepreneurs

The impact of formal financial services uptake on asset holdings in Kenya: Causal evidence from a propensity score-matching approach

Author: Baraka Msulwa, Richard Chamboko, Celina Lee, Jaco Weideman and Krista Nordin

Article history:
Received: 10th March, 2019
Accepted: 11th December 2019
Handling editor: Jones Odei Mensah, PhD

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Literature on the impact of financial services on economic wellbeing has largely relied on findings from randomised control trials. Given the scarcity of such trials, this has led to gaps in the sector’s understanding of financial inclusion as a development tool, hence a lack of consensus on whether financial inclusion as a strategy indeed leads to improved individual outcomes. To close this gap, this study employs the propensity score-matching technique on the 2016 FinAccess Kenya Household Survey dataset to estimate the average treatment effect of taking up financial services. Our findings suggest that individual take-up of savings, credit and insurance have positive effects on household economic welfare.

financial inclusion, development, asset ownership, propensity score matching, multiple correspondence analysis

More elections, more burden? On the relationship between elections and public debt in Africa

Author: Nimonka Bayale, Abdou-Fataou Tchagnao and Hopestone Kayiska Chavula

Article history:
Received: 15th January, 2020
Accepted: 12th June, 2020
Handling editor: Muazu Ibrahim (PhD)

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The political determinants of public indebtedness in developing countries is still generating a lot of interest among academics and policy makers. This paper investigates whether elections influence the public debt dynamics relying on data from 51 African countries spanning 1990 to 2015. The analyses are conducted using the fixed effects and the system Generalized Method of Moments (GMM). The results reveal that although all types of elections increase public debt, only the impact of the presidential elections are significant. The findings are robust irrespective of the estimation technique. The paper recommends African countries to rationalize public resources, particularly in the election years.

Public debt; Elections; Africa; Fixed effects; System GMM

An empirical insight into the international tourism - foreign direct investment nexus in Africa

Author: Olufemi Adewale Aluko

Article history:
Received: 10th January, 2020
Accepted: 5th May, 2020
Handling editor: Muazu Ibrahim (PhD)

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This study examines the international tourism-foreign direct investment (FDI) nexus in Africa. To do this, it investigates the causal relationship between international tourism and FDI in a panel dataset of 43 African countries for the period 1995-2016. Using the Dumitrescu and Hurlin (2012) panel Granger noncausality test which is robust to cross-sectional dependence, this study finds a homogeneous unidirectional causality from FDI to international tourism in Africa. Also, it finds causality between international tourism and FDI in at least one direction in majority of the countries. Policy implications are documented in this study.

International tourism; FDI; Panel Granger non-causality test; Africa.

Economic consequences of death and disability in Nigeria

Author: Idowu Daniel Onisanwa and Olanrewaju Olaniyan

Article history:
Received: 19th August, 2019
Accepted: 27th February, 2020
Handling editor: Muazu Ibrahim (PhD)

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Death and disability are two forms of health shocks that have been underexplored in the literature, despite having a devastating effect on human wellbeing. This paper examines the economic consequences of death and disability on household wellbeing in Nigeria. This investigation employs a Nigerian household panel survey from the General Household Survey (GHS) for 2009-10 and 2011-12 and applies random and fixed effects regressions with robust standard error to assess the effect of disability and demise of any member of the household on earnings, hours of work and medical spending. The findings reveal that the income of households is substantially reduced in the face of disability, and death. Disability is negatively associated with earnings though not statistically significant. Disability significantly influenced hours of work among household, death shows a negative relationship with work-hours but not statistically significant. Medical health spending increased significantly among households faced with disability, and death. Labour adjustment within the household cannot fully take care of lost income, although it tends to offset the reduction in hours of work. The regression results reject the hypothesis that households can preserve earnings when faced with death of a household member. A policy that helps mitigate the consequences of death and disability should be pursued by policymakers.

Disability; Death; Earnings; Medical spending.

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