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

Author: Tamara Esther Mughogo and Imhotep Paul Alagidede

Article history:

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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

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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 And Jaco Weideman

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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