Bank competition or concentration: Which is more important for access to finance in Africa?

Author: Joseph Olorunfemi Akande, Ntokozo Nzimande, Joseph Chisasa and Tafirenyika Sunde

Article history:
Received: 5th May, 2021
Accepted: 31st May, 2021

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Utilising data covering the period 2001-2016 from 45 African countries, this study investigated the impact of bank competition/or concentration on access to finance. The two-step system, Generalised Methods of Moment (GMM) analysis, found that low competition, as proxied by the Lerner Index or Boone Indicator, diminishes firms’ access to finance. Besides, relying on a fixed-effect Panel threshold model, the study revealed a concave relationship between firms’ access to finance and competition in Africa. This finding implies the existence of a threshold after which competition becomes detrimental to firms’ access finance. Notwithstanding, to support development, the study recommends that authorities consider policies to de-concentrate the banking sector, thus promoting access to finance in Africa. 

Competition; concentration; access to finance; generalised method of moments.

A critical examination of the effect of size on the profitability of insurance brokerage firms in Ghana

Author: Richard Angelous Kotey, Franklin Owusu-Sekyere and Daniel Asante Amponsah

Article history:
Received: 27th June, 2020
Accepted: 31st March, 2021

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This paper takes a critical look at the effect of firm size on the profitability of Ghanaian Insurance brokerage firms. Specifically, the paper examined the effect of firm size (measured by total assets) on firm profitability (measured by ROA and ROE) from a lagged perspective (i.e. the lagged effect of size), non-linear perspective, and across quantiles, using fixed effects, random effects, robust and PCSE estimation techniques. Analysing a unique data of 64 insurance brokers from 2007 to 2015, the findings show that firm size exhibited a significant and positive short term effect on firm profitability but the relationship turned negative in the long term showing a non-linear relationship of size on profitability, with an inflection point above the mean firm size. However, the non-linear effect was evident in the 50th and above percentile of brokers but not in the lower quantiles. The lagged values of size also significantly affected firm profitability but it was not as pronounced as the short term effects. The study recommends larger Ghanaian insurance brokerage firms take a staggered and reflective approach in its growth measures. 

Profitability; Size; Non-linear effect

Macroeconomic impact of the COVID-19 pandemic on the Ghanaian economy

Author: Eric Amoo Bondzie, William Godfred Cantah, Emmanuel Wiafe Agyapong and Ferdinand Ahiakpor

Article history:
Received: 31st December, 2020
Accepted: 31st March, 2021

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The implications of coronavirus (COVID-19) on the various sectors of the economy cannot be overemphasised. To provide the macroeconomic impact of the pandemic on the Ghanaian economy for the next five years, the study adopted the United Nations Economic Commission for Africa (ECA) Macroeconomic model developed for Ghana. The study revealed that by the end of 2020, employment is expected to decline by 6.3 percent, debt to GDP ratio increase to 78.4 percent, fiscal balance reaching negative 13.5 percent, GDP expected to grow at 0.95 percent, expected decline in demand for goods and services and private consumption among others. To minimise the effect of the pandemic on the economy, the government should provide various incentives such as soft loans and tax reliefs to the private sector, reduce export tax to boost export growth and also provide the incentives for value-addition to the country’s export among others. 

COVID-19; macroeconomic model; economy.

Assessing the impact of COVID-19 induced rating downgrades on Eurobond yields in Africa

Author: Misheck Mutize

Article history:
Received: 2nd October, 2020
Accepted: 21st March, 2021

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The world economies have been shaken by the coronavirus (COVID-19) and its impact has been far-reaching. Global institutions such as the International Monetary Fund (IMF) and the World Bank (WB) have estimated that it will take at least 3 years for the world economies to recover from the effects of the pandemic (IMF, 2020a). The global economic outlook is estimated to shrink by -3.2 percent, with African economy expected to shrink by -1.6 percent, the first negative growth in nearly two decades (IMF, 2020b). Sovereign debt is estimated to rise to above 100 percent of Gross Domestic Product as African countries borrow to support fiscal stimulus packages and safety nets for the vulnerable population. Countries across the globe have gone into length periods of unprecedented national lockdowns in order to stop the spread and to contain the virus. For African countries, this has been strenuous given a myriad of other challenges the continent is facing; falling global commodity prices, general subdued demand, falling oil price, increasing protectionism and other socioeconomic challenges – poverty, inequality and unemployment.

COVID-19; Africa; sovereign downgrades; Eurobond; procyclical; regulation.

The Everyday Life of the Poor in Cameroon: The Role of Social Networks in Meeting Needs by Nathanael Ojong,

Author: Michael Jindra

Article history:

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As an American Peace Corps Volunteer, I went straight out of college to work with rural credit unions in Cameroon in the mid-1980s. The experience changed my life, giving me both insights into life and further questions to pursue. Cameroon turned me into an anthropologist.

With this background, I welcomed Nathanael Ojong’s new book, The Everyday Life of the Poor in Cameroon. Ojong is an international development assistant professor at York University in Toronto, but was born and raised in Cameroon. He returned to Cameroon to research how the poor manage their economic lives, with a focus on their social environment and networks. He states that his ‘core argument’ is that ‘the poor meet their everyday economic and non-economic needs through complex relations with others’ (p. 4). His qualitative study relies on interviews 



Investor herding during COVID-19: Evidence from the South African Exchange Traded Fund market

Author: Damien Kunjala and Faeezah Peerbhaia

Article history:
Received: 26th August, 2020
Accepted: 21st January, 2021
Handling editor: Gideon Boako (PhD)

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The volatility of financial markets has been exacerbated by the recent outbreak of the COVID-19 pandemic. During periods of increased market volatility, investors tend to exhibit herd behaviour. However, investor herd behaviour may result in suboptimal investment decisions and market anomalies. Given the rising popularity of Exchange Traded Funds (ETFs), the objective of this study is to investigate whether the COVID-19 pandemic has induced investor herd behaviour in the South African ETF market. To achieve the objective of this study, ETFs trading on the Johannesburg Stock Exchange (JSE) are analyzed from March 4, 2019 to August 14, 2020. The results of this study indicate that investor herd behaviour is not present in the South African ETF market during the full sample period. The Chow breakpoint test confirms that there is indeed a structural break on March 5, 2020 – the date on which South Africa confirmed its first COVID-19 case. However, the subperiod analysis reveals that herd behaviour is not present in the South African ETF market before and after South Africa confirmed its first COVID-19 case. Therefore, this study concludes that the COVID-19 pandemic and its related market volatility has not induced herd behaviour in the South African ETF market. These findings suggest that ETF investors are not influenced by the herd bias and, therefore, this finding could be an indication that ETF traders make informed trading decisions that are rational.

Coronavirus; COVID-19; exchange traded fund; herd behaviour; pandemic.

The impact of COVID-19 on stock market liquidity: Evidence from the Johannesburg Stock Exchange

Author: Damien Kunjal

Article history:
Received: 1st June, 2020
Accepted: 12th September, 2020
Handling editor: Muazu Ibrahim (PhD)

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Liquidity is an important feature of any well-functioning financial market. The recent outbreak of COVID-19 has created economic turbulence around the world, subsequently, exacerbating the volatility of global financial markets. Therefore, the objective of this study is to examine the impact of COVID-19 on the liquidity of firms trading on the Johannesburg Stock Exchange (JSE). Using a sample period of March 5, 2020 to June 12, 2020, the findings of this study suggest that growth in confirmed COVID-19 cases dries up the liquidity of firms constituted in the JSE All Share Index. However, growth in deaths caused by COVID-19 leads to an increase in the liquidity of these firms. Further analysis reveals that the negative relationship between growth in confirmed cases and changes in liquidity holds for companies of all sizes whilst the positive relationship between growth in deaths and changes in liquidity holds only for medium and small market capitalization stocks. Overall, for companies of all sizes, growth in confirmed COVID-19 cases exhibits a greater impact on liquidity relative to growth in COVID-19 deaths.

Coronavirus; COVID-19; liquidity; pandemic; stock market.

Modeling and forecasting of Covid-19 from the context of Ghana

Author: Jamal Mohammed, Abdullah Mohammed Ghazi al Khatib, Pradeep Mishra, Prince Adjei, Pankaj Kumar Singh, S.R Krishan Priya and S.S. Das

Article history:
Received: 16th July, 2020
Accepted: 25th November, 2020
Handling editor: Muazu Ibrahim (PhD)

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Developing countries have had their share regarding the spread and effect of Coronavirus (COVID-19) and Ghana is no exception. We have used the data on new deaths, total deaths, total cases, new cases, collected on a daily basis from 13th March 2020 to 30th September 2020, obtained from the Ghana Health Services. We then considered appropriate time series models. This has provided robust results to help make an informed decision towards the future. The forecasted results (from the best fitted models) reveals adecrease in an amount of 174-88 in the daily new cases by flowing a linear trend, which also leads to decrease in total cases by following the same trend (from 46600 to 44942 in numbers) during the period 1-10-2020 to 10-10-2020. The government of Ghana should strictly enforce protocols established to curb COVID-19 in Ghana, encourage social distancing and other COVID-19 prevention protocols to reduce the spread of COVID-19 new cases and deaths. 

Forecasting; Modeling; ARIMA; SARIMA; Covid-19; Ghana.

Casablanca Stock Exchange response to the COVID-19 pandemic

Author: Khalil Nait Bouzida and Ulrich Ekouala Makalaa

Article history:
Received: 15 September, 2020
Accepted: 21st January, 2021
Handling editor: Muazu Ibrahim (PhD)

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This study investigates the Casablanca Stock Exchange response to the COVID-19 by considering the impact of the COVID-19 related cases and deaths of eleven selected countries affected by the COVID-19, including Morocco, on the Moroccan Stock Market (MASI Index), over the period from June 13, 2019, to June 11, 2020. This study employs the GARCH (1,1) model for this purpose, in which we are allowing for the impact of changes in the COVID-19 related cases and deaths in both the conditional-mean and the conditional heteroscedasticity equations. Furthermore, we extend our analysis by employing the VAR-X model to examine stock market returns and trading volume response to the COVID-19 related cases and deaths. Finally, we use the Markov-Switching models to inspect whether the COVID-19 has caused a structural break in the stock market returns. Empirical results indicate that in some of the selected countries, changes in the number of cases and deaths related to the COVID-19 have had an impact on the volatility of the MASI Index as well as the MASI Index returns. Furthermore, the Markov-Switching model results suggest that at the end of February 2020, the COVID-19 pandemic crisis has caused a structural break on MASI Index returns and the relationship between trading volume and MASI index returns has turned negative.   

COVID-19; Casablanca Stock Exchange; MASI index; GARCH model; VAR-X model; Markov-Switching model.

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

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

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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