Journal of African Economies - Advance Access

An Economic History of South Africa: Conquest, Discrimination and Development

Blumenfeld, J. — 2008-05-09

Qat Expenditures in Yemen and Djibouti: An Empirical Analysis

Milanovic, B. — 2008-05-02

Using household surveys from Yemen and Djibouti, the paper analyses determinants of qat consumptions in two countries. The results confirm huge importance of qat in daily life: with between one-half (in Djibouti) and 70% (in Yemen) of all households reporting at least one user. But in Yemen, qat consumption is remarkably flat across income groups, age, and between rural and urban areas. Qat is a normal good and there is no indication that its use substitutes for food. In Djibouti, however, qat consumption increases with income, and appears to act as a substitute for food consumption. In both countries however there is a strong gender bias in the use: men are much more likely to use qat than women.

IDENTIFYING AGGREGATE SUPPLY AND DEMAND SHOCKS IN SOUTH AFRICA

du Plessis, S., Smit, B., Sturzenegger, F. — 2008-04-10

This paper uses a structural VAR methodology to identify aggregate demand and supply shocks to real output for the South African economy. Demand shocks, in turn, are separated into fiscal and monetary shocks. The model is estimated with quarterly data over two overlapping samples: 1960Q2–2006Q4 and 1983Q4–2006Q4. The identified (structural) shocks were used in a historical decomposition to split output into a measure of potential output (resulting from the evolution of supply shocks) and a measure of the business cycle (the gap between actual and potential output). This measure of potential output suggests a significant decline relative to trend in the years prior to the political transition of 1994 and a swift reversal thereafter. The paper presents evidence from three sources to support its identification of aggregate supply and demand shocks. These sources are the following: theory consistent impulse response functions; a close match between the implied measure of the business cycle and independent information about the South African business cycle and a demonstration of the close match between the identified series of aggregate supply shocks and important historical events in the decades prior to and following 1994 that have been identified by economic historians as important shocks to the South African economy.

Estimating Equilibrium Real Exchange Rates in the Franc Zone

Coleman, S. — 2008-04-09

This paper estimates the degree of real exchange rate misalignment in 12 CFA (Communauté Financière Africaine) franc zone countries over the period 1960–99. Allowing for contemporaneous error co-variances, due to observed cross-sectional dependence, we use seemingly unrelated regressions equation estimations to estimate the equilibrium real effective exchange rate and degree of misalignment in each country. We find significant differences across member-states, however, the largest economies—Cameroon, Côte d'Ivoire and Senegal—showed some striking similarities. Just prior to the 1994 devaluation, these three economies were much more overvalued compared with the smaller member-states, some of which were either marginally misaligned or virtually in equilibrium. In 1994, only Côte d'Ivoire is exactly in equilibrium as a result of the devaluation. Our analysis of misalignment for the period after 1994 suggests that some challenges lie ahead for the CFA franc zone, if fixed parity is to be maintained.

Voting over Informal Risk-Sharing Rules

Ambec, S. — 2008-03-18

This paper posits a new approach to informal risk-sharing in developing countries inspired by anthropological studies. A risk-sharing rule emerges as a collective choice which is enforced through peer-pressure. I determine the elected rules and the level of compliance with these rules. Full risk-sharing is achieved only if everybody complies. Partial risk-sharing arises more often with full or partial compliance. In many cases, a majority of people vote for and comply with the risk-sharing rule that maximises their own expected payoff. Yet a minority of people might comply with a rule which is detrimental to them.

Market Institutions and Transaction Costs Influencing Trader Performance in Live Animal Marketing in Rural Ethiopian Markets

Jabbar, M., Benin, S., Gabre-Madhin, E., Paulos, Z. — 2008-03-07

In this paper, the hypothesis that performance of trading firms depends on their assets (physical, financial, human capital and social capital) and trading practices is tested with data from a sample of 131 live animal traders in 38 rural Ethiopian highland markets. Most traders used own capital as access to credit, especially formal credit, was limited. The livestock market was characterised by non-standardised products and lack of information in the public domain about supply, demand and prices. Consequently, livestock trading was largely a personalised business though brokers and regular buyers and sellers, a form of social capital, were sometimes used for gathering information, searching buyers/sellers, price negotiation and contract enforcement. Business relationships with these intermediaries were principally based on trust, without strong ethnic, religious or family ties. Although most transactions were conducted in the physical presence of parties, contract violations were common, which were settled mainly through informal means as formal legal systems were either absent or time-consuming. Estimated costs and margins of most recent transactions showed low returns, and losses in some cases. Market levies, transport, travel and feeds were major items of variable cost, with some variation between cattle and small ruminants. Multiple regression analysis showed that traders' financial and human capital and trading practices such as use of brokers and regular suppliers and customers had varying effects on margins and costs of cattle and small ruminant trade. Unstable price, multiple taxes, non-transparent tax system, limited access to credit and weak demand for the quality of the products traded were perceived by traders as major problems of marketing. All the problems were amenable to public policy to improve the market environment and marketing efficiency.

The Impact of AIDS Mortality on the Distribution of Income in Cote d'Ivoire

Cogneau, D., Grimm, M. — 2008-02-21

We build a micro-simulation model able to simulate over a 15 years' period the impact of AIDS on the distribution of income in Côte d'Ivoire. We focus on the labour supply effects of AIDS-induced mortality. We find that although the size of the economy in terms of total household income is reduced by about 6% after 15 years, average household income per capita, household income inequality and poverty remain almost unchanged. In contrast to an often heard argument, the population dependency ratio is not much modified by the AIDS epidemic. These conclusions do not seem to depend on the degree of heterogeneity and clustering of HIV/AIDS infections over the population.

Sources of Inflation in Sub-Saharan Africa

Barnichon, R., Peiris, S. J. — 2008-02-20

This paper explores the sources of inflation in Sub-Saharan Africa by examining the relationship between inflation, the output gap and the real money gap. Using heterogeneous panel co-integration estimation techniques, we estimate co-integrating vectors for the production function and the real money demand function to recover the structural output and money gaps for 17 African countries. The central finding is that both gaps contain significant information regarding the evolution of inflation, albeit with a larger role played by the money gap. There is no significant evidence of asymmetry in the relationship.

Land Reform, Distribution of Land and Institutions in Rural Ethiopia: Analysis of Inequality with Dirty Data

Kebede, B. — 2008-02-08

There are two explicitly or implicitly and widely accepted beliefs about the distribution of land in Ethiopia after the reform of 1975. First, land distribution in rural Ethiopia is highly equitable, for example compared with other African countries, where private ownership exists. Second, the current land distribution pattern is basically a result of allocation after the reform; in other words, pre-reform tenures do not help us understand post-reform land distribution. This paper questions both these beliefs. Using formal inequality indexes and a methodology that explicitly considers measurement errors, the empirical results indicate that both inter- and intra-regional inequalities are high; inequality in the distribution of land is comparable with that in other African countries. A regression-based decomposition indicates that distribution of ox ownership and female-headship are important factors affecting inequality. This paper also argues that the post-reform distribution is likely influenced by pre-reform tenures and calls for a more detailed historical analysis.

Services Inputs and Firm Productivity in Sub-Saharan Africa: Evidence from Firm-Level Data

Arnold, J. M., Mattoo, A., Narciso, G. — 2008-02-02

This paper investigates the relationship between the productivity of African manufacturing firms and their access to services inputs. We use data from the World Bank Enterprise Survey for over 1,000 firms in ten Sub-Saharan African countries to calculate the total factor productivity of firms. The Enterprise Surveys also contain unique measures of firms' access to communications, electricity and financial services. The availability of these measures at the firm level, both as subjective and objective indicators, allows us to exploit the variation in services performance at the sub-national regional level. Furthermore, by using the regional variation in services performance, we are also able to address concerns about the possible endogeneity of the services variables. Our results show a significant and positive relationship between firm productivity and service performance in all three services sectors analysed. The paper thus provides support for the argument that improvements in services industries contribute to enhancing the performance of downstream economic activities, and thus are an essential element of a strategy for promoting growth and reducing poverty.

Evaluating the Impact of Land Redistribution: A CGE Microsimulation Application to Zimbabwe

Chitiga, M., Mabugu, R. — 2008-01-31

Zimbabwe has recently gone through a widely criticised land reform process. The country has suffered immensely as a result of this badly orchestrated reform process. Yet land reform can potentially increase average incomes, improve income distribution and as a consequence reduce poverty. This paper presents a counterfactual picture of what could have happened had land reform been handled differently. The paper uses a computable general equilibrium (CGE) model coupled with a microsimulation model in order to quantify the impact of land redistribution in terms of poverty, inequality and production. This is to our knowledge the first attempt to apply such an approach to the study of the impact of land reform on poverty and distribution in the context of an African country. The results for the land reform simulations show that the reform could have had the potential of generating substantial reductions in poverty and inequality in the rural areas. The well-off households, however, would have seen a slight reduction in their welfare. What underpins these positive outcomes are the complementary adjustments in the fiscal deficit and external balance, elements that were generally lacking from the way Zimbabwe's land reform was actually executed. These results tend to suggest that well planned and executed land reforms can still play an important role in reducing poverty and inequality.

Language and Labour Markets in South Africa

Cornwell, K., Inder, B. — 2008-01-31

This paper considers the role of language in employment outcomes and labour earnings in South Africa over the period 1996–8. Our pooled cross-section comprises more than 160,000 working-age adults, and the analysis considers the decision to participate in the labour force, employment outcomes and labour earnings. After conditioning on a number of socio-economic and demographic factors, we find that having English as one's mother tongue is one of the pivotal determinants of employment and labour earnings. Allowing for language effects leads to a much diminished role of race/population group as a driver of labour market success and earnings. There seems to be little variation in employment outcomes or earnings across the different African languages.

Explaining Procyclical Fiscal Policy in African Countries

Thornton, J. — 2008-01-11

Simple time series regressions for 37 low-income African countries during 1960–2004 suggest that government consumption is highly procyclical, with consumption responding more than proportionately to fluctuations in output in many cases. The results from a cross-country specification suggest that government consumption is more procyclical in those African countries that are more reliant on foreign aid inflows and that are less corrupt, and that it is less procyclical in countries with unequal income distribution and that are more democratic. These results contrast with those from recent research using data sets that comprise a more diverse groups of countries in terms of geography and income levels.

Who Benefits from Export-led Growth? Evidence from Madagascar's Textile and Apparel Industry

Nicita, A. — 2008-01-07

Fuelled by low labour costs and preferential trade agreements, exports of textile products originating from Sub-Saharan countries have grown dramatically in the last decades. This paper analyses some of the implications that export growth in the textile and apparel sector have for social welfare and poverty reduction in Madagascar. The paper proposes a simulation exercise utilising household level data and a methodology that combines the wage premium literature with matching methods. The results point to a large variation in the distribution of the benefits from export growth, with skilled workers and urban areas benefiting most. From a gender perspective, women are found to benefit substantially less than men. Although total welfare effects are significant, the benefits are largely reaped by non-poor households. From a poverty perspective, export-led growth in the textile and apparel sector is expected to have only a small effect on overall poverty.

Determinants of Agricultural and Land Management Practices and Impacts on Crop Production and Household Income in the Highlands of Tigray, Ethiopia

Pender, J., Gebremedhin, B. — 2007-11-24

This paper investigates the land management practices used in the highlands of Tigray, northern Ethiopia, the factors influencing them and their implications for crop production and income. Several factors commonly hypothesised to have a major impact on land management and agricultural production—including population pressure, small landholdings, access to roads and irrigation and extension and credit programmes—are found to have limited direct impact on crop production and income, though most affect the intensity of production. The increase in farming intensity due to these factors has limited impact on value of crop production and income due to low marginal product of labour in crop production, limited productivity impact of inputs such as fertiliser in the moisture-stressed environment of Tigray and limited adoption of such inputs. We find that profitable opportunities exist to increase agricultural production and achieve more sustainable land management in the highlands of Tigray. These opportunities include improvement of crop production using low-external input investments and practices such as stone terraces, reduced tillage and reduced burning. The comparative advantage of people in the Tigray highlands is apparently not in input-intensive cereal crop production but more in such low-input approaches and in alternative livelihood activities such as improved livestock management and non-farm activities. As a result, greater emphasis on developing these alternatives in agricultural extension—as the government of Tigray has been pursuing more recently with its extension programme—and other development programmes is needed. Food crop production should not be ignored in the development strategy, but more prudent use of external inputs such as fertiliser and improved seeds, and greater emphasis on low external input sustainable land management practices, would be helpful.

Regional Economic Integration in Africa: A Review of Problems and Prospects with a Case Study of COMESA

Geda, A., Kebret, H. — 2007-11-02

Major issues of regional economic integration in Africa could be grouped into two interrelated broad areas: issues of implementation and the limitation of insight form both the theoretical and empirical literature regarding the specific approaches that are appropriate for the continent. Implementation issues cover the economic, political and institutional constraints that surface at the implementation stage of economic integration treaties. The approach issue refers to the menu of options available to pursue economic integration. These options range from a step-wise bilateral cooperation to continent-wide integration. This paper critically reviews these issues and tests the determinants of trade flows using the experience of COMESA as a case study. The major conclusions that emerge from the study are, first, bilateral trade flows among the regional groupings could be explained by standard variables as demonstrated by the results of the conventional gravity model. The result shows that regional groupings had insignificant effect on the flow of bilateral trade. Second, the review of the issues indicates that the performance of regional blocs is mainly constrained by problems of variation in initial condition, compensation issues, real political commitment, overlapping membership, policy harmonisation, lack of diversification and poor private sector participation. These problems seem to have made building successful economic groupings in Africa a daunting task, despite its perceived importance in the increasingly globalised world.