Journal of African Economies - recent issues

Technical Efficiency Analysis of Micro-enterprises: Theoretical and Methodological Approach of the Stochastic Frontier Production Functions Applied to Nigerian Data

Ajibefun, I. A. — 2008-02-27

This study was carried out to analyse the technical efficiency of micro-enterprises in the Nigerian economy, using cross-sectional data collected on micro-enterprises selected from block-making, metal-fabricating and sawmilling enterprises in the three geographical regions (north, southwest and southeast regions) of Nigeria. The Nigerian government has put in efforts at promoting productivity and efficiency in both public and private sectors of the economy. The ability of Nigerian economy to experience accelerated economic growth both in the short and in the long run depends on the exploitation of the potential within the micro-enterprises sector of the economy. The importance of this sector is reflected in the current economic reform programme of the Federal Government of Nigeria under the National Economic Empowerment Development Strategy (NEEDS). NEEDS is a comprehensive two- to three-year economic growth and poverty reduction plan. It then becomes important to study the current level of technical efficiency within the micro-enterprises sub-sector. Data collected were analysed using the stochastic frontier production functions. The results of the analysis show that the enterprises have varying level of technical efficiencies across enterprises, across scales of operation and across regions. Of the three geographical regions, both the least and the highest technical efficiencies come from micro-enterprises located in the southeastern regions of Nigeria. The mean technical efficiencies range between 0.66 for sawmilling enterprises and 0.82 for metal-fabricating enterprises. The results indicate that while the level of education, level of investment and number of employees positively and significantly affect the level of technical efficiency, age of enterprise, as well as age of enterprise operator/decision-maker, negatively influences the level of technical efficiency. The results of tests of hypotheses show that there is no significant difference in technical efficiency across the scale of operation, but the hypothesis of no significant difference in technical efficiency across geographical zones is rejected.

Risk and Schooling Decisions in Rural Madagascar: A Panel Data-Analysis

Gubert, F., Robilliard, A.-S. — 2008-02-27

Most households in rural Madagascar are engaged in agriculture and derive a large share of their income from the production of food or cash crops and from animal husbandry. However, agricultural yields can be extremely volatile due to weather conditions, pests, insects, rodents and other calamities. As a result, households record large fluctuations in their incomes that must be dealt with. Since the usual consumption-smoothing market mechanisms are quite limited in the Malagasy context, households need to rely on non-market mechanisms or to adopt multi-faceted strategies to cope with risk. In this paper, we examine the possibility that parents obtain informal income insurance by letting their children work. We test this hypothesis by examining the relationship between household income shocks and human capital investment in children. In particular, we investigate whether children's propensity to join school and to drop out of school responds to transient shocks. We also investigate issues such as gender and intrahousehold resource allocation.

Are Poor, Remote Areas Left behind in Agricultural Development: The Case of Tanzania

Minot, N. — 2008-02-27

The conventional wisdom in Africa is that economic reforms may have stimulated economic growth, but the benefits of this growth have been uneven, favoring urban households and farmers with good market access. This idea, although quite plausible, has rarely been tested empirically. In this paper, we develop a new approach to measuring trends in poverty and inequality and apply it to Tanzania in order to explore the relationship between rural poverty and market access. We find that, between 1991/92 and 2003, poverty fell the least in Dar es Salaam and the most in rural areas. Rural poverty is related to remoteness, but the relationship is surprisingly weak and it varies depending on the definition used. We find little evidence that remote rural areas are being "left behind", either in relative or in absolute terms.

Using a Contingent Valuation Approach for Improved Solid Waste Management Facility: Evidence from Enugu State, Nigeria

Fonta, W. M., Ichoku, H. E., Ogujiuba, K. K., Chukwu, J. O. — 2008-02-27

For most public projects, especially environmental projects that are partly funded by multilateral donor agencies, cost–benefit analysis has become a routine procedure for the approval of project funds. These agencies are very keen to know whether the target community or country possesses the aggregate willingness to pay for the project. The two most commonly applied techniques for such analysis are stated preference and behavioural techniques. In this study, we employ the contingent valuation method (CVM), the most widely applicable of the stated preference methods, to establish empirical grounds for pricing the services of a new solid waste management (SWM) improvement facility in Enugu State, Nigeria, initiated by the UK Department for International Development, the State's Environmental Protection Agency, and State and Local Government Programme. We find that CVM can be fruitfully used to support the design and implementation of new SWM facilities and that analysis of the valuation function can give qualitative information that is difficult to identify using baseline surveys or most conventional economic valuation techniques.

Learning to Export: Evidence from Moroccan Manufacturing

Fafchamps, M., El Hamine, S., Zeufack, A. — 2008-02-27

This paper tests two alternative models of selection into export: lower costs and better market familiarity. Both are potentially subject to learning-by-doing, but differ in the type of experience required. Learning to produce at lower cost – what we call productivity learning – depends on general experience, while learning to design products that appeal to foreign consumers – market learning – depends on export experience. Using panel and cross-section data on Moroccan manufacturers, we uncover evidence of market learning but little is evidence that productivity learning is what enables firms to export. These findings are consistent with the concentration of Moroccan manufacturing exports in consumer items, i.e., the garment, textile, and leather sectors. It is the young firms that export. Most do so immediately after creation. We also find that, among exporters, new products are exported very rapidly after production has begun. The share of exported output nevertheless increases for 2–3 years after a new product is introduced, which is indicative of some learning. Old firms are unlikely to switch to exports, even in response to changes in macro incentives.

Preface

Ajakaiye, O. — 2008-02-28

Political Economy and Economic Development in Africa: An Overview

Ajakaiye, O., Drazen, A., Karugia, J. — 2008-02-28

This volume explores the relationship between political economy and economic development in Africa with a view to unravelling, at least part of the reasons why Africa has not been able to register appreciable development despite the perceptible improvement in growth performance since the beginning of this decade. To begin with, the question of whether or not there is a different political economy for developing countries was addressed in the first paper. It is argued that although the policy questions and political processes may differ, the same building blocks of political economy models are relevant for developing and developed countries. The second paper examined the relationship between natural resource rents and foreign aid on one hand and economic development on the other. Analysis and a review of available evidence suggests that both aid and natural resource rents constitute windfalls, natural resource rent is more highly correlated to corruption than aid. The third paper surveyed evidence on the relationship between international political economy (IPE) and economic development in Africa. Focusing on macroeconomic policy, financing for development and trade, the review suggests that ownership is subverted by the dominance of Africa's internal policy debate by its external partners while overall development finance will continue to be dominated by national security interest of Africa's major external partners. Finally, an exploration of lesson learnt from the study of IPE for Africa suggests that the African states are too small and too many, creating a situation where agents lack reliable recourse to the public good of enforced justice for the purposes of economic transactions. Each of the papers call for a variety of research agenda necessary to produce knowledge to guide policies at national, regional and international levels thereby ensuring that the primary purpose of political economy, namely, to enrich the people and the sovereign can be realised in Africa.

Is There a Different Political Economy for Developing Countries? Issues, Perspectives, and Methodology

Drazen, A. — 2008-02-28

It is argued that the same basic building blocks of political economy models are relevant for developing and developed economies, though the policy questions, key political mechanisms and specific models may differ. Towards this end, this paper first sets out a common framework of analysis and then argues that specific features of the political economy of developing economies can be analysed using this framework. This paper also reviews some empirical results on political budget cycles and on voter response to electoral manipulation that suggest that the same general behavioural rules may describe political actors in both developed and developing countries.

Windfall Gains, Political Economy and Economic Development

Dalgaard, C.-J., Olsson, O. — 2008-02-28

Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent-seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are non-linear.

International Political Economy: Some African Applications

Collier, P. — 2008-02-28

Modern theories of political economy analyze the sources of political power and their uses for economic ends. The key instruments are taxation and regulation. Although international political economy treats states as its unit of analysis, the number of states is endogenous. This is highly pertinent for Africa, which has far more states relative to its population than other regions. Africa's many small states face acute difficulties of supplying the core public good of enforced justice and I apply the new economics of lawlessness developed by Dixit to show the consequences. I argue that due to the difficulties of supplying this key public good from within the state, Africa needs to have more recourse to the international provision: both through inter-state cooperation within the region, and through global provision.

International Political Economy and African Economic Development: A Survey of Issues and Research Agenda

Ohiorhenuan, J. F. E., Keeler, Z. — 2008-02-28

The challenges of African Economic development feature prominently on the agenda of the international political economy (IPE). Adopting a political economy prism, this paper examines the literature and traces the policies and debates about Africa in three key areas: macroeconomic policy, financing for development and international trade. The review shows a continuing African subservience within the IPE even as the importance of ‘ownership’ is becoming increasingly recognised. Ownership is subverted by the dominance in Africa's internal policy debate of its external partners and also by the likelihood that overall development financing will continue to be heavily dependent on the national security interests of Africa's major external partners. The macroeconomic and trade policy frameworks within which Africa functions reflect its existential condition of subservience in the IPE. The prevailing orthodoxy has proved to be remarkably persistent over the last 25 years, so much as to have become internalised by African leadership even as it continues to propagate the ownership myth. The paper suggests a research agenda around four issues: the links between institutional dynamics and economic policy; the challenges of building a new comparative advantage; the modalities for effectively managing a windfall in the form of aid, and the importance of harnessing non-aid resources.

Prices and Poverty in Urban Ethiopia

Gebremedhin, T. A., Whelan, S. — 2007-12-07

Poverty is an ongoing issue in Ethiopia. The identification of policy options to address the problem requires that poverty be measured accurately. One of the most important ingredients in the measurement of poverty is price. The magnitude of poverty is affected by how cost of living differences across time and regions are adjusted. This paper derives a set of price indexes for urban Ethiopia, using data from four household surveys conducted between 1994 and 2000. The results indicate that the cities of Dire Dawa and Mekelle are the two most expensive cities, while Jimma and Bahir Dar are the least expensive. The findings also confirm that poverty is high in urban Ethiopia, with poverty head count of over 40%. Poverty estimates and profile derived using poverty lines as cost of living deflators are similar to those obtained from preferred price indexes developed in the study. However, country-level consumer price indexes, which do not adjust for spatial cost of living differences, may result in misleading estimates and poverty profile. This may have implications for the allocation of resources for poverty alleviation purposes.

Infant Mortality in Uganda: Determinants, Trends and the Millennium Development Goals

Ssewanyana, S., Younger, S. D. — 2007-12-07

Unusually for an African economy, Uganda's growth has been rapid and sustained for an extended period of time. Further, this growth has clearly translated into substantial declines in poverty for all socioeconomic groups and in all regions of the country. Despite this, there is concern in the country that other indicators of well-being are not improving at the same rate as incomes. This paper studies one such indicator, infant mortality. We use three rounds of the Uganda Demographic and Health Surveys to construct a national time series for infant mortality over a long period of time, 1974–99. We also use these survey data to model the determinants of infant mortality and, on the basis of those results, to examine the likelihood that Uganda will meet the Millennium Development Goal (MDG) of halving infant mortality by 2015. Key results of the paper include: (1) household assets and infant mortality are significantly negatively correlated, but the correlation is small, so even if Uganda's rapid growth were to continue for another decade, the impact on infant mortality rate (IMR) will be small up to 2015; (2) after controlling for individual, household and community determinants, there is no discernable time trend (up or down) in infant mortality in Uganda; (3) observed improvements in mothers' primary school graduation rates will have a significant impact on IMRs. Plausibly attainable improvements in mothers' secondary graduation rates will have a lesser impact, largely because the improvements in graduation rates are not so great as at the primary level; (4) improvements in vaccinations for childhood diseases and in general health care services can also cause significant reductions in IMRs and (5) nevertheless, even under optimistic assumptions about improvements in health care and education, Uganda will not achieve the MDG for infant mortality.

The Agricultural Technology Market Linkage under Liberalisation in Ghana: Evidence from Micro Data

Yilma, T., Berg, E., Berger, T. — 2007-12-07

Combinations of factors, including inappropriate economic policies, have contributed to the poor economic performance of sub-Saharan Africa (SSA). The impacts of some corrective policy measures, both on the macro economy and on the rural economy, are not very clear because they have led to unintended consequences, such as increasing poverty and inequality. This paper examines the effect of the removal of subsidised agricultural credit for irrigation farmers in Ghana, a country of pioneering reforms in SSA. A theoretical model of this scenario is constructed, in which it is shown that under multiple-market imperfections farmers resort to alternative income sources to finance irrigation. Particularly in the presence of off-farm alternatives, multiple-market imperfections can induce both on- and off-farm income-generating activities during the same season. This model is subsequently tested and validated with household data collected from northern Ghana. The empirical analysis shows that there is a strong complementarity between irrigation farming and off-farm employment, two activities that depend heavily on labour endowment. The observed complementarity suggests that in weak credit markets irrigation farmers generate liquidity from off-farm activities, which could lead to a demand for larger family size in the long run.

The Impact of Economic Partnership Agreements in Countries of the Southern African Development Community

Keck, A., Piermartini, R. — 2007-12-07

In the context of economic partnership agreements (EPAs) currently under negotiation between the European Union (EU) and African, Caribbean and Pacific (ACP) countries, trade is meant to be progressively liberalised in a reciprocal way as of 2008. EPAs are also intended to foster existing regional integration efforts among the ACP. This paper presents a computable general equilibrium model simulation of the impact of EPAs for countries of the Southern African Development Community (SADC). Different liberalisation scenarios are compared. We find that EPAs with the EU are welfare-enhancing for SADC overall, in particular if reductions in unemployment are considered. Results are robust to variations in key model parameters. For most countries, further gains arise from intra-SADC liberalisation. The possibility of the EU entering an free trade agreement with other countries, such as Mercosur, reduces estimated gains, but they still remain largely positive. Similarly, estimated gains need to be revised downwards if agriculture liberalisation is not as far reaching as a reduction of import barriers for manufactures. At the sectoral level, the largest expansion in SADC economies takes place in the animal agriculture and processed food sectors, while manufacturing becomes comparatively less attractive following EU–SADC liberalisation. Results also show the need for the Southern African Customs Union tariff pooling formula to be adjusted to reflect new import patterns as tariffs are removed.

Trade Policy Reform and the Missing Revenue

Arndt, C., Tarp, F. — 2007-12-07

In many African countries, large discrepancies exist between revenues implied by published tariff rates multiplied by estimated import volumes and actual receipts. We develop a stylised trade model where average and marginal tariff rates diverge and incorporate insights from this model into a computable general equilibrium model of an African economy (Mozambique) to study the implications of trade policy reform. Model simulations indicate that lowering tariff rates and reducing duty-free importation in a manner that maintains official revenue benefit nearly everyone. The main exception is those who benefited from duty-free imports in the base.