Volume 18 #2 – Fall 2016

Table of Contents

  • Implications of Monetary Policy for Credit and Investment in Sub-Saharan African Countries
    Leonce Ndikumana
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    This paper investigates the implications of monetary policy for domestic investment through its effects on bank lending to the private sector and interest rates in sub-Saharan African countries. The study argues that the pursuit of inflation control through contractionary monetary policy carries high costs in terms of reduced investment and ultimately slower economic growth. The econometric evidence based on a sample of 37 sub-Saharan African countries over 1980-2012 shows that contractionary monetary policy affects domestic investment negatively both indirectly through the bank lending or quantity channel as well as directly through the interest rate or cost of capital channel. The results suggest that policies that maintain a low interest rate regime would stimulate bank lending to the private sector, which in turn would boost domestic investment. The results have important policy implications for African countries in their efforts to achieve and sustain high growth rates as a means of reaching their national development goals notably employment creation and poverty reduction.

    Keywords: domestic investment; bank credit; monetary policy; interest rates; sub-Saharan Africa; inflation targeting; growth

    JEL Classification: E22; E42; E52; O23 ; O55

  • Food Prices and Inflation in Tanzania
    Christopher Adam, David Kwimbere, Wilfred Mbowe, Stephen O’Connell
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    We develop an empirical representation of inflation in Tanzania for the decade from 2001, estimating ‘multiple-determinant’ single-equation models for headline inflation and its major components (food, energy and core inflation). Our results suggest that while supplyside factors, including yield variability and international price arbitrage, play a major role in determining domestic food and fuel inflation (which together account for almost 60 percent of the total CPI basket), demand-side factors amenable to policy intervention by the monetary authorities anchor core inflation.

    Keywords: Tanzania, inflation, core inflation, error-correction, supply shocks, monetary policy

    JEL Classification: E31, E52, O55, Q18, Q11

  • Economic Growth, Health Care Reform, and Child Nutrition in Ghana
    Jemima Frimpong, Dozie Okoye, Roland Pongou
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    Policymakers have long argued that economic growth in developing countries will positively impact child health. We examine child nutrition in Ghana during the economic growth of the 1980s and 1990s. We find that stunting in children aged 2-35 months declined from 30% in 1988 to 21% in 1998, but increased to 27% in 2003. Wasting followed an opposite path, while underweight gradually fell from 30% to 24% during this period. We show that these different responses to economic growth reflect differences in the factors generating these outcomes. Improvement in underweight was consistent with the positive household effects of macroeconomic growth, but increase in stunting after 1998 responded to the decline in health care utilization following the reform of the health care system. Indeed, the increased negative impact of a lack of access to healthcare explains most of the decline in child linear growth. The fraction of children presenting any of the three forms of malnutrition remained stable at around 40% during this period. These findings indicate that appropriate policies are needed to ensure that economic growth leads to an improvement in child well-being.

    Keywords: Child nutrition, economic growth, heath care reform, heath care access, Ghana.

    JEL Classification: I10, I18, I32, J00, J18, O10

  • Health Expenditure, Climate Changes and Corruption in the MENA Region: A Granger Casuality Approach
    Hanan Hamed M. Sileem
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    The growing literature on studying climate change has increased awareness about health problems, yet the job is far from done. This study contributes to understanding the granger causal links between environmental degradation and public health costs by analyzing the relationship between health costs and environmental degradation for a panel of 19 MENA economies over the period 1996 through 2013. Using panel data specifications, the paper identified a two-way relationship between public health expenditure and CO2 emissions. These empirical results link the contribution of CO2 emissions accumulation to the increase in public health expenditure. Furthermore, using Granger causality test, the empirical results highlight the presence of a two-way relationship between public health expenditure and corruption. Thus, corruption could be considered as a constraint to environmental quality and a channel through which environmental degradation triggers more health costs. Evidence of adverse health effects will strengthen the case for preventative policies and can also guide priorities for planned adaptive strategies.

    Keywords: Public health expenditure, Carbon Dioxide emissions, Granger Causality Test

    JEL Classification: O13 and Q5

  • Determinants of Land and Labour Market Participation Decisions in Rural Ethiopia
    Muna Shifa
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    This paper attempts to determine the factors influencing farmers' land and labour market participation decisions in rural Ethiopia. A multivariate probit estimation technique is used to account for potential interdependencies between land and labour allocation strategies. Results suggest that households that are better endowed with farming resources such as oxen and farming skills are more likely to get access to more land and labour through factor markets, while households that are less endowed with these resources are more likely to rent out their land and participate in off-farm jobs. The complementary nature of land renting out and involvement in off-farm work suggests that policy makers should give due consideration to the development of rural off-farm jobs to reduce poverty in rural areas.

    Keywords: Agricultural labour Markets, Land rental Markets, off-farm employment, Multivariate probit model, rural Ethiopia

    JEL Classification: J43, Q15, J46, C35

  • Purchasing Power Parity for African Countries: The Impact of the 2007-2008 “Great Recession”
    Christian Nsiah
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    We investigate both the weak and strong forms of PPP between 33 African countries, the United States, Euro area, South Africa, and Nigeria. The study applies panel unit root tests, panel cointegration tests, panel granger causality test and the panel fully modified OLS models to quarterly CPI and nominal exchange rate data for the period 1995Q1-2014Q4. We find great support for the weak form of PPP and a persistent bi-causal relationship between the nominal exchange rates and the respective price differences between the African countries and reference countries. Support for a strong form of PPP occurs, however, in the post-recession era for the U.S. dollar and the British pound. When we break the data into pre and post-recession, we find a unidirectional causality for the South African rand, pound, and euro in some cases.

    Keywords: Purchasing Power Parity, Consumer Price Index, Panel Unit Root, Panel Cointegration Test, Panel Granger Causality, Elasticity, Panel Fully Modified Ordinary Least Squares (PFMOLS), Africa

    JEL Classification: F31, F37

  • Financial Inclusion and Welfare in South Africa: Is there a Gender Gap?
    Elizabeth Lwanga Nanziri
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    Arguments on whether there is a gender gap in access to finance remain inconclusive. The welfare benefits of access to finance have also not been confirmed. This paper investigates whether there is a statistically significant difference between the welfare of financially included men and women, and of financially included women and their excluded counterparts. Using a pooled dataset on financial access in South Africa, we find that women mainly use formal transactional products and informal financial mechanisms, while men mainly use formal credit, insurance, and savings products. Despite this pattern in the use of financial products, a quantile regression analysis shows that there is no statistically significant difference between the welfare of financially included men and women. There is a significant difference, however, between the welfare of financially included women and their excluded female counterparts. Women using non-formal credit and insurance products exhibit higher welfare in the lower end of the welfare distribution. An Oaxaca-Blinder type decomposition shows that welfare differences are mainly accounted for by race, education, income, and, marginally, marital status. Estimates of the average treatment effect suggest a causal relationship between financial inclusion and higher welfare. The mechanism is through the accumulation of durable items following use of formal financial services.

    Keywords: financial inclusion, gender, informal financial products, welfare, South Africa

    JEL Classification: I31, J16, G20, O17