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Working Paper 291 - Regional Financial Integration and Economic Activity in Africa
04/10/2017 17:23
Working Paper 291 - Regional Financial Integration and Economic Activity in Africa

Categories: Regional Integration

Working Paper 287 - Current Account Adjustments and Integration in West Africa
04/10/2017 17:19
Working Paper 287 - Current Account Adjustments and Integration in West Africa

Categories: Regional Integration

Working Paper 282 - Africa’s Automotive Industry Potential and Challenges
04/10/2017 17:14
Working Paper 282 - Africa’s Automotive Industry Potential and Challenges

Categories: Regional Integration

Working Paper 265 - Monnaie unique et intégration: CEEAC et CEDEAO
17/05/2017 14:35
Working Paper 265 - Monnaie unique et intégration: CEEAC et CEDEAO

Categories: Regional Integration

Fostering Development Through Trade Finance Brochure - Full Version
24/04/2017 15:07
Fostering Development Through Trade Finance Brochure - Full Version
Regional Integration Brief - Tanzania’s seaports and transport corridors as development opportunity for east and southern Africa
18/12/2015 17:20
Regional Integration Brief - Tanzania’s seaports and transport corridors as development opportunity for east and southern Africa
Regional Integration Policy Paper No.3
13/10/2014 10:50
Regional Integration Policy Paper No.3
AfDB Partner of Choice for East Africa - EARC Report 2014
08/10/2014 12:27
AfDB Partner of Choice for East Africa - EARC Report 2014
Nigeria - 2013 - Country Profile - Leveraging Partnerships for Economic Transformation and Inclusive Growth
14/05/2014 11:26
Nigeria - 2013 - Country Profile - Leveraging Partnerships for Economic Transformation and Inclusive Growth
Tracking Africa’s Progress in Figures
09/05/2014 09:12
Tracking Africa’s Progress in Figures
African economies have sustained unprecedented rates of growth, driven mainly by strong domestic demand, improved macroeconomic management, a growing middle class, and increased political stability. As the continent continues to evolve, the African Development Bank’s <a href="t3://page?uid=6814"><strong>Tracking Africa’s Progress in Figures</strong></a> publication looks at the key megatrends of the last few decades that will shape Africa’s future. <h3>Human Development</h3> <a href="t3://file?uid=47718"><img align="left" height="100" src="uploads/RTEmagicC_1-Human-Development-tracking.png" alt="" /></a>Over the last 20 years the continent’s population has grown rapidly and in 2011 exceeded the 1 billion mark. Of all global regions, Africa will lead population growth over the next 50 years. Linked to this megatrend of rapid population growth is that of urbanization. The people of Africa will increasingly be city dwellers. Since 1960, the urban share of Africa’s population has doubled from 19 to 39 percent, equivalent to an increase of more than 416 million people in 2011. This means that Africa will have some of the largest mega-cities in the world. With a large population, Africa can harness and build on the expanded workforce to spur economic growth. However, this is conditional on Africa improving access to and equity within health systems, articulating right education policies, and creating employment opportunities. <h3>Economic Performance, Inclusiveness, and Structural Transformation</h3> <a href="t3://file?uid=47715"><img align="left" height="100" src="uploads/RTEmagicC_2--Economic-structural-transformation-tracking.png" alt="" /></a>Africa is on the rise. On aggregate, the region’s GDP growth is expected to average more than 5 percent over 2013–2015. Average inflation in Africa stood at 8.9 percent in 2012 and has since edged down to 6.7 percent in 2013, having been largely contained in most African countries. Macroeconomic stability, trade and exchange rate liberalization, and new policies and incentives supportive of the private sector have helped drive private sector development. Supported by the strong economic growth, the proportion of people living in poverty has fallen from over 50 percent in 1981 to less than 45 percent in 2012. This is coupled with the continent’s emerging middle class, grown to some 350 million people and projected to reach 1.1 billion by 2060. Africa’s growth, however, has not been even across all countries. Six of the ten most unequal countries in the world are in Africa, and there is not yet any evidence of progress in reducing income inequality. With the endowment of a young growing workforce on the one hand and natural resources on the other, Africa has an important opportunity for inclusive growth. The challenge is to seize it through wellexecuted investment in infrastructure, increased access to education and relevant training, the development of capable institutions, and support for private investment and job creation. Structural economic change is indispensable to achieve the desired progress of Africa and to bring prosperity to the continent’s populations. In order to alleviate poverty and reduce income inequalities, Africa will need to embrace structural transformation while maintaining robust economic growth. Fostering diversification through transition to high-productive sectors will be a catalyst for industrial upgrading and technological innovation which in turn will increase job creation. The path toward obtaining the status of middle-income and high-income countries will necessitate diversifying African economies away from dominant sectors such as agriculture and commodities. <h3>Governance, Fragility, and Security</h3> <a href="t3://file?uid=47717"><img align="left" height="100" src="uploads/RTEmagicC_3-Governance-Fragility-tracking.png" alt="" /></a>Africa’s rapid economic growth is transforming the lives and livelihoods of Africans at an unprecedented<br />pace. Such growth is underpinned by improvements in governance: over the period of 2000-2012, around 89 percent of African countries have improved their capacity to deliver economic opportunity and human development; 67 percent of countries made progress in fostering political participation, gender equality, and human rights; and 40 percent of countries strengthened their safety and rule of law. Tackling corruption remains an essential part of Africa’s development agenda. Africa is growing, creating both opportunities and risks. Change is intrinsic to the development process; if managed effectively, they can help unlock Africa’s development potential. Yet change can also be disruptive: urbanization and slum development, the youth bulge, inequality and social exclusion, climate pressures, environmental damage, new resource rents and resource scarcity, and weak governance all have the potential to place African societies under considerable strain. Fragility comes about where these pressures become too great for countries to manage within the political and institutional process, creating a risk that conflict spills over into violence. Despite tough challenges posed by fragility, progress is possible. While various fragile states have lost ground in terms of economic growth during earlier periods of conflict—such as the case of Liberia where GDP dropped by as much as 90 percent in 20 years—many of them, with peace and stability, are now on the path of growth and recovery. More effective and better coordinated efforts, tailored to each individual situation, must be made to assist countries affected by fragility and conflict, and countries in transition in managing political, security, economic, and environmental stresses that make them and their citizens vulnerable. <h3>Regional Integration, Trade, and Investment</h3> <a href="t3://file?uid=47721"><img align="left" height="100" src="uploads/RTEmagicC_4-Regional-integration-tracking.png" alt="" /></a>In recent years, Africa has emerged as a frontier market, having increasingly attracted the attention of investors. In 2012, Africa’s foreign direct investment (FDI) inflow grew to USD 50 billion while exports amounted to USD 641 billion. At the same time, intra-African trade remains low. Integration remains essential for Africa to realize its full growth potential, to participate in the global economy, and to share the benefits of an increasingly&nbsp; connected global marketplace. With plans to establish regional- and continental-wide free trade areas well underway, political commitment will be required to translate the trade agendas into sound policy and regulatory reforms to maximize the benefits. <h3>Infrastructure Development</h3> <a href="t3://file?uid=47719"><img align="left" height="100" src="uploads/RTEmagicC_5-Infrastructure-Tracking.png" alt="" /></a>As Africa continues to urbanize, the importance of public investment in infrastructure becomes increasingly evident. Basic amenities such as housing, drinking water, and sanitation facilities are needed to provide Africa’s growing population with a better standard of living. Investments in energy and transport will also help increase access to affordable and reliable electricity, improve transport connectivity, and reduce transport cost and time. At the same time, Africa’s rising consumer class has resulted in a surge in mobile-cellular subscriptions and internet usage. As it stands, broadband coverage is at 16 percent and will likely reach 99 percent by 2060. <h3>Agriculture, Food Security, and a Greener Environment</h3> <a href="t3://file?uid=47714"><img align="left" height="100" src="uploads/RTEmagicC_6-Agriculture-tracking.png" alt="" /></a>Agricultural production has increased, but mainly by bringing more land under cultivation rather than by<br />improvements in yields. Feeding the expanding urban population will present a challenge that will entail<br />adoption of the latest technologies and high-yielding crop varieties as a way of raising productivity. Strengthening agriculture and food security through an integrated value chain approach can improve the livelihoods of Africans who live in rural areas. Many are reliant on subsistence farming, and a sizable proportion is chronically vulnerable to climatic uncertainty. Africa lives off its land, and more than 227 million Africans work on the land, which too often fails to provide for their needs. By continuing to invest in rural infrastructure (such as rural roads, irrigation, electricity, storage facilities, access to markets, conservation systems, and supply networks), countries can increase their agricultural productivity and competitiveness.Read more
Economic Brief - Industrial Policy at the Service of Balanced Territorial Development in Tunisia
08/05/2014 16:42
Economic Brief - Industrial Policy at the Service of Balanced Territorial Development in Tunisia
Working Paper 201 - Does Intra-African Trade Reduce Youth Unemployment in Africa ?
29/04/2014 14:33
Working Paper 201 - Does Intra-African Trade Reduce Youth Unemployment in Africa ?
African countries have taken several measures to promote regional integration, a major part of which is intra-regional trade. Intra-African trade is one of the important activities to achieve regional integration and accelerate sustainable and inclusive development in Africa. This explains several measures taken at both sub-regional and continental levels to promote intra-African trade. Such intra-African trade has enormous potential to create employment (especially for the burgeoning youth population of the continent), catalyze investment and foster economic growth on the continent. Unemployment among young people aged between 15 and 24 is one of the greatest development challenges facing countries globally, including those in Africa. However, very few studies have been undertaken in the particular context of African countries and to the best of our knowledge there are no studies exploring the intra-African trade-youth unemployment nexus in Africa. Thus, the key objectives of this study are: (1) To analyze the scale, trends, and composition of intra-African trade and youth (overall, female and male) unemployment; (2) To quantitatively investigate the relationship between intra-African trade, and youth (overall, female and male) unemployment; and (3) To summarize the key findings and discuss their policy implications for intra-African trade policy and diversification, regional integration, and youth employment. African countries have not made significant progress in boosting intra-African trade. In 2012, the average intra-African trade was just 12% compared with 67% for APEC, 61% for the EU, 41% for NAFTA, 25% for ASEAN, and 17% for MERCUSOR. Over the period from 1995 to 2012, the average intra-African trade was only 12% for Africa against 70% for APEC, 64% for the EU, 44% for NAFTA, 24% for ASEAN, and 18% for MERCUSOR. However, in value terms, Africa has made tremendous progress in intra-African trade, increasing from US$27.9 billion in 1995 to US$148.9 billion in 2012, representing an increase of more than fivefold. On the other hand, in 2011, about 74.8 million young globally were unemployed (an increase of more than 4 million since the start of the global financial and economic crisis in 2007), with almost 20% of them in Africa. Also, in 2011, youth unemployment in Sub-Saharan Africa (SSA) was slightly higher than the global average at 12.8% but with North Africa averaging 27.1%, the highest amongst the regions of the world. This gives an average of about 20% youth unemployment in Africa in 2011. In addition, young people in Africa are about three times more likely as adults to be unemployed. Youth unemployment is also predominantly an issue for women in Africa, especially in North Africa. While the unemployment rate for young women in North Africa was 34.3% in 2010 (compared to the global average of 13.1%), the rate for young men stood at 18.5% (compared to the global average of 12.6%), all two are the highest for any region. The evidential reports on the unemployment-reducing effect of trade integration, while few, are however, mixed. This study empirically estimates the effect of Africa’s intra-regional trade on the burgeoning youth unemployment on the continent. We investigate both the aggregate and gender-specific impacts. For robustness, our estimations are done with pooled OLS with country fixed effects and IV-2SLS with country fixed effects. The empirical estimates, using available cross-sectional time series data over the period, 1980 and 2010, suggest that higher levels of intra-African trade reduce both the aggregate, female and male youth unemployment in Africa. In addition, our results show that domestic investment rate, institutionalized democracy, secondary education, inflation, economic growth, and higher urbanization tend to reduce youth unemployment, both on the aggregate and gender-differentiated and therefore good for youth unemployment reduction in the continent. On the other hand, higher real per capita GDP and to a lesser extent credit to the private sector have significant positive effect on youth unemployment in Africa. Government consumption expenditure and foreign direct investment have an insignificant effect on both the aggregate level and the gendered level of youth unemployment in Africa. Efforts to expand intra-African trade for unemployment reduction should include eliminating tariffs and non-tariff barriers, enhancing mutually advantageous commercial relations through trade liberalization schemes, and adopting comprehensive and harmonized regional trade policies. In addition, a need exists to intensify cooperation in regional infrastructure development projects. not only to increase access to and reduce the cost of provision of these facilities but also to help lower transactions costs, boost trade, and increase the continent’s attraction to investors. There is a need to promote and deliberately support the development of the domestic capital markets through a sub-regional approach and put in place supportive infrastructure for the markets. African governments should adopt a sub-regional approach to the support and development of capital markets, to strengthen their catalytic role in mobilizing savings for increased domestic investment. Also, strengthening of regional integration groups will be useful in reducing the incidence of domestic policy reversals and improving the credibility of economic policies in Africa. Indeed, the full implementation of the plan and declarations to boost intra-African trade made during the January 2012 African Union Summit of Heads of State and Government will be very critical. A key challenge for African countries is to mobilize increased resources for high domestic investment, and high and sustainable economic growth. African countries need to increase efforts for the mobilization of higher domestic savings, including through the implementation of tax reforms, simplifying and improving tax administration, cost sharing in the provision of public goods and services and enhancing public expenditure productivity. Effective policies that invest in human capital of the citizens and workforce are needed. Skill acquisition through technical and vocational education and training (TVET) should be prioritized. The promotion of diversification away from natural resources dependence and investing in new and more sophisticated production and exports are imperative. Investments in education, social services and infrastructure as gender-equity policies will promote gender-equitable employment.Read more
Regional Integration Brief - Developing Economic Corridors in Africa : Rationale for the Participation of the AfDB
03/04/2014 15:43
Regional Integration Brief - Developing Economic Corridors in Africa : Rationale for the Participation of the AfDB
Working Paper 198 - Can Intra-Regional Trade Act as a Global Shock Absorber in Africa?
05/03/2014 09:59
Working Paper 198 - Can Intra-Regional Trade Act as a Global Shock Absorber in Africa?
The recent global financial crisis has brought about renewed emphasis on the links of African countries with the global economy, both individually and collectively, via regional economic communities (RECs). On balance, Africa has exhibited resilience during the global financial crisis. Still, differences emerged across countries and Africa’s regions, with RECs showing different degrees of output co-movements with the global economy. As other developing economies, African countries experienced a notable increase in output co-movements with advanced economies during the global financial crisis. However, the degree of this co-movement differed across countries and sub-regions, and was, in particular, much higher for the Southern Africa Customs Union (SACU) than the East African Community (EAC) region. This paper examines the role that intra-regional and intra-African trade can play in explaining such differences in output co-movements and in protecting African countries from global output shocks. It focuses on the EAC and the SACU because of the different patterns of trade and growth they have exhibited. The aim of this paper is two-fold. First, we aim to examine the output shock synchronization between Africa’s RECs and the advanced economies. Second, we study the determinants of this synchronization and in particular the relationship between output shock co-movements and bilateral (intra-industry) trade in member countries within RECs.&nbsp; This will help determine if and how intra-regional – and intra-industry – trade in Africa facilitates output shock synchronization. This paper seeks to answer the following questions: Can intra-regional trade help explain the differences in output co-movements between African countries/regions and advanced economies? How can African countries and regions mitigate the impact of global output shocks through regional integration? With the rising frequency of global output shocks, answering these questions is of great importance to policymakers in Africa and elsewhere. Except for South Africa, the output shock transmission from the global economy to Africa, and especially its RECs, has been relatively understudied. The recent research on the global shock spillovers to Africa during and after the global financial crisis includes Drummond and Ramirez (2009), Gurara and Ncube (2013); and Tapsoba and Diallo (2014). This paper adds to this stream of literature by examining the impact of global output shocks on Africa’s RECs with a structural vector autoregressive (SVAR) model utilizing real GDP data, as in Kim and Chow (2003), Brixiova et al. (2010) and others. The links of output shock synchronization and intra-regional trade are tested by regressing output co-movements on pair-wise trade linkages, including intra-industry trade as in Calderon et al. (2009) and IMF (2013). We found that the deeper intra-regional trade in the EAC region have increased the community’s resilience to global output shocks. However, the SACU region proved less immune to such shocks. This can be in part explained by South Africa’s developed financial system which facilitated heavy exposure to global shocks also via financial linkages, as evidenced by capital outflows that the country experienced. In turn, the small SACU members were exposed to global output shocks both directly through their trade linkages with Europe and through their trade with South Africa. Further, unlike the case of the SACU where the small countries export mostly to South Africa, the EAC’s regional trade is better diversified among various members and other countries in the region (Sudan, Democratic Republic of Congo). This underscores the importance of export diversification and trading with fast growing economies. The policy implications from our analysis therefore nuance the common recommendation of promoting regional integration in Africa to build resilience. While intra-regional trade can help build resilience, this is not an automatic result. To benefit from regional integration in the face of global shocks, countries need to diversify their geographical composition of trade so as to include fast growing economies, both in Africa and other regions. &nbsp; This paper has raised several important issues for future research. First is the relation between regional integration and intra-regional trade on the one hand and strengthening multilateral trade ties on the other. We must emphasize that our results should not be interpreted as support for regional integration via preferential regional trade agreements at the expense of multilateral trade. Intra-regional trade in Africa would benefit from improved regional infrastructure, reducing red tape at the border, improving business environment, and facilitating labour mobility, which are all factors that would facilitate trade in general. The specific barriers to regional trade vary across Africa’s regions and are left to further research. Second, we have focused on the transmission of shocks from the advanced economies to Africa, leaving the impact of shocks in emerging markets on Africa to further investigation.&nbsp; Third, future research could examine if and how the intra-regional trade in Africa facilitates regional value chains and integration of African countries into the global value chains.Read more

Categories: Regional Integration

Working Paper 196 - Uses and Abuses of Per-diems in Africa- A Political Economy of Travel Allowances
27/02/2014 13:48
Working Paper 196 - Uses and Abuses of Per-diems in Africa- A Political Economy of Travel Allowances
At a time when donor funds are becoming scarce for various reasons, including the austerity programs of Western governments, and competition for official development assistance is increasing, improving the efficiency and effectiveness of public spending features high on political and development agendas. An increasing amount of public spending in Africa is allocated to per diems as a core instrument of the incentive structure. Anecdotal as well as systematic evidence from many countries and projects suggests that abuse of the per diem system could be&nbsp; becoming the rule rather than the exception.&nbsp; This can weaken the impact of development efforts.&nbsp; Improving the efficiency of the management of per diems could have a major impact on the public finances and the attainment of development goals. Unfortunately, this topic has been largely unexplored and little has been written on the subject. This paper examines the political economy of per diems in the African context. It revisits the concept of per diems on the continent, scans the extent to which per diems are used and abused, and proposes a conceptual framework that could help model the mechanism through which the per diem are paid influences motivation and behaviour.<br /> The paper argues that although per diems are in many cases justified, currently the system may be moving from being part of the solution to becoming part of the problem. The analysis illustrates how the possibilities of earning per diems negatively influences projects and programs design, management decisions, and how employees spend their time. All these have a powerful distorting impact on development efforts.<br /> We propose a conceptual framework which demonstrates the limits of per diems as a motivational factor for travel missions. The framework shows how intrinsic motivation is partly destroyed when large per diems are paid. As the amount of per diem increases, the incentive of intrinsically-motivated individuals decreases while the incentive of extrinsically-motivated ones increases; explaining, for example, why paying high per diem rates for a meeting will increase the probability of having inappropriate people attending. Where public spirit prevails (intrinsic motivation), using large per diems to increase motivation to attend a meeting or workshop comes at a higher price than suggested by standard economic theory. That is especially the case as such incentives tend to crowd out the most suitable participants. One implication for economic policy is that there is a need to reconsider the role and the use of per diems in support of development activities. One option is to re-conceptualize the function of per diems along the line of its original definition (expenses reimbursement), and finding a different channel to raise the motivation of staff (for example through higher salaries). From that perspective, per diems will no longer play the role of a motivation agent or salary supplement, and one could consider decreasing the rate of per diems. Decreasing the daily rate of per diem will have a positive effect on public finances, and, as shown in this paper, would not have a significant impact on the workshop participation (at least on the quality of participants).<br /> The analysis in this paper also has some implications for economic theory. Standard economic theory does not normally differentiate between different sources of motivation; extrinsic type of motivation only forms part of the theoretical arguments, and intrinsic motivation is assumed to be an exogenously given constant, and often it is completely disregarded. This practice should be reconsidered in view of possible limits of relying purely on extrinsic incentives. Under relevant circumstances, it is not advisable to use the per diem mechanism to elicit a higher motivation, and one should moreover rely on a quite different type of incentive, namely intrinsic motivation. However, an important difficulty remains the ability to measure, influence and control intrinsic motivation.Read more
LinkAfrica Newsletter - Issue N°2 - November 2013
20/01/2014 16:54
LinkAfrica Newsletter - Issue N°2 - November 2013
Working Paper 191 - Do Firms Learn by Exporting or Learn to Export: Evidence from Senegalese Manufacturers’ Plants
23/12/2013 16:09
Working Paper 191 - Do Firms Learn by Exporting or Learn to Export: Evidence from Senegalese Manufacturers’ Plants
This paper investigates the link between exports / trade openness and firms’ performance in the Senegalese manufacture sector, using a rich and unique firm-level panel data spanning the period 1998-2011. The data has been obtained from the Single Information Collecting Centre (CUCI). The paper started with the assumption that, in the Learning by exporting (LBE) mechanism, firms improve their productivity after entering a foreign market (Clerides et al., 1998). Therefore, exporting results in productivity gains. The study implicitly takes into account the conclusions of a recent growth diagnosis undertaken by the ADB (2012) about the main obstacles to firms’ growth. These main obstacles are access to electricity and poor education. The framework used is a simultaneous functions model based on Bigsten and al. (2002), controlling for other unobserved effects and the properties of the time series. The observation level is the firm. The approach involves jointly estimation of a dynamic productivity function and a dynamic discrete choice model for the decision to export, where it is allowed for causality running both from efficiency to exporting and from exporting to efficiency. This strategy enables to control for unobserved heterogeneity in the form of firm specific effects that are correlated across the two equations. The estimation follows two steps: the TFP calculation and the self-selection and learning-by-exporting test controlling for unobserved effects. The findings suggest that workers’ qualification and access to Patents and Licences have a positive effect on the process of learning. For instance, skills improve productivity by 41 percent in the self-selection case and by 28% in the learning-by-export setting. Also, small firms particularly learn more from exporting. From a policy perspective, this evidence of learning-by-exporting suggests that Senegal has much to gain from promoting its manufacturing sector towards exporting by supporting domestic firms to overcome the barriers to enter into foreign market, particularly by investing on skilled workers and promote access to Patents and Licences as well as disseminating benefits arising from exporting to non exporters. The results also indicate the evidences of both self-selections of the most efficient firms enter into the export market and effect of Learning in the export market. From a policy perspective, the learning-by-exporting finding suggests that Senegal has much to gain from promoting its manufacturing sector towards exporting by increasing the ability of domestic firms to overcome foreign market barriers as well as assimilate further benefits arising from exporting. Given the importance of the skills of workers in the process of acquisition of productivity gains on the external market, special attention should be accorded to the training of the workforce. Hence, the State could help developing curricula into colleagues and senior secondary schools or other training programs enable companies to have the skills they need. Special public strategies to promote firms’ access to Patents and Licences and Innovation must be implemented. Finally, supports favour to small and medium enterprises programs could strengthen their productivity gains on the external market. The initiatives already undertaken favour to the small plants might be continued and reinforced.Read more
Working Paper 187 - The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia
23/12/2013 09:40
Working Paper 187 - The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia
A real exchange rate that is broadly aligned with its equilibrium value is an important part of a country’s macroeconomic and external competitiveness framework. Persistently misaligned real exchange rates can cause a misallocation of resources between tradable and non-tradable sectors and negatively impact labor market dynamics. Reduced external competitiveness due to over-valued exchange rates hampers exports, aggregate demand, growth and job creation. Besides the longer-term implications, real exchange rate misalignment can lead to inflationary pressures and even trigger speculative attacks. When setting their exchange rate policy, countries also need to balance their goals of reaching competitiveness and macroeconomic stability. In Egypt, Morocco, and Tunisia concerns about real exchange rate misalignments have prevailed for some time given the countries’ high unemployment, stagnating global export shares, and low export diversification. External competitiveness became even more relevant in the aftermath of the global financial crisis and after the 2011upheaval, with inclusive growth and job creation once again topping the countries’ economic policy agenda. By providing accurate signals to producers, the real exchange rate can help generate competitive jobs via exports. It can also help reduce income inequalities by raising the workers’ marginal revenue product. To be effective, the aligned real exchange rate needs to be complemented by other sound macroeconomic policies and enabling business environment. As shown by their low and stagnating shares in global exports, Egypt, Morocco and Tunisia have been facing external competitiveness challenges. Low and constant (or marginally rising, as was the case of Egypt) export shares help explain why the aggregate demand growth in these countries has remained subdued and not generated enough ‘decent’ jobs in export sectors. The three North African economies are less diversified than some other emerging market economies at comparable levels of development. Europe accounts for a disproportionate share of their export destinations, reflecting geographical closeness and long-established business ties. This paper aims to find out whether the real exchange rate misalignment contributed to the weak external competitiveness (e.g., limited export value added and diversification) in the three North African countries. To this goal, it estimates the real equilibrium exchange rate for the past three decades, using the stock-flow approach. This approach differentiates between (i) the medium-term undervaluation caused by the Balassa-Samuelson effect (productivity catch up) that is unlikely to cause abrupt adjustments and (ii) misalignment caused by other factors than productivity differentials. It is particularly suitable for emerging markets that can go through structural and productivity changes impacting the medium-term path of the real exchange rate. The empirical analysis is based on annual data series from 1980 to 2009, obtained from various databases of the African Development Bank and IMF. The estimate results of the real exchange rate models, obtained using the DOLS and ARDL models. For each country, the baseline model linking the real exchange rate to productivity and net foreign assets was estimated first. Subsequently, additional control variables including the government spending ratio, openness, the investment ration and terms of trade were added one by one to the baseline model. Our results indicate that in the long run, decreases in net foreign assets, equivalent to capital inflows, result in an appreciation of the real exchange rate. Regarding the impact of productivity, the coefficient estimates are generally positive in Egypt, indicating that increases in productivity lead to real exchange rate depreciation. In Morocco the impact of productivity on the real equilibrium exchange rate is significant, but negative, indicating that the increase in productivity has the traditional Balassa-Samuelson effect. In Tunisia productivity has an ambiguous impact on the real exchange rate. Further, a greater openness would lead to a depreciation of the real exchange rate in all three countries. Finally, improvements in terms of trade would lead to real exchange rate appreciation in Egypt and Morocco, most likely via inflation differentials. Regarding the misalignment between the actual and real exchange rate and the long run real equilibrium exchange rate, the paper found that: For Tunisia, the low misalignment in recent years can be explained by the abandonment of the real exchange rate targeting and gradual introduction of the exchange rate flexibility. The real exchange rate of Egypt was overvalued from the mid-1990s until mid-2000s and in recent years, following the rising inflation rate and current account and/or fiscal deficits. In Morocco, misalignment has been low in recent years. The county experienced a short overvaluation in mid- 80s entailed by the current account deficit, followed by the devaluation in the late 1980s. Morocco’s equilibrium exchange rate’s seems to have not been affected by the global economic crises, in part due to prudent monetary policy. In summary, utilizing – for the first time for North Africa – the stock-flow approach to estimating the real equilibrium exchange rate, this paper estimated misalignments of real exchange rates in Egypt, Morocco, and Tunisia during the past three decades. While Egypt experienced protracted misalignment in the past and recent years, real exchange rates in Morocco and Tunisia stayed closer to their equilibrium values. However, in all the export growth has been lagging some other emerging market economies. The paper suggests that non-price structural factors such as labor market flexibility, skills, and investment climate are a key for unlocking the export and productive potential of the three North African countries. Intra-regional trade – both with North Africa and the rest of the continent – together with greater orientation to fast growing emerging markets could also raise countries’ external competitiveness.Read more
Working Paper 185 - Remittances and the Voter Turnout in Sub-Saharan Africa: Evidence from Macro and Micro Level Data
23/12/2013 09:38
Working Paper 185 - Remittances and the Voter Turnout in Sub-Saharan Africa: Evidence from Macro and Micro Level Data
For many developing countries including in Sub-Saharan Africa, international remittance flows represent a large and stable source of external finance. Recent empirical studies using Sub-Saharan African data have demonstrated the positive contribution of remittances to poverty reduction and financial development. However, a recent wave of the remittance literature shows that remittance flows can have a damaging effect as they impede external competitiveness of receiving countries by fueling inflation and appreciating the real exchange rate. They are also related to more corruption, lower labor force participation, and lower supply of public goods in education and health. The present study takes advantage of this recent literature and investigates the effects of remittances on political participation in Sub-Saharan Africa. Recent studies document the role of international migration in the propagation of political values including voting behavior. For example, international migration can shape the voting behavior in the home country through two main channels. (1) The transfer of political norms from the hosting country to the home country. (2) The direct influence through vote guidance during election time. Empirical investigations are carried out using two samples. First, the analysis is performed using cross-country macro data for 27 Sub-Saharan African countries for which it’s possible to mobilize both voter turnout and annual data on remittances. Econometric specifications controlling for key determinants of voter turnout, country fixed-effects, do not reject the hypothesis that remittances inflows are significantly associated with lower voter turnout in Sub-Saharan Africa. Second, a microeconometric approach is employed using AfroBarometer data. To deal with the non-random nature of remittances in the sample, the paper follows the recent contribution of Esquivel and Huerta- Pineda (2007) and Cox-Edwards and Rodriguez-Oreggia (2009) and resort to propensity score matching techniques to identify the effect of remittances on individuals’ propensity to vote. Using both cross-country and individual country level data, the paper demonstrates that remittance inflows significantly lower the propensity to vote during national elections in Sub-Saharan Africa. This effect is robust to empirical specifications aimed at dealing with the endogeneity of remittance inflows at both country and household level data. The findings of this paper provide evidence that one “bad news” related to remittances implies a drop in electoral participation by remittance-receiving individuals. Remittances the accountability of governments and the benefits to be had from democratic systems by reducing the interest of individuals to participate in political systems by exercising voting rights.Read more
Assessing Regional Integration in Africa
31/10/2013 08:47
Assessing Regional Integration in Africa
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