1 / 31

Managing Risk in Africa through Institutional Reform

This article discusses the weak economic performance of Africa and the need for institutional reform to manage risk. It covers the impact of corruption, economic freedom, international aid, and military spending on per capita GDP. The article also explores the role of property rights, democracy, and regional variation in managing risk. Insights are based on regression equations and empirical investigations.

allis
Download Presentation

Managing Risk in Africa through Institutional Reform

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Managing Risk in Africa through Institutional Reform Phillip LeBel, Ph.D. Professor of EconomicsSchool of Business Montclair State UniversityUpper Montclair, New Jersey 07043Lebelp@mail.montclair.edu

  2. Understanding Africa’s Weak Economic Performance • By almost any measure, Africa’s economic growth has been weak over the past twenty-five years • While mean PPP GDP per capita has increased by modest amounts, median PPP GDP per capita has hardly increased at all.

  3. The Mixed Record of African Development Indicators:

  4. Adult Illiteracy Rate

  5. Drought Frequency in Africa

  6. Cereal Crop Yields

  7. Africa’s Share in World Trade

  8. Africa’s Share in Global Merchandise Trade

  9. Reframing African Development Strategies Must Begin With An Emphasis on Risk Management • Aggregate country risk, which includes political, economic, financial, and environmental factors, is inversely related to the level of per capita GDP

  10. Corruption is a Determinant of Risk • Corruption is directly related to the level of risk.

  11. In turn, corruption is a function of several factors: • Judicial independence is inversely related to the level of corruption

  12. Economic Freedom Affects the Level of Per Capita GDP • Economic freedom, an important contributor to development, has improved little in Africa over the past twenty-five years.

  13. Rising International Aid In Africa International Aid has had a negative impact on per capita GDP • International aid, which has often served political over economic interests, has largely failed to raise per capita income in Africa, even when increases have been made.

  14. As a result, even rising levels of FDI have had a lower impact than elsewhere • As a result, even rising levels of FDI have but a limited impact on economic development in Africa. In part this is because the level of FDI is so small relative to GDP, which in turn reflects the overall level of aggregate country risk.

  15. Despite political instability, military spending in Africa has remained relatively low • Despite political instability, military spending in Africa has been lower than in some developed countries. At the same time, it has been higher than in most parts of Asia, China and North Korea being the principal exceptions.

  16. The Quality of Institutional Governance is a Key to Managing Risk • Property rights in Africa have experienced some modest improvements, with some relapses in more recent years. The effect has been negative on the level of economic freedom, with higher risk resulting in lower levels of per capita GDP.

  17. Democracy Offers Some Modest Gains in Per Capita GDP • Democracy, which in addition to transparent and fair elections, consists in the level of civil liberties and political rights. Despite some gains in Africa, the effects on per capita GDP have been weak.

  18. Some Stylized Patterns of African Development

  19. Determinants of Risk in Africa

  20. Panel Nested Regression Equations

  21. Basic Model Estimating Equations:

  22. Basic Model Institutional Valuations: • Estimates are based on parametric changes in selected independent variables

  23. Regional Variation Valuations:

  24. Africa Sample Profile:

  25. Model Descriptive Statistics:

  26. Model Definitions and Sources:

  27. Bibliography • Acemoglu, Daron, Simon Johnson, and James A. Robinson (2001). "The Colonial Origins of Comparative Development: An Empirical Investigation" American Economic Review, 91:5, pp. 1369-1401. • Austin, Gareth, and Kaoru Sugihara, eds. (1993). Local Suppliers of Credit in the Third World, 1750-1960. (New York: St. Martin's Press). • Banisar, David (2000). "Freedom of Information around the World,” (PrivacyInternational): http://www.privacyinternational.org/issues/foia/foia-survey.html • Barro, Robert (1997). Determinants of Economic Growth: A Cross-Country Empirical Study. (Cambridge, Mass.: MIT Press). • Bates, Robert H. (2005). "Political Insecurity and State Failure in Contemporary Africa," CID Working Paper No. 115 (Cambridge, Mass.: Harvard University Center for Economic Development, January). • Bates, Robert H. (2004). "Probing the Sources of Political Order", CIT Working Paper No. 110 (Cambridge, Mass.: Harvard University Center for International Development, October). • Bates, Robert H. (2001). Prosperity and Violence: The Political Economy of Development. (New York: W.W. Norton & Company). • Boko, Sylvain (2002). "Institutional Reform and Economic Growth in Africa." Journal of African Finance and Economic Development, 5:2 (Autumn), pp. 57-76. • Boycko, Maxim, Andrei Shleifer, and Robert Vishny. Privatizing Russia. (Cambridge, Mass.: MIT Press, 1997, 1995). • Bruce, John W., Shem E. Migot-Adholla, and Joan Atherton, editors (1994). Searching for Land Tenure Security in Africa. (Dubuque, Iowa: Kendall Hunt). • Bulir, Ales and A. Javier Hamann (2006). "Volatility of Development Aid: From the Frying Pan into the Fire? (Washington, D.C.: IMF Working Paper WP/06/65, March). • Burnside, Craig and David Dollar (2000). "Aid, Policies, and Growth," American Economic Review, 90:4, pp. 847-68.

  28. Chamlee-Wright, Emily (1998). "Indigenous African Institutions and Economic Development," in James A. Dorn, Steve H. Hanke, and Alan A. Walters. eds. The Revolution in Development Economics. (Washington, D.C.: The Cato Institute). • Collier, Paul and Jan Willem Gunning. (1999). "Explaining African Economic Performance," Journal of Economic Literature 37:1 (March). • Collier, Paul and Jan Willem Gunning (1999). "The Microeconomics of African Growth, 1950-2000", Thematic Paper for the AERC Collaborative Research Project on 'Explaining African Economic Growth, 1950-2000', processed. (Washington, D.C.: The World Bank). • Collier, Paul and Jan Willem Gunning (1999). "The Microeconomics of African Growth, 1950-2000", Thematic Paper for the AERC Collaborative Research Project on 'Explaining African Economic Growth, 1950-2000', processed. (Washington, D.C.: The World Bank). • Deng, Francis and Terrence Lyons (1998). African Reckoning: A Quest for Good Governance. (Washington, D.C.: The Brookings Institution). • Deng, Francis, Sadikiel Kimaro, Terrence Lyons, Donald Rothchild, and I. William Zartman, eds. (1996). Sovereignty as Responsibility: Conflict Management in Africa (Washington, D.C.: The Brookings Institution). • Easterly, William (2006). The White Man's Burden: Why The West's Efforts to Aid the Rest have Done so Much Ill and So Little Good. (New York: Penguin Books). • Easterly, William, Ross Levine, and David Roodman (2003). "New Data, New Doubts: A Comment on Burnside and dollar's 'Aid, Policies and Growth' (2000)" (Cambridge, Mass.: NBER Working Paper No. 9846). • Easterly, William (2002). The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. (Cambridge, Mass.: MIT Press). • Easterly, William (2001). "Can Institutions Resolve Ethnic Conflict?" Economic Development and Cultural Change, 49:4 (July), pp. 687-706. • Easterly, William and Ross Levine (1997). "Africa's Growth Tragedy: Policies and Ethnic Divisions." Quarterly Journal of Economics 112(4): 1203-50. • Englebert, Pierre (2001). State Legitimacy and Development in Africa. (Boulder, Colorado: Lynne Rienner Publishers).

  29. Ensminger, Jean (1997). "Changing Property Rights: Reconciling Formal and Informal Rights to Land in Africa," in Drobak, John., and John Nye, eds., The Frontiers of the New Institutional Economics. (San Diego, California: Harcourt Brace). • Fafchamps, Marcel, Christopher Udry, and Katherine Dzukas (1998). "Drought and Saving in West Africa: Are Livestock a Buffer Stock?" Journal of Development Economics 55: 273-305. • Fafchamps, Marcel (1996). "The Enforcement of Commercial Contracts in Ghana." World Development 24(3): 427-448. • Fisman, Raymond and Roberta Gatti (2002). "Decentralization and Corruption: Evidence Across Countries", Journal of Public Economics 83:3 (March), 325-345. • Freedom House (2005). Freedom in the World. (Washington, D.C.: Freedom House). www.freedomhouse.org • Greif, Avner (2006). Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. (New York: Cambridge University Press). • Grimard, Franque (1997). "Household Consumption Smoothing Through Ethnic Ties: Evidence From Côte d'Ivoire", Journal of Development Economics 53:3 (August): 38-61. • Hausmann, Ricardo, Dani Rodrik, and Andrés Velasco (204). "Growth Diagnostics", (New York: Columbia University Initiative for Policy Dialogue). • Herbst, Jeffrey I. (2000). States and Power in Africa. (Princeton, N.J.: Princeton University Press). • Hsieh, Chang-Tai and Enrico Moretti (2006). "Did Iraq Cheat the United Nations? Underpricing, Bribes and the Oil for Food Program" Quarterly Journal of Economics (forthcoming). • Humphreys, Macarton, and Robert H. Bates (2002). "Political Institutions and Economic Policies: Lessons from Africa", CID Working Paper No. 94 (Cambridge, Mass.: Harvard University Center for International Development, September). • Ianchovichina, E., A. Mattoo, and M. Olareaga (2001). "Unrestricted Market Access for Sub-Saharan Africa: How Much Is It Worth and Who Pays?" (Washington, D.C.: World Bank Policy Research Working Paper No. 2595). • Kanbur, Ravi (2000). "Aid, Conditionality, and Debt in Africa", in Fred Tarp, editor, Foreign Aid and Development: Lessons Learnt and Directions for the Future. (London: Routledge). • Knack, Stephen and Philip Keefer (1997). "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation." Quarterly Journal of Economics 112:4, pp., 1251-88. • Knack, Stephen and Philip Keefer (1995). "Institutions and Economic Performance: Cross Country Tests Using Alternative Measures," Economic and Politics. 7: 207-227.

  30. Lal, Deepak (2006). Reviving the Invisible Hand. (Princeton, N.J.: Princeton University Press). • Mauro, Paolo (1995). "Corruption and Economic Growth", Quarterly Journal of Economics 110(3): 682-712 • McNeil, Alexander J., Rüdiger Frey, and Paul Embrechts (2005). Quantitative Risk Management: Concepts, Techniques and Tools. (Princeton, N.J.: Princeton University Press). • Messmacher, Miguel (2006). "Sovereign Insurance and Program Design: What Is Optimal for the Sovereign?" (Washington, D.C.: IMF Working Paper WP/06/64, March). • Ngassam, Chris (1992). "Monitoring Cost, Transaction Inter-linkage and the Selection of Optimal Financial Contracts: An Application to Côte d'Ivoire" (Upper Montclair, Center for Economic Research on Africa, RM91.1.E17, September). • North, Douglass C. (1991). "Institutions", Journal of Economic Perspectives 5(1): 97-112. • Olken, Ben (2005). "Monitoring Corruption: Evidence from a Field Experiment in Indonesia". (Cambridge, Mass.: NBER Working Paper 11753, October). • Place, Frank, and Peter Hazell (1993). "Productivity Effects of Indigenous Land Tenure Systems in Sub-Saharan Africa", American Journal of Agricultural Economics 75(1): 10-19. • Prasad, Eswar, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose (2003). "Effects of Financial Globalization on Developing Countries: Some Empirical Evidence", (Washington, D.C.: International Monetary Fund, March) • Rajan, Raghuram and Arvind Subramanian (2006)a. "What Undermines Aid's Impact on Growth?" (Cambridge, Mass.: NBER Working Paper 11657). • Rajan, Raghuram, and Arvind Subramanian (2006)b. "Aid and Growth: What Does the Cross-Country Evidence Really Show?" (Cambridge, Mass.: NBER Working Paper No. 11513). • Root, Hilton (2005) Capital and Collusion: The Political Logic of Global Economic Development. (Princeton, N.J.: Princeton Unive rsity Press). • Rose-Ackerman, Susan (2002). "Political Corruption and Democratic Structure" in Arvind Jain, ed. The Political Economy of Corruption. (London: Routledge).

  31. Sachs, Jeffrey (2005). The End of Poverty: Economic Possibilities for Our Time. (New York: Penguin Books) • Sachs, Jeffrey and Andrew M. Warner (2001). "The Curse of Natural Resources", European Economic Review, 45, pp. 827-38. • Schumpeter, Joseph A. (1934). Theorie der Wirtschaflichen Entwicklung (The Theory of Economic Development). (Leipzig: Dunker & Humblot, 1912, translated by Redvers Opie, Cambridge, Mass.: Harvard University Press). • Shirley, Mary (2005). "Can Aid Reform Institutions?" (Chevy Chase, Md: The Ronald Coase Institute, Working Paper W6, April). • Shleifer, Andrei (1993). "Corruption", Quarterly Journal of Economics 108(3): 599-617 • Williamson, John (1998). The Institutions of Governance", American Economic Review 88:2 (May), 75-79. • Zagha, Roberto, Gobind Nankani, and Indermit Gill (2006). "Rethinking Growth", Finance and Development (March), 7-11.

More Related