CAPITAL MOBILITY IN SUB-SAHARAN AFRICA: A PANEL DATA APPROACH

In this paper we are primarily concerned with assessing the degree of capital mobility in sub‐Saharan Africa. Using the methodology as proposed by Feldstein and Horioka (1980)—later termed the “Feldstein‐Horioka puzzle”—we test the hypothesis of perfect capital mobility against the alternative of imperfect capital mobility. Following Vamvakidis and Wacziarg (1998) and Isaksson (2000), provision is made in our model to show the dependency of the lesserdeveloped countries on international finance and aid and how a more open economy contributes towards improving the level of capital movement in these countries. We also assess the change in the degree of capital mobility over the time period in an effort to see whether institutional and political changes have been successful. We show that, compared to the region, South Africa is, to a large extent, more developed and should therefore play a leading role in the “African Renaissance”. Stationary panel data estimation techniques are applied to a sample of 36 sub‐Saharan African countries over the time period 1980–2000. The benefits of using one‐way error component models are derived from simultaneously employing time and cross‐section dimensions of the data, resulting in a substantial increase in the degrees of freedom. The fixed and random effects models enable us to acknowledge country heterogeneity within the panel, making provision for differences across countries like capital control policies, financial and capital market structures and exchange rate regimes.     

COPING WITH INFLATION AND EXCHANGE RATE SHOCKS IN THE SOUTH AFRICAN ECONOMY

Over the past ten years South Africa has moved to an increasingly open economy, characterised by a (relatively) low inflation and large and unpredictable movements in the prices of financial assets. One of these asset prices is the value of the South African currency. This volatility in the exchange rate has a direct impact on inflation. Using the interest rate as operational target, a central bank might ignore or underestimate the exchange rate transmission mechanism through which the economy is influenced. This paper proposes a Monetary Conditions Index for South Africa that can be used as a policy rule or simply as an important information variable in conducting monetary policy under an inflation‐targeting regime with a volatile exchange rate.     

Microfinance: Development Intervention or Just Another Bank?

This paper is based on a systematic review of evidence of the impact of microfinance on the lives of poor women, men and children in sub‐Saharan Africa. It focuses specifically on longer‐term non‐financial outcomes related to health and nutrition and education. The paper contrasts microfinance's early days' initially refreshing and encouraging promises of a development initiative that empowers people to help themselves while ‘paying for itself’ with a more gloomy picture that derives from the synthesis results of our systematic review. It presents two simple models that show the pathways from microfinance to increased investment in improved health and education, contrasting theory with our synthesis results. Our discussion highlights that thinking through microfinance makes it necessary to thoroughly investigate both the theory behind interventions and the evidence for their impact. It raises the essential question: Is microfinance about providing banking services to the unbanked, or is microfinance a development intervention that concerns itself with the attainment of long‐term sustainable responses to high levels of poverty?