Response of inflation to shocks: New evidence from Sub-Saharan African countries

In this paper, we investigate whether or not the inflation rate of 17 Sub-Saharan African countries can be modelled as a stationary process. We achieve this goal through using univariate and panel stationarity tests for data over the period 1966 to 2002. We use the Kwiatkowski, Phillips, Schmidt and Shin (KPSS, 1992) univariate test and allow for multiple structural breaks. We find that except for Burkina Faso, Burundi and Gambia, the inflation rate is stationary for the rest of the 14 countries. We then apply the panel version of the KPSS test, developed by Carrion-i-Silvestre et al. (2005), which accounts for multiple structural breaks. We find strong evidence of panel stationarity of the inflation rate. However, for a panel consisting of Burkina Faso, Burundi and Gambia, we could not find evidence that the inflation rate is stationary.     

Capital flows and economic growth revisited: evidence from five Sub-Saharan African countries

The study examines the differential effects of capital flows on economic growth in five Sub-Saharan African (SSA) countries over the period 1970–2014. Using the autoregressive distributed lag methodology, the findings show that in the long-run capital flows (i.e. foreign direct investment (FDI), aid, external debt, and remittances) have different effects on economic growth. FDI has a significant positive effect in Burkina Faso and negative effects in Gabon and Niger whereas the impact of debt is negative in all countries. Aid, however, promotes growth in Niger and Gabon whiles it deters growth in Ghana. Remittances, on the other hand, have a significant positive effect in Senegal. Finally, gross capital formation is significant in most of the countries and the impact of trade is mixed. These results suggest that the benefits of capital flows in SSA have been overemphasized.     

The role of exports,FDI and imports in development: evidence from Sub-Saharan African countries

The disappointing economic performance of Sub-Saharan African (SSA) economies in the late 1980s prompted reforms in foreign trade and Foreign Direct Investment (FDI) in the early 1990s. Using the Autoregressive Distributed Lag (ARDL) approach and Pedroni panel estimation procedures that allow for heterogeneity, this study found that exports and FDI have a significant impact on economic growth. Granger-type causality tests show the interrelatedness of exports, FDI, imports and income variables. The results also provide evidence of a two-stage causal chain of exports, imports and income. This article calls for more market-oriented policy reforms in SSA countries.     

The demand for skills and labour costs in partner countries

We analyse the consequences of trade integration in Europe (1995–2005) detecting how the labour costs in partner countries affect the domestic demand for high‐ and low‐skilled labour in ‘Old’ (EU‐15) and five ‘New’ EU member states. In general, independently of the skill level of workers, the results suggest complementarity between domestic and foreign labour. However, when we take into account the typology of sectors, the demand for the high skilled in low skill intensive sectors in ‘New’ EU members is boosted by the increase of the average labour cost in ‘Old’ EU members. Thus in low skill intensive sectors, the high skilled in ‘New’ member countries can substitute for employment in EU‐15 countries.     

The household demand for energy and fuels in OECD countries

This paper estimates the household demand for energy and fuels. The linear expenditure model is estimated using data from eight OECD countries over a period of sixteen years. The basic similarities in household demand for fuels and the differences among OECD countries are discussed. The results indicate that household demand for energy is highly income dependent. With regard to four basic fuels, the income and price elasticities for gasoline and gas are higher than for either coal or oil. The demand patterns are shown to differ significantly among groups of OECD countries. Coal has been gradually replaced by oil as the major household fuel in OECD countries, whereas the demand pattern for gas has changed only a little during the fifties and sixties.     

Estimating money demand functions for South Asian countries

In this paper, we estimate a money demand function for a panel of five South Asian countries. We find that the money demand and its determinants, namely real income, real exchange rate and short-term domestic and foreign interest rates are cointegrated both for individual countries as well as for the panel, and panel long-run elasticities provide robust evidence of statistically significant relationships between money demand and its determinants. Our test for panel Granger causality suggests short-run causality running from all variables, except foreign interest rate, to money demand, and we find evidence that except for Nepal money demand functions are stable.      

The black market exchange rate and demand for money in sixteen developing countries

Using data for a sample of 16 diverse countries, this study tests the hypothesis that it is the black market exchange rate, not the official rate, that should enter into the demand for money function of countries where there is a black market for foreign currencies. Using several cointegration methods and Hausman tests, it is shown that this hypothesis is strongly supported for most of the countries studied.     

Informality and credit constraints: evidence from Sub-Saharan African MSEs

The attributes of micro and small enterprises (MSEs) influencing access to credit, in particular the level and role of firm informality, are analysed in the article. The puzzle is the push for MSEs to join the formal sector and the tug to avoid the extra burden it places on the firm. It is important to know more clearly what forces are at work and the sources of the causal effects. This study uses data from the World Bank Enterprise Surveys for five low-income countries (LICs) in Sub-Saharan Africa. The method is empirical and as we find informality to be endogenous to credit constraints, an instrumental variable approach is estimated. Further, to address the possibility of reverse causality, an instrument for the informality variable is required; not registered with Inland Revenue (tax office) is the chosen instrument variable. The findings reveal that as the probability of a firm operating in the formal sector increases, there is greater access to external credit. The causality relationships are tested providing a strong platform for the formalization of polices to reduce the informality of the MSE sector. These are discussed in the context of the research findings.     

Analysing money demand relation for OECD countries using common factors

This article investigates the existence of a long-run money demand relation for a panel data consisting of 13 OECD countries. The analysis is based on the most recent data. The existence of a long-run money demand relation is tested with two new meta-analytic panel cointegrating rank tests which are robust to cross-sectional dependence. Cross-sectional dependency in the data generating process is modelled by unobserved common factors. The observed data are decomposed into idiosyncratic and common components, and these two components are analysed separately to find out the driving forces of the long-run stationary relationship. The evidence shows that the long-run money demand relation is driven by the cross-unit cointegration. Finally, the long-run relation is estimated by taking the common factors into account.     

Testing the validity of PPP theory for African countries

This study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test failed to find any evidence showing that real exchange rates for these 14 countries have mean-reverting tendencies. However, both cointegration and Fourier cointegration tests detect a stable long-term relation between the nominal exchange rate and relative price levels for 8 out of 14 countries; moreover, for five countries Fourier component in cointegration analysis is found to suit quite well.     

British tourism demand elasticities in Mediterranean countries

We use the almost ideal demand system (AIDS) model developed by Deaton and Muellbauer (1980) to estimate tourism demand elasticities for a number of Mediterranean countries (Cyprus, Greece, Italy, Malta, Portugal, Spain and Turkey) in relation to tourists originating from the United Kingdom during the period 1963 to 2009. Using the restrictions imposed by theory, we find that the model is able to explain developments in market shares reasonably well, despite the large and at times sudden changes in market shares over the sample period. Our share estimates indicate that while Spain and Portugal managed to keep a stable market share over time, Malta and especially Italy lost market share to Cyprus, Greece and Turkey. Overall, we observe that Italy and Spain have the lowest own-price elasticities, whereas Greece, Portugal, Spain and Turkey are expenditure inelastic holiday destinations. We also improve over the traditional treatment of the AIDS model in the literature by studying the stability of the estimated elasticities over time using recursive estimates. The results indicate that some elasticities are indeed time varying and highlight the potential pitfalls of assuming fixed and stable elasticities over a long period, as is customary in the tourism literature.     

Exchange rate sensitivity of the demand for money in developing countries

There is consensus among researches that under the present floating exchange rate system although developing countries peg their exchange rate to a major currency, they cannot avoid fluctuation in their effective exchange rates as long as major currencies fluctuate against one another. Few authors have investigated the effects of changes in effective exchange rates of developing countries on their imports, exports, trade balance, demand for international reserves, inflation etc. In this paper we try to inestigate the effects of effective exchange rates of developing countries on their demand for money. Previous authors who have estimated a money demand function, inclusive of an exchange rate variable (bilateral or effective), have restricted themselves to industrial countries only. By using quarterly data over the 1973–85 period, it is shown that in most developing countries, while the short-run effcts of depreciation could be in either direction, its long-run effects are negative indicating that depreciation causes a decline in the demand for domestic currency.     

Estimating the demand for reserve assets across diverse groups of countries

This paper takes a fresh look at the determinants of the holding of reserves with the aim of highlighting similarities and differences among emerging markets (EMs), advanced economies (AEs), and low‐income countries (LICs). We apply two panel estimation techniques: fixed effects (FE) and common correlated effects pooled mean group (CCEPMG). FE regression results suggest that precautionary savings’ motives, both current account‐ and capital account‐related, are generally the most important determinants of reserves’ holding for all country groups. Nonetheless, there is considerable heterogeneity across country groups and over time. The intertemporal motive, a novelty of this paper, has gained importance everywhere. The CCEPMG results confirm the importance of precautionary motives and suggest that current account motives matter only for EMs and LICs and capital account motives matter for all groups while being more relevant for EMs. The CCEPMG results also point to the importance of taking into account the heterogeneous impact of unobserved common factors that affect coefficient estimates and the dynamic process through which reserves adjust to changes.     

The Feldstein-Horioka puzzle in African countries: A panel cointegration analysis

This paper investigates the Feldstein-Horioka coefficients for 37 African countries using the recently developed Pooled Mean Group (PMG), Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS) panel cointegration techniques. The empirical findings reported in this paper reveal that savings and investment are non-stationary and cointegrated series. The estimated coefficients using FMOLS, DOLS, and PMG are 0.38, 0.58, and 0.36, respectively, for the sample as a whole for the period from 1970 to 2006. These results confirm previous studies' findings that capital was relatively mobile in African countries compared to OECD countries. In addition, our study shows that there are marked differences in savings retention coefficients for different country groups in Africa (CFA franc zone and non-CFA franc zone countries, oil-producing and non-oil-producing countries, civil law and common law countries). These results have some policy implications.     

From the general to the specific: The demand for M2 in three European countries

This paper examines the demand for broad money in West Germany, the Netherlands and France. We give an exposition of and apply the “general to specific” econometric modelling methodology which has been successful in modelling the demand for money in the U.K. We find stable short-run demand functions for each of the three countries examined, using a consistent data base previously published by other researchers. Each of the estimated short-run equations has a long-run or steady-state solution which is consistent with economic theory. For West Germany and the Netherlands we find long-run income elasticities of unity, which constrasts with the results of earlier studies.     

The demand for urban water by customer class

Reduced-form wage and employment equations derived from a bargaining model are estimated using the two-step method proposed by Engle and Granger (1987 Econometrica, 55, 251-276). Wages and employment arinfluenced by varriables which determine profits on the one hand, and the utility of the union on the other hand. In addition, bargaining power appears to matter. Union strength was discovered to have a positive effect on both wages and employment in the manufacturing industry. The a positive effect on both wages and employment in the manufacturing industry. The two-step method made it possible to evaluate both the long-run elasticities and shortrun adjustment. Step response functions indicate that adjustment is not particularly slow in general. This papers to be true for wages but especially for employment. Hence, if the actual real-wage-employment combination is considered inappropriate, it is not primarily due to ‘too slow’ adjustment. Rather, it implies that the equilibrium is inappropriate.     

Learning-by-exporting versus self-selection: New evidence for 19 sub-Saharan African countries

We examine learning-by-exporting effects of manufacturing and services firms in 19 sub-Saharan African countries. Comparing several outlier-robust estimators, our results provide evidence for positive effects in the manufacturing sector when using the MM estimator, but not in the services sector.     

Flexible Fourier stationary test in purchasing power parity for African countries

This study applies stationary test with a Fourier function proposed by Enders and Lee (2004 Enders, W and Lee, J. 2004. Testing for a unit root with a nonlinear Fourier function, Tuscaloosa, AL, , USA: Working Paper, Department of Economics, Finance and Legal Studies, University of Alabama.  [Google Scholar], 2009 Enders, W and Lee, J. 2009. The flexible Fourier form and testing for unit roots: an example of the term structure of interest rates, Tuscaloosa, AL, , USA: Working Paper, Department of Economics, Finance and Legal Studies, University of Alabama.  [Google Scholar]) to test the validity of long run Purchasing Power Parity (PPP) to assess the nonstationary properties of the real exchange rate for 20 African countries. We find that our approximation has higher power to detect U shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process. We examine the validity of PPP from the nonlinear point of view and provide robust evidence clearly indicate that PPP holds true for almost African countries. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way.     

The relative importance of monetary and fiscal policies in selected African countries

This paper examines the relative importance of monetary and fiscal policies in ten African countries using a trivariate vector autoregressive (VAR) model. The analysis is undertaken with annual data from 1960 to 1990 in logarithms first difference form. In five of the ten countries, our empirical results support the monetarist position that monetary policy is more important than fiscal policy. On the other hand, the Keynesian position that fiscal policy is more important than monetary policy is confirmed in the other five countries of the sample. The results of this study suggest that a particular economic philosophy cannot be generalized for African countries. These results may therefore prove useful not only to policy-makers but also to those interested in building macroeconomic models which may have implications for aggregate-demand management.