Asian Journal of Economics and Empirical Research

An Empirical Examination on Trade Openness and Economic Growth Nexus in Africa

Cosmas S. Mbogela

African countries have experienced disparities in the growth of their economies. The literature provides different propositions on the causality of economic growth which has given rise to debates on the alternative course that countries need to pursue to enhance their respective growths economically. The paper has therefore examined the effects of trade openness on economic growth for the African countries. In order to analyse the link between trade openness and economic growth by using the growth model, the instrumental variables and two stage least squares (2SLS) for panel data models approach is employed. Later an examination of the direction and strength of causality is conducted by using such techniques as Johansen cointergration test and short run granger causality test. The paper uses data from the World Bank database. A sample size consists of 49 African countries with a sample period of 20 years. Empirical results reveal that of all the variables that were included in the growth model, gross capital formation revealed a great impact on economic growth for African economies, followed by openness and then FDI flows. A test of granger causality for individual countries so as to explain the economic disparities, reveals that majority of the African countries (in the sample) supports the export led growth hypothesis. Implications are that the export led hypothesis would be much more advantageous for the African countries if it would not only result into increased real incomes but also economic structural transformations.

Business Cycles and Financial Frictions under Money Growth Rule

Wondemhunegn Ezezew Melesse

In the last few years, macroeconomic modeling has emphasized the role of credit market frictions in magnifying and transmitting nominal and real disturbances and their implication for macro-prudential policy design. In this paper, I construct a modest New Keynesian general equilibrium model with active banking sector. In this set-up, the financial sector interacts with the real side of the economy via firm balance sheet and bank capital conditions and through their impact on investment and production decisions. I rely on the financial accelerator mechanism due to Bernanke et al. (1999) and combine it with a bank capital channel as demonstrated by Aguiar and Drumond (2007). The resulting model is calibrated from the perspective of a low-income economy reflecting the existence of relatively high investment adjustment cost, strong fiscal dominance, and underdeveloped financial and capital markets. The main objective of this exercise is to see whether the financial accelerator mechanism documented under interest-rate-rule based simulations could be replicated under a situation where the central bank uses money growth rule in stabilizing the national economy. The findings are broadly consistent with previous studies that demonstrated stronger role for credit market imperfections in amplifying and propagating monetary policy shocks.

Revisiting the Exports and Economic Growth Nexus: Rolling Window Cointegration and Causality Evidence from Cote d’Ivoire, Malaysia, Pakistan and South Africa

Yaya Keho

This paper reexamines the relationship between exports and economic growth in Cote d’Ivoire, Malaysia, Pakistan and South Africa using time-varying cointegration and causality tests. The cointegration results suggest that exports, investment in physical capital and GDP move together in the long-run in the four countries. Furthermore, the full sample Granger causality tests support the export-led growth hypothesis for Malaysia and Pakistan, and the growth-led exports hypothesis for South Africa. However, the rolling window cointegration and causality tests show that the long-run and also the causal relationships between exports and GDP are time-varying. For most time periods we do not find any causal relationship between exports and GDP. There are, however, sub-periods during which unidirectional or bidirectional causal relations were found. Therefore, export-promoting strategies are not always effective tools to stimulate economic growth.

Analysis of Domestic versus Foreign Banks Efficiency in Pakistan

Muhammad Afzal

Banking sector reforms were introduced in 1972 in the light of many contemporary issues observed in the banking industry. The nationalization of banks in 1974 improved the financialӏ sector in many ways. The efficiency of the sector was compromised due to politicalӏ influence; over-branching and overstaffing that affected the banking industry. In 1990s many reforms were made in the banking sector to address the problems that existed in the nationalized banking system. The public sector’s ownership of commercial banks had created lot of problems (political intervention in credit allocation, loan recovery and deterioration in services quality). This study evaluated the efficiency of domestic and foreign banks for the period 2010-2016. DEA was used to explore the scale, technical, pure technical and scale efficiency of the domestic and foreign banks. The ӏeast efficient banks are Bank Alfalah, Nationaӏ Bank, Askari Bank and Standard chartered in terms of scale efficiency. Technicalӏ efficiency scores demonstrate that Aӏӏied Bank, Askari bank, Nationalӏ Bank, Standard Chartered Bank and Bank Alfalah did not perform efficiently whereas other banks of the sample did well. Pure technicalӏ efficiency scores under both orientations reveal that in 2010 and 2015, aӏӏ banks showed a perfect pure technicalӏ efficiency score of 1.00. Both domestic and foreign banks performance is mixed. Domestic banks are not less efficient in terms of all efficiencies than foreign banks. Both banks need attention to managerialӏ aspects and efficient utilization of technology in their operations. Sound macroeconomic policies may also help in improving the efficiency of banks.

Financial Inclusion and Health Shocks: A Panel Data Analysis of 36 African Countries

Popoola, Oladayo Timothy — 2018-12-24

Numerous evidence has revealed that African countries lagged behind in the attainment of health-related targets of the recent past Millennium Development Goals (MDGs). Perhaps because most Africans depend largely on out-of-pocket payments for medical-care services during their health shocks experiences. Evidently, this has been a great concern to both citizens and policy makers across Africa for a long time. Therefore, this paper investigates the impact of financial inclusion on health shocks in 36 African nations over the period of 2004 to 2016. The Fixed Effects model result indicates that increase in numbers of depositors with commercial banks proxy for financial inclusion is positive and significant to predict longevity in African nations. However, rise in population growth (the control variable) have a significant role to reduce average life expectancy in Africa. Thus, both African governments and their financial institutions may improve average life expectancy and human capital for more economic development through enhanced financial inclusion.