Fragility and macroeconomic outcomes in ECOWAS

2017

We study how state fragility conditions affect macroeconomic outcomes in subSaharan African economies, and identify some of the most plausible transmission mechanisms. Applying dynamic panel estimation techniques and structural vector autoregressions to data on 48 sub-Saharan African economies over the period 1995 to 2014, we show that countries with greater fragility suffer higher macroeconomic volatility and crisis; they also experience weaker growth. When we jointly control for state fragility along with selected macroeconomic policy variables, we find that the latter seizes to play a significant role—providing circumstantial evidence of the “seesaw effect”. Hence, we conclude that it is state fragility conditions, and not necessarily macroeconomic policies, that are of first-order importance in explaining macroeconomic performance in Africa. Moreover, the knock-on effects are mostly mediated through the fiscal channel, the aid channel, and the finance channel. Consequently, inte...

2015

This paper makes an empirical investigation of the determinants of fragility in terms of long-term fiscal sustainability and sovereign ratings for Brazil, India, Indonesia, South Africa and Turkey, referred to as the " fragile five " by Morgan Stanley (2013), using the Fully Modified Ordinary Least Square (FMOLS) approach developed by Phillips and Hansen (1990). The data set covers the 1980–2012 period for fiscal sustainability and 1990–2012 for sovereign ratings in these countries. The study revealed a statistically significant relationship between fiscal sustainability and current account balance, gross domestic product (GDP), total reserves, energy imports, exchange rate, external debt and credit to the private sector, while the findings associated with sovereign ratings demonstrate significantly that the leading determinants of sovereign ratings are exchange rates, total reserves, energy imports, foreign direct investment (FDI) net inflows, current account balance, GDP and external debt stocks.

Review of Development Economics, 2018

Are poor macroeconomic outcomes primarily the result of economic policies, or of deeper underlying state fragility problems in sub-Saharan Africa? We attempt to answer this question by using carefully specified dynamic panel regression techniques to show how state fragility conditions help to explain the differences in the macroeconomic performance of sub-Saharan African economies, and to identify the most plausible mechanisms of transmission. We find that countries with greater fragility suffer higher macroeconomic volatility and crisis; they also experience weaker growth. When we disaggregate state fragility into its various components, we find that it is the security and social components that have the strongest causal impact on macroeconomic outcomes, while the political component is, at best, weak. Therefore, we conclude: It is state fragility conditions, and not necessarily macroeconomic policies, that are of first-order importance in explaining the differences in macroeconomic performance for African countries. The knock-on effects are mostly mediated through the fiscal channel, the aid channel, and the finance channel. Accordingly, we recommend that interventions in fragile states should best focus on exploiting the potential for using fiscal policy, aid, and finance as instruments to improve macroeconomic outcomes in sub-Saharan Africa.

2015

This paper studies the role of fiscal policies and institutions in building resilience in sub-Saharan African countries during 1990-2013, with specific emphasis on a group of twenty-six countries that were deemed fragile in the 1990s. As the drivers of fragility and resilience are closely intertwined, we use GMM estimation as well as a probabilistic framework to address endogeneity and reverse causality. We find that fiscal institutions and fiscal space, namely the capacity to raise tax revenue and contain current spending, as well as lower military spending and, to some extent, higher social expenditure, are significantly and fairly robustly associated with building resilience. Similar conclusions arise from a study of the progression of a group of seven out of the twenty-six sub-Saharan African countries that managed to build resilience after years of civil unrest and/or violent conflict. These findings suggest relatively high returns to focusing on building sound fiscal institutions in fragile states. The international community can help this process through policy advice, technical assistance, and training on tax administration and budget reforms.

Journal of International Money and Finance, 2020

The topic of this Special Issue is International Aspects of Economic and Policy Fragility. Sebastian Edwards in his keynote speech, ''Change of monetary regime, contracts, and prices: Lessons from the Great Depression, 1932-1935" analyzes the process leading to the abandonment of the gold standard in the U.S. in 1933, and the devaluation of the dollar in 1934. He argues that most changes of monetary regime have an impact on contracts. In this specific case, contracts that were written in terms of gold, or ''gold equivalent," were rewritten in paper dollars. Congress did this on June 5, 1933, when it abrogated the ''gold clause" retroactively. The Supreme Court validated the move in February 1935. The result was a very large transfer of wealth from creditors to debtors. Edwards uses daily data on commodity prices to investigate the extent to which these policies contributed to ending deflation. The main finding of the analysis is that commodity prices reacted strongly to the announcement of policy changes, and to legal procedures involving contracts. These results are consistent with the ''change in regime" hypothesis of Sargent. In ''The Impact of Social Capital on Economic Attitudes and Outcomes", Iftekhar Hasan, Qing He and Haitian Lu, traces the extant literature on the impact of social capital on economic attitudes and outcomes. Special attention is paid to clarify conceptual ambiguities, measurement techniques, channels of influence, and identification strategies. Insights derived from the literature are then used to analyze the marketplace lending industry in China, where the size of the peer-to-peer (P2P) lending market is larger than that of the rest of the world combined. Ironically, approximately two-thirds of these online P2P lending platforms have failed. Empirical evidence from the monthly operating data of 735 lending platforms and transaction level data from one prominent platform (Renrendai) shows that platforms in provinces with high social capital have low risk of failure, and borrowers in provinces with high social capital can borrow at low interest rate and are less likely to default. They also provide observations to guide future economic research on social capital. Crespo Cuaresma, Florian Huber and Luca Onorante in their paper ''Fragility and the macroeconomic effects of international uncertainty shocks, they examine the impact that fragile economic systems, even modest shocks, for example a shock to international capital movements, can have strong negative effects on key macroeconomic fundamentals. This paper proposes a large-scale Bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in G7 countries and shows that uncertainty increases fragility. The factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance-covariance matrix of the common factors. To allow for first and second moment shocks we, moreover, assume that the uncertainty factor enters the VAR equation as an additional regressor. Their findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration, leading to strong declines in output, prices, exports, interest rates and equity prices. The precise degree of fragility varies

Journal of sustainable development, 2024

This study explores the effects of the 1994 CFA currency depreciation, the 2008 Global Financial Crisis (GFC), and instances of political coups on the relationships between FDI inflow, economic growth, and governance in the Central African Economic and Monetary Community (CEMAC) countries. By examining the impact of these events on FDI, growth, and governance, this paper provides important details of responses to external shocks and internal political disruptions. We employ panel VAR analysis with data from 1990 to 2019 to explore the dynamic relationships among these variables. The results show that growth and governance are not determining factors for attracting FDI in the CEMAC sub-region. Governance, on the other hand, stands as a determining factor for growth. Our findings also suggest that the 1994 CFA currency depreciation, 2008 GFC, and coups had no significant impact on FDI, growth, and governance. Although these events' effects may expose the countries' vulnerability to external shocks influencing the dynamics of FDI, economic growth, and governance, their impact did not seem to be evident. However, political instability, evidenced by coups, emerges as a crucial factor shaping the interactions between FDI, growth, and governance in CEMAC countries. Our analysis was conducted using the EViews software package.

2011

2019

About African Economic Research Consortium (AERC) African Economic Research Consortium, established in 1988, is a premier capacity building institution in the advancement of research and training to inform economic policies in sub-Saharan Africa. It is one of the most active Research and Capacity Building Institutions (RCBIs) in the world, with a focus on Africa. AERC's mission rests on two premises: First, that development is more likely to occur where there is sustained sound management of the economy. Second, that such management is more likely to happen where there is an active, well-informed cadre of locally-based professional economists to conduct policy-relevant research. AERC builds that cadre through a programme that has three primary components: research, training and policy outreach. The organization has now emerged as a premier capacity building network institution integrating high quality economic policy research, postgraduate training and policy outreach within a vast network of researchers, universities and policy makers across Africa and beyond. AERC has increasingly received global acclaim for its quality products and services, and is ranked highly among global development think tanks..

SSRN Electronic Journal, 2015

This paper studies the role of fiscal policies and institutions in building resilience in sub-Saharan African countries during 1990-2013, with specific emphasis on a group of twenty-six countries that were deemed fragile in the 1990s. As the drivers of fragility and resilience are closely intertwined, we use GMM estimation as well as a probabilistic framework to address endogeneity and reverse causality. We find that fiscal institutions and fiscal space, namely the capacity to raise tax revenue and contain current spending, as well as lower military spending and, to some extent, higher social expenditure, are significantly and fairly robustly associated with building resilience. Similar conclusions arise from a study of the progression of a group of seven out of the twenty-six sub-Saharan African countries that managed to build resilience after years of civil unrest and/or violent conflict. These findings suggest relatively high returns to focusing on building sound fiscal institutions in fragile states. The international community can help this process through policy advice, technical assistance, and training on tax administration and budget reforms.

Center for Economic Research ( …, 2010

We investigate the link between fragility and economic development in sub-Saharan Africa over a yearly panel covering the 1999-2004 period. Beside the conventional definition of fragility adopted by the OECD Development Assistance Committee, we introduce the more severe definition of extreme fragility. We show that only the latter exerts a significantly negative impact on economic development, once standard economic, demographic, and institutional regressors are accounted for. As a by-product of this investigation we also produce evidence on the growth performance of the area. We find a tendency to convergence and no influence of geographic and historical factors. JEL classification codes: O43, H11, N17.