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SAGA
B16 MVR Hall
Ithaca, NY 14853
(607) 255-8931
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saga@cornell.edu

SAGA PUBLICATIONS Included here are Working Papers and Conference Papers. Publications on this page are organized by research themes: RETURN TO MAIN PUBLICATIONS BY RESEARCH THEME PAGE EMPOWERMENT AND INSTITUTIONS Incomplete Credit Markets and Commodity Marketing Behavior February 2011 Stephens, Emma C. and Christopher B. Barrett Seasonal market participation patterns for smallholder farmers in western Kenya indicate that a signicant proportion follow a ‘sell low, buy high’ marketing strategy, in which these households forego opportunities for intertemporal price arbitrage through storage and are observed to sell output post-harvest at prices lower than observed prices for purchases in the subsequent lean season. We use data from the region to examine whether this behavior can be partly explained by the presence of a binding liquidity constraint for these farmers. We estimate a multi-period market participation model in the presence of liquidity constraints and transactions costs using maximum likelihood. Access to credit and off-farm income indeed seem to influence crop sales and purchase behaviors in a manner consistent with the hypothesized patterns. In Journal of Agricultural Economics 62(1): 1-24, February, 2011 Social Learning, Social Influence and Projection Bias: A caution on inferences based on proxy-reporting of peer behavior April 2010 Hogset, Heidi and Christopher B. Barrett This paper explores the consequences of conflating social learning and social influence concepts and of the widespread use of proxy-reported behavioral data for accurate understanding of learning from others. Our empirical analysis suggests that proxy-reporting is more accurate for new innovations, about which social learning is more plausible, than for mature technologies. Furthermore, proxy-reporting errors are correlated with respondent attributes, suggesting projection bias. Self- and proxy-reported variables generate different regression results, raising questions about inferences based on error-prone, proxy-reported peer behaviors. Self-reported peer behavior consistently exhibits statistically insignificant effects on network members’ adoption behavior, suggesting an absence of social effects. In Economic Development and Cultural Change 58(3):563-589 Spatial Integration at Multiple Scales: Rice Markets in Madagascar May 2009 Moser, Christine, Christopher B. Barrett, and Bart Minten The dramatic increase in the price of rice and other commodities over the past year has generated new interest in how these markets work and how they can be improved. This article uses an exceptionally rich data set to test the extent to which markets in Madagascar are integrated across space at different scales of analysis and to explain some of the factors that limit spatial arbitrage and price equalization within a single country. We use rice price data across four quarters of 2000-2001 along with data on transportation costs and infrastructure availability for nearly 1,400 communes in Madagascar to examine the extent of market integration at three different spatial scales—subregional, regional, and national—and to determine whether non-integration is due to high transfer costs or lack of competition. The results indicate that markets are fairly well integrated at the subregional level and that factors such as high crime rates, remoteness, and lack of information are among the factors limiting competition. In Agricultural Economics 40(3): 281-294, May, 2009 Risk Management and Social Visibility in Ghana April 2009 Vanderpuye-Orgle, Jacqueline and Christopher B. Barrett In this paper we test for risk pooling within and among social networks to see if the extent of informal insurance available to individuals in rural Ghana varies with their social visibility. We identify a distinct subpopulation of socially invisible individuals who tend to be younger, poorer, engaged in farming, recent arrivals into the village who have been fostered and are not members of a major clan. While we cannot reject the null hypothesis that individual shocks do not affect individual consumption and that individual consumption tracks network and village consumption one-for-one among the socially visible, risk pooling fails for the socially invisible subpopulation. These results have important implications for the design of social protection policy. In African Development Review 21(1):5-35, April, 2009 Understanding Declining Mobility and Inter-household Transfers among East African Pastoralists April 2009 Huysentruyt, Marieke, Christoper B. Barrett, and John G. McPeak We model inter-household transfers between nomadic livestock herders as the state-dependent consequence of individuals’ strategic interdependence, resulting from the existence of multiple, opposing externalities—more specifically, a public-good security externality among individuals sharing a social (e.g. ethnic) identity in a potentially hostile environment, and a resource appropriation externality related to the use of common property grazing lands. Our model augments the extant literature on transfers, and is more consistent with the limited available empirical evidence on heterogeneous and changing transfers’ patterns among east African pastoralists. The core principles of our model possibly apply more broadly, for example to long-distance migrants or even ‘foot soldiers’in street gangs. In Economica 76(302): 315-336, April, 2009 Do Free Goods Stick to Poor Households? Experimental Evidence on Insecticide Treated Bednets March 2009 Hoffmann, Vivian, Christopher B. Barrett, and David R. Just If the market allocates goods to those willing and able to pay the most for them, efforts to target durable health goods such as insecticide-treated bednets (ITNs) to poor populations may prove ineffective, with the poor reselling donated goods to the non-poor who value them more highly. However, low market demand may be due to liquidity constraints rather than low valuation of nets. The endowment effect also militates against the resale of in-kind transfers. We quantify these two effects through a field experiment in Uganda. Our results indicate that very few nets will be resold by recipient households. In World Development 37(3):607-617, March, 2009 Persistent Poverty and Informal Credit November 2008 Santos, Paulo and Christopher B. Barrett This paper explores the consequences of nonlinear wealth dynamics for the formation of bilateral credit arrangements to help manage idiosyncratic risk. Building on recent empirical work that finds evidence consistent with the hypothesis of multiple equilibrium poverty traps, and using original primary data on expected wealth dynamics, social networks and informal loans among southern Ethiopian pastoralist households, we find that the threshold at which wealth dynamics bifurcate serves as a focal point at which lending is concentrated. Informal lending responds to recipients’ losses but only so long as the recipients are not “too poor”. Our results suggest that when shocks can have long term effects, loans are not scale-neutral. Furthermore,the persistently poor are excluded from social networks that are necessary to obtain loans given in response to shocks. Smallholder Market Participation: Concepts and Evidence from Eastern and Southern Africa August 2008 Barrett, Christopher B. This paper reviews the evidence on smallholder market participation, with a focus on staple foodgrains (i.e., cereals) in eastern and southern Africa, in an effort to help better identify what interventions are most likely to break smallholders out of the semi-subsistence poverty trap that appears to ensnare much of rural Africa. The conceptual and empirical evidence suggests that interventions aimed at facilitating smallholder organization, at reducing the costs of intermarket commerce, and, perhaps especially, at improving poorer households’ access to improved technologies and productive assets are central to stimulating smallholder market participation and escape from semi-subsistence poverty traps. Macroeconomic and trade policy tools appear less useful in inducing market participation by poor smallholders in the region. Prepared for FAO workshop on Staple Food Trade and Market Policy Options for Promoting Development in Eastern and Southern Africa, Rome, March 1-2, 2007. In Food Policy 33(4): 299-317, August, 2008 Improving Food Aid’s Impact: What Reforms Would Yield The Highest Payoff? July 2008 Lentz, Erin C. and Christopher B. Barrett Developing an integrated model of the food aid distribution chain, from donor appropriations through operational agency programming decisions to household consumption choices we simulate alternative policies and sensitivity analysis to establish how varying underlying conditions — e.g., delivery costs, the political additionality of food, targeting efficacy — affect the optimal policy for improving the well-being of food insecure households. We find that improved targeting by operational agencies is crucial to advancing food security objectives. At the donor level, the key policy variable under most model parameterizations is ocean freight costs associated with cargo preference restrictions on US food aid. In World Development 36(7): 1152-1172, July, 2008 Food Systems and the Escape from Poverty and Ill-Health Traps in Sub-Saharan Africa May 2008 Barrett, Christopher Millienium Development Goal #1 is to halve extreme poverty ($1/day per person) and hunger. Progress toward this goal has been excellent at global level, led by China and India, but woefully insufficient in sub-Saharan Africa. In Africa, a disproportionate share of the extreme poor are “ultra-poor”, surviving on less than $0.50/day per person, a condition that appears both stubbornly persistent and closely associated with widespread severe malnutrition – “ultra hunger” – and ill health. Indeed, ill health, malnutrition and ultra-poverty are mutually reinforcing states that add to the challenge of addressing any one of them on its own and make integrated strategies essential. Food systems are a natural locus for such a strategy because agriculture is the primary employment sector for the ultra-poor and because food consumes a very large share of the expenditures of the ultra-poor. The causal mechanisms underpinning the poverty trap in which ultra-poor, unhealthy and undernourished rural Africans too often find themselves remain only partially understood, but is clearly rooted in the food system that guides their production, exchange, consumption and investment behaviors. Four key principles to guide interventions in improving food systems emerge clearly. But there remains only limited empirical evidence to guide detailed design and implementation of strategies to develop African food systems so as to break the lock of poverty and ill-health traps. This paper was prepared for the Cornell University and United Nations University Symposium on The African Food System and its Interactions with Health and Nutrition, held at the United Nations, New York City, November 13, and at Cornell University, November 15, 2007. What do we learn about social networks when we only sample individuals? Not much. May 2008 Santos, Paulo and Christopher B. Barrett Much of the empirical analysis of social networks is based on a sample of individuals, rather than a sample of matches between pairs of individuals. This paper asks whether that approach is useful when one wants to understand the determinants of variables that are inherently dyadic, such as relationships. After reviewing the shortcomings of the data used in the literature, we use Monte Carlo simulation to show that the answer is positive only when relationships are themselves randomly formed, a very special and uninteresting case. Additional work that supports strategies to collect dyadic data as part of surveys usually used by economists seems to be needed. Productivity in Malagasy Rice Systems: Wealth-differentiated Constraints and Priorities December 2007 Minten, Bart, Jean Claude Randrianarisoa and Christopher B. Barrett This study explores the constraints on agricultural productivity and priorities in boosting productivity in rice, the main staple in Madagascar, using a range of different data sets and analytical methods, integrating qualitative assessments by farmers and quantitative evidence from panel data production function analysis and willingness-to-pay estimates for chemical fertilizer. Nationwide, farmers seek primarily labor productivity enhancing interventions, e.g., improved access to agricultural equipment, cattle, and irrigation. Shock mitigation measures, land productivity increasing technologies, and improved land tenure are reported to be much less important. Research and interventions aimed at reducing costs and price volatility within the fertilizer supply chain might help at least the more accessible regions to more readily adopt chemical fertilizer Invited panel paper prepared for presentation at the International Association of Agricultural Economists Conference, Gold Coast, Australia, August 12-18, 2006 In Agricultural Economics 37(s1): 237-248, December, 2007 Decentralization of Pastoral Resources Management and its Effects on Environmental Degradation and Poverty, Experience from Northern Kenya August 2007 Munyao, Kioko and Christopher B. Barrett “Growing concerns about persistent poverty and environmental sustainability have helped fuel efforts at decentralizing governance throughout the developing world. The 1992 Earth Summit in Rio de Janeiro brought widespread calls for greater community participation and equity in natural resources management and sustainable development planning, and these pressures have grown amid institutional reforms fostered by movements towards democratization and market-based economic policy, spurred by, among others, the Bretton Woods institutions (the International Monetary Fund and the World Bank) in the last two decades of the twentieth century (Goumandakoye 2003). Ironically, however, in many cases decentralization has been used by national governments not as a means to cede authority to local subjects, but rather to extend control still deeper into local community life and resource management, while still reaping the political capital associated with the rhetoric of bringing government services and development closer to the people. Often this involves the subtle but real transfer of influence, even control, from customary users of the resource to newcomers with better connections to government representatives... ” In Decentralization and the Social Economics of Development: Lessons from Kenya, edited by Christopher B. Barrett, Andrew G. Mude, and John M. Omiti. Wallingford, UK: CAB International, 2007. The Unfulfilled Promise of Microfinance in Kenya: The KDA Experience August 2007 Osterloh, Sharon M. and Christopher B. Barrett “Microfinance offers promise for alleviating poverty by providing financial services to people traditionally excluded from financial markets. Small-scale loans can relieve capital constraints that might otherwise preclude cash-strapped entrepreneurs from investing in profitable businesses, while savings services can create opportunities to accumulate wealth in safe repositories and to manage risk through asset diversification. While this promise of microfinance is widely touted, it is infrequently subject to careful evaluation using detailed data. This chapter examines the extension of microfinance services to people in Kenya. Using data collected from seventeen Financial Service Associations (FSAs) founded by the Kenya Rural Enterprise Program (K-REP) Development Agency (KDA), we explore the intricacies of microfinance institutions emerging in these challenging environment...” In Decentralization and the Social Economics of Development: Lessons from Kenya, edited by Christopher B. Barrett, Andrew G. Mude, and John M. Omiti. Wallingford, UK: CAB International, 2007. Displaced Distortions: Financial Market Failures and Seemingly Inefficient Resource Allocation in Low-income Rural Communities July 2007 Barrett, Christopher B. Poor households in rural areas of the developing world commonly lack access to (formal or informal) credit or insurance. These financing constraints naturally spill over into other behaviours and (asset, factor and product) markets as households rationally exploit other market and non-market resource allocation mechanisms to resolve, at least partly, their financing problems. These displaced distortions of financing constraints commonly manifest themselves in allocative inefficiency that may lead researchers and policymakers to mistakenly conclude that poor households routinely make serious allocation errors and to direct policy interventions towards the symptoms manifest in other markets rather than towards the root financial markets failures cause. July 2007 draft for festschrift volume in honor of Arie Kuyvenhoven In Development Economics Between Markets and Institutions: Incentives for Growth, Food Security and Sustainable Use of the Environment, Bulte, Erwin and Ruerd Ruben, eds., Wageningen, The Netherlands: Wageningen Academic Publishers Understanding the Differential Impact of Institutions and Institutional Interventions on Smallholder Behavior and Livelihoods in Rural Ethiopia May 2007 Liverpool, Saweda Onipede, Alex Winter-Nelson and Shahidur Rashid This paper focuses on making the case that: 1) there is differential impact of modern technology adoption on livelihoods for rural households of different asset poverty typologies; 2) this difference can be explained in part, by the differential impact of services provided by various institutions on participation in these modern agriculture practices amongst rural households in different poverty classes; 3) there is a need to assess more closely the nature of constraints faced by different classes of poor agricultural households and the packages offered by different institutional interventions geared towards encouraging farmer participation in various agricultural practices expected to increase their productivity and improve livelihood; and 4) this analysis shows that recognizing target group differences (e.g. using asset poverty typologies) are an important consideration in program development as well as program evaluation. Prepared for the AERC-Cornell Conference on “Bottom-Up Interventions and Economic Growth in Sub-Saharan Africa,” May 31-June 1, 2007, Nairobi, Kenya Heterogeneous Impacts of Cooperatives on Smallholders’ Commercialization Behavior: Evidence from Ethiopia May 2007 Tanguy, Bernard, Eleni Gabre-Madhin and Alemayehu Seyoum Taffesse This paper examines the impact of marketing cooperatives on smallholder commercialization of cereals using detailed household data in rural Ethiopia. We use the strong government role in promoting the establishment of cooperatives to justify the use of propensity score matching in order to compare households that are cooperative members to similar households in comparable areas without cooperatives. The analysis reveals that while cooperatives obtain higher prices for their members, they are not associated with a significant increase in the overall share of surplus cereal production sold commercially by their members. However, these average results hide considerable heterogeneity in the impact across households. In particular, we find smaller farmers tend reduce their marketable surplus as a result of higher prices, while the opposite is true for larger farmers. Prepared for the AERC-Cornell Conference on “Bottom-Up Interventions and Economic Growth in Sub-Saharan Africa,” May 31-June 1, 2007, Nairobi, Kenya Trade Reforms, Human Capital and Poverty: A Pseudo-Panel Analysis for Ghana March 2007 Ackah, Charles In this paper, we present one of the first direct microeconometric studies of the impact of trade protection on household income in Ghana. Tariff measures at the two-digit ISIC level are matched to Ghanaian household survey data for 1991/92 and 1998/99 to represent the tariff for the industry in which the household head is employed. We examine the possibility that the effect of protection on income might not be uniform across households characterized by different skill levels. Specifically, we allow the relationship between welfare and trade policy to differ for households with different levels of education. In the absence of suitable panel data, the analysis applies pseudo-panel econometric techniques to our repeated cross-section data. This method has rarely been used in poverty analysis. The results suggest that higher tariffs are associated with higher incomes for households employed in the sector, so tariff reductions may reduce incomes (and increase poverty), at least in the short run, but with differing effects across skill groups. We find that this positive effect of protection is disproportionately greater for low skilled labour households, suggesting an erosion of welfare of unskilled labour households would result from trade liberalization. We conclude that contemplating trade liberalization without recognizing the complementary role of human capital investment may be a sub-optimal policy for the poor, at least in the short-run. Prepared for the AERC-Cornell Conference on “Bottom-Up Interventions and Economic Growth in Sub-Saharan Africa,” May 31-June 1, 2007, Nairobi, Kenya Export Processing Zone Expansion in Madagascar: What are the Labor Market and Gender Impacts? December 2006 Glick, Peter and François Roubaud This paper analyzes part of the controversy over export processing zones—the labor market and gender impacts—using unique time-series labor force survey data from an African setting: urban Madagascar, in which the EPZ (or Zone Franche) grew very rapidly during the 1990s. Employment in the Zone Franche exhibits some basic patterns seen elsewhere in export processing industries of the developing world, such as the predominance of young, semi-skilled female workers. Taking advantage of microdata availability, we estimate earnings regressions to assess sector and gender wage premia. Zone Franche employment is found to represent a significant step up in pay for women who would otherwise be found in poorly remunerated informal sector work. Because it provides relatively high wage opportunities for those with relatively low levels of schooling, export processing development may also eventually have significant impacts on poverty. Further, by disproportionately drawing women from the low-wage sector informal sector (where the gender pay gap is very large) to the relatively well-paid export processing jobs (where pay is not only higher but also similar for men and women with similar qualifications), the EPZ has the potential to contribute to improved overall gender equity in earnings in the urban economy. Along many non-wage dimensions, jobs in the export processing zone are comparable to or even superior to other parts of the formal sector. However, the sector is also marked by very long working hours and high turnover, which may work to prevent it from being a source of long-term employment and economic advancement for women. Paper prepared for the conference “African Development and Poverty Reduction: The Macro-Micro Linkage” Cape Town, South Africa October 2004 In Journal of African Economies 15(4): 722-756, 2006 Livelihood Strategies in the Rural Kenyan Highlands December 2006 Brown, Douglas R., Emma C. Stephens, James Okuro Ouma, Festus M. Murithi and Christopher B. Barrett The concept of a livelihood strategy has become central to development practice in recent years. Nonetheless, precise identification of livelihoods in quantitative data has remained methodologically elusive. This paper uses cluster analysis methods to operationalize the concept of livelihood strategies in household data and then uses the resulting strategy-specific income distributions to test whether hypothesized outcome differences between livelihoods indeed exist. Using data from Kenya’s central and western highlands, we identify five distinct livelihood strategies that exhibit statistically significant differences in mean per capita incomes and stochastic dominance orderings that establish clear welfare rankings among livelihood strategies. Multinomial regression analysis identifies geographic, demographic and financial determinants of livelihood choice. The results should facilitate targeting of interventions designed to improve household livelihoods. In the African Journal of Agricultural and Resource Economics 1(1):21-35 Agricultural Policy Impact Analysis: A Seasonal Multi-Market Model for Madagascar December 2006 Stifel, David C. and Jean-Claude Randrianarisoa We describe the main features and results of a multi-market model for Madagascar that focuses on income generating activities in an agricultural sector that is characterized by seasonal variability. We find evidence that investments in rural infrastructure and commercial food storage have both direct and indirect benefits on poor households. In Journal of Policy Modeling 28(9):1023-1027, 2006 Beyond Group Ranch Subdivision: Collective Action for Livestock Mobility, Ecological Viability and Livelihoods June 2006 BurnSilver, S. and E. Mwangi Pastoralism is the dominant land use in 25% of the world’s landscapes and comprises the basic subsistence strategy of 20 million households (Galaty and Johnson 1990). These rangeland ecosystems largely occur in regions too dry for rainfed agriculture, and are characterized by recurrent drought and strong intra- and inter-seasonal variability in climate (Ellis and Galvin 1994, Galvin et al. 2001). Historically, the primary pastoral response to minimize risk has been mobility. Opportunistic and extensive seasonal livestock movements provided access to water and forage resources that were heterogeneous (i.e., patchy) in space and time. This mobility occurred largely in the context of communal land tenure systems – wherein flexible use rights were negotiated through layered memberships in kinship, clan, and lineage groupings (Bekure et al. 1991, Lane and Moorehead 1994, Turner 1999). Recent developments in ecological and common property theories clearly support the logic of pastoral mobility to compensate for resource heterogeneity (Ellis and Swift 1988, Ostrom et al. 1999, Illius and O’Connor 2000). However, over the past three decades, a combination of government policy and internal drivers has pushed pastoral systems in the opposite direction, towards privatization of communal rangelands characterized by little flexibility (Galaty 1992, Niamir-Fuller 1999, Blench 2001). Many scientists are concerned this transition from mobile systems to continuous grazing of private parcels will lead to ecological degradation and spiraling poverty among pastoral households, and a gradual decrease in both system stability and sustainability (Ellis et al. 2001, Agrawal 2002, Reid et al. 2003, Boone and Hobbs 2004) Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Longitudinal Analysis of the Impact of Land Privatization on Samburu Pastoralist Livelihood Strategies: 2000-2005 June 2006 Lesorogol, Carolyn K. Extensive pastoralism as practiced by East African pastoralists such as the Samburu of Northern Kenya, is premised on access to relatively large tracts of rangeland. Most pastoral land has been communally managed by groups of pastoralists who have, over time, developed rules and norms for regulating access to and use of the resources. In recent years, however, a number of pastoral groups have begun to privatize land, raising questions about the implications of this shift for pastoral livelihoods and the future of commonly held rangelands themselves (Ensminger and Rutten 1991, Rutten 1992, Kimani and Pickard 1998). The “new thinking” about pastoralism, which emerged during the 1990s, suggests that maintaining pastoralists’ mobility is critical to enabling them to remain successful herders (Behnke et.al. 1993, Scoones 1994, McCabe 2004). Accordingly, privatization of pastoral lands and the trend toward increasing sedentarization of pastoralists, appears to be a threat to the continued viability of pastoral production and livelihoods (Fratkin and Roth 2005). However, there is little empirical data demonstrating the effect of a shift from communal to private rangeland on household well-being or economic survival strategies. More information is needed to determine the effects of privatization on livestock production and livelihood strategies of pastoral households. This paper presents findings from an ongoing research project inquiring into these questions. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Women’s Groups in Arid Northern Kenya: Origins, Governance, and Roles in Poverty Reduction June 2006 Coppock, D. Layne, Solomon Desta, Adan Wako, Ibrahim Aden, Getachew Gebru, Seyoum Tezera, and Chachu Tadecha Collective action can be effective means of local development and risk reduction among rural people, but few examples have been documented in pastoral rangeland areas. We conducted extensive qualitative interviews for 16 women’s groups residing in settlements in northern Kenya during early 2005. Our objectives were to understand how groups were formed and governed and what activities they have pursued. Other questions included to what extent such groups can mitigate drought crises and reduce poverty for their members, and what most threatens group sustainability. At the time of interviews, our groups had existed for an average of 10 years, with two being 18-19 years old. Charter memberships averaged about 24 women, 20 of whom were typically illiterate. Half of the groups had been formed after facilitation by a GO or NGO partner and half formed spontaneously. Groups are governed under detailed constitutional frameworks outlining rights and responsibilities of members. All groups have eventually been registered with the Kenya government. Chairladies of the groups are typically elected to two-year terms. Group applicants and candidates for office are carefully screened. Groups primarily form to improve living standards of the members. Groups undertake a wide variety of social and economic activities founded on savings and credit schemes, income diversification, small business development, and expansion of education, health service, and natural resource management functions. The livestock and non-livestock economies become intermixed—commercialized livestock activities provide capital for small business ventures as well as the reverse. Groups have taken an active role in mitigating drought impacts on their members and the scope of drought mitigation appears to expand as groups mature over time. Interview respondents gave many examples of group members that have lifted themselves up from destitution. Relatively few of the groups we interviewed have experienced abject failure, but many have struggled. The greatest threats to the sustainability of these women’s groups come from external factors such as drought, resource scarcity, poverty, and political incitement as well as internal factors such as unfavorable group dynamics and illiteracy. Principles of good group governance and wisdom in business creation and management were repeatedly stated by respondents as the key ingredients for long-term success; making linkages to external development partners is also vital to secure access to technology and small grants. Groups have ambitious plans to further improve their social and economic circumstances; evidence is shown that rates of group formation in the region appear to be increasing. In a highly risky and poverty-stricken environment such as northern Kenya, such groups help create relatively deep pools of social, human, and diversified economic capital. Many of these processes fill large gaps in public service delivery and should be encouraged by policy makers. At the micro-level groups and their GO and NGO facilitators need continued support to strengthen groups. At a macro-level, investments that lead to broader economic development and greater access to formal education in the rangelands may permit further proliferation of sustainable efforts towards collective action. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Conservation, Land Rights and Livelihoods in the Tarangire Ecosystem of Tanzania: Increasing Incentives for Non-conservation Compatible Land Use Change through Conservation Policy June 2006 Sachedina, Hassan For millennia, pastoralists have shared landscapes with wildlife throughout Africa (Pilgram, Siiriäinen et al. 1990; Homewood and Rodgers 1991; Little, Dyson-Hudson et al. 1999). Throughout the 20th century, this co-existence has been in decline as conservation policy excluded people and livestock from protected areas, and demographic growth and expanding agriculture excluded wildlife use (Ellis and Swift 1988; Pagiola, Kellenberg et al. 1998; Homewood, Lambin et al. 2001; Serneels and Lambin 2001). Concurrently, many pastoral systems across the globe, including those of Maasai pastoralists in Tanzania, are believed to be in decline and under unprecedented pressure to diversify livestock based economies. In East Africa, an estimated 70 percent of wildlife populations are dispersed outside protected areas on land which overlaps with pastoralism (Western and Gichohi 1993). The presence of unfenced and uncultivated rangelands adjacent to protected areas increases the total range of resources available to wildlife, and enhances long-term survival as predicted by island bio-geographic theory (Western and Ssemakula 1981). Community Based Natural Resource Management (CBRNM) is one approach that has been proposed as a way of enhancing protected areas by creating economic incentives for local communities to manage wildlife on their lands and enable wildlife to compete as a form of land use. The economic and ecological impacts of CBNRM in pastoral communities are still largely unknown (Caro 1998). CBNRM projects are being initiated across northern Tanzania encouraged by central government agencies and international conservation organisations, with a focus on establishing revenue generating, community based tourism projects on Village land that has been zoned for conservation. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Pastoralists Preferences for Cattle Traits: Letting Them Be Heard June 2006 Ouma, Emily, Awudu Abdulai and Adam Drucker This paper investigates preferences for cattle traits among a pastoral community in a trypanosomosis prevalent area in Kenya. Choice experiments and mixed logit models are employed to estimate economic values of preferred traits which could be introduced through systematic breeding in breed improvement programs that utilise trypanotolerance trait. The findings suggest preference for traits linked to drought tolerance, high live weight, trypanotolerance and fecundity. Identification and estimation of preferred traits provides useful information for breeding policy and provides a framework for promoting conservation of breeds that possess adaptability traits, critical for arid and semi-arid areas. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Cattle Breeding Strategies using Genetic Markers as a Pathway for Improving Competitiveness of Pastoral Systems in Kenya June 2006 Janssen-Tapken, Ulrike, Haja N. Kadarmideen and Peter von Rohr Pastoralists in Kenya have increasingly become less food secure and vulnerable to poverty over the last two decades. This is due to increasing human population and changes in land tenure system as well as the harsh agro-climatic conditions associated with their environments. (Rushton, et al., 2002, Wollny, 2003) Livestock keeping is the mainstay of the pastoral systems and 15 million livestock keepers in rangeland-based systems in Sub-Saharan Africa are poor according to the national poverty rate (Thornton, et al., 2003). The enterprise is beset by several constraints, one of the most important of which is livestock diseases, particularly endemic diseases transmitted by vectors such as ticks and tsetse flies (Rushton, et al., 2002). Resistance against trypanocides for controlling tsetse-transmitted trypanosomiasis becomes increasingly a problem (Geerts, et al., 2001, Sinyangwe, et al., 2004). Owing to the strong attachment to livestock by the pastoral communities, any poverty alleviation goal targeted at pastoral communities will have to focus on strategies to improve livestock productivity by minimizing some of the livestock enterprise constraints. One of the issues that this paper focuses on is the breeding strategies as a pathway to minimize cattle disease constraints, especially trypanosomosis, which is ranked among the top ten global cattle diseases impacting on the poor in pastoral systems (Thornton, et al., 2002) As will be shown, our strategy is to develop cattle breeding schemes to ensure genetic gain through selection programs that utilize identified trypanotolerant genotypes, using conventional genetic evaluation techniques with or without the use of genetic (DNA) markers for trypanotolerance. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Conflict Minimizing Strategies on Natural Resource Management and Use: The Case for Managing and Coping with Conflicts between Wildlife and Agropastoral Production Resources in Transmara District, Kenya June 2006 Nyamwaro, S.O., G.A. Murilla, M.O.K. Mochabo and K.B. Wanjala It is now well known that a large proportion (up to 90%) of the wildlife population is not contained within the designated areas (the national parks and game reserves) in Kenya. The wildlife thus coexists and interacts with humans and livestock. Research was initiated in Transmara district of Kenya to identify and document factors contributing to competition for and conflicts over management and use of wildlife interactions with agro-pastoral production resources. The research was aimed at finding out: (a) causes leading to competition for and conflicts over multiple land uses, (b) whether the policy on Wildlife Compensation Schemes* is necessary and sufficient, (c) extent of losses incurred and benefits received by local communities due to wildlife interactions, and (d) how the conflicts are managed. Informal and formal socioeconomic surveys were undertaken to collect both secondary and primary information on perceptions of communities about the stated issues. About 97% of the respondents indicated that wildlife is the major cause of conflicts affecting local human communities. Elephants, baboons and leopards were the most destructive and dreadful wild animals. Losses that were incurred by the local communities in the past one year were in the form of human deaths (9%) and injuries (7%), cattle deaths (35%) and injuries (15%), and sheep and goats’ deaths (80%) and injuries (23%). The most affected gender groups were the school-going children (56%) and male adults (21%). Some of the local people (32%) indicated that they used to receive indirect benefits in terms of social amenities that are no longer being received. Most respondents (65%) pointed to a unanimous view that wild animals provided little benefits but destruction to people. Majority of the respondents (72%) appeared to be aware that Wildlife Compensation Schemes were in existence but on the other hand most of them (73%) did not necessarily know why the schemes are there for or how they operated. The most cited solutions to minimize and manage such conflicts were putting up a perimeter fence around Mara National Game Reserve, getting rid of wildlife using every means possible, and increasing and expanding wildlife compensation rates. Respondents also proposed that equitable sharing of earnings from wildlife resources be initiated and implemented in an acceptable and amicable manner. The respondents further suggested that for the new proposals to be actualized they should be incorporated into a reviewed broad-based wildlife policy. This would go a long way in contributing to poverty alleviation for the Maasai pastoralists and agropastolarists. *Compensation Schemes are Acts of Parliament first enacted in 1976 and amended in 1989 stating the rules, regulations and procedures of getting compensated either in monetary terms or in kind by the government when land owners and their livestock are killed or injured and their properties destroyed. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Property Rights among Afar Pastoralists of Northeastern Ethiopia: Forms, Changes and Conflicts June 2006 Hundie, Bekele This study has been conducted in three districts in Afar of Northeastern Ethiopia. The objective is to (1) describe the traditional land use arrangements among pastoralists; (2) explain changes in pastoral customary rights; (2) explain resource-based conflicts among various pastoral groups. The results show that the state is the giant actor behind property right changes especially in areas with better resource endowments. The state-driven changes in customary rights have led to increasing conflicts between pastoralists and the state. It also created disparity among clan members in the level of resource use as it facilitated the exclusion of some clan members. In addition to the state, natural as well as socioeconomic challenges are important in explaining the current changes in land use arrangements. It is also evident that, conflicts nurtured by obscurely defined property rights are extensive among pastoral groups causing humanitarian crisis (especially of the active labor force), loss of assets (primarily livestock), underutilization of pastoral resources by creating “no go” areas, and underutilization of market opportunities. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Maasai Pastoralists: Diversification and Poverty June 2006 Homewood, K., E. Coast, S. Kiruswa, S. Serneels, M. Thompson, and P. Trench Sub-Saharan African pastoralism involves highly fluid production systems responding flexibly to variable and unpredictable arid and semi arid rangeland environments. Household wealth is typically subject to stochastic events and most pastoralist groups have a history of entire families shifting in and out of the system as their fortunes have changed. This potential to re-enter the system has been maintained by the often communal nature of land tenure in pastoral societies, alongside the potential to restock through raiding, trading (including wild resources), or cultivation. However, the last hundred years have seen a drastic decline in the commons available for extensive pastoralism. Large areas of land have been given over to alternative uses as pastoral populations have become marginalized within most African nation states. Extensive land loss to conservation and rapid piecemeal privatisation of formerly communal rangelands for agriculture and ranching enterprises are framed within an environmental discourse that invokes Hardin’s Tragedy of the Commons to justify land alienation and subdivision. This process has entailed the loss of access to key dry season land and water resources. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Contextualising Conflict: Introduced Institutions and Political Networks Combating Pastoral Poverty June 2006 Zaal, Fred and Morgan Ole Siloma Poverty and conflict both bring to mind images of destitution. Conflict causes destruction, destitution and disruption of society. The resources to which people have access are damaged to the degree that livelihoods are threatened and poverty is increased. Poverty may also lead to conflict as righteous claims on resources are not met (Verstegen 2001) and scarce resources are competed about (Homer-Dixon 1999). However, this last relationship may be a simplification, as there are many other causes for conflict that hide behind this simple explanation. For example, it may be that not the poor among themselves compete for scarce resources, but that parties previously not involved start to compete with the local poor. The poor may not even have the resources to start a conflict, but rather the well off who through a lack of political, social and cultural mechanisms for control, compete freely for access to resources. As conflict-resolution mechanisms are likely to be absent in those cases, there is very little likelihood of conflicts being moderated once they break out unhindered. In fact, conflicts may be the unavoidable outcome in any society where processes of resource access and distribution are not handled through established political institutions and their controlling elites (Verstegen 2001). Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Strengthening Pastoralists’ Voice in Shaping Policies for Sustainable Poverty Reduction in ASAL Regions of East Africa June 2006 Hesse, Ced and Michael Ochieng Odhiambo The absence of a representative and effective pastoral civil society movement capable of articulating its members’ vision of their development is one of the key factors explaining why policies for pastoral development continue to fail, and poverty and conflict still characterise many pastoral communities in East Africa. Development experience in pastoral regions, particularly since independence, has clearly shown that pastoral people tend to lack the knowledge, political clout and resources with which to fight their own cause, and thus remain vulnerable to other people’s interpretation of what is best for them. In particular, policy makers continue to impose on pastoralists what they perceive to be good for them with little or no reference to the communities themselves. That these perceptions are for the most part founded on stereotypes of what pastoralism and pastoral land use is, only serves to compound the problem. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. Collective Action and Informal Institutions: The Case of Agropastoralists of Eastern Ethiopia June 2006 Beyene, Fekadu An increasing scarcity of water for crop farming and livestock watering among agropastoralists of Mieso in Eastern Ethiopia has largely disrupted their livelihoods. Indigenous water well maintenance and government initiated rainwater harvesting are two important collective actions common among these communities. With the aim of examining collective action institutions in both cases, we collected data from different stakeholders and individual members. Theoretically, low level of physical assets (action resource) limits participation of an individual in collective action. In our case, other factors such as environmental uncertainty and lower level of dependence on the resource have been found to be more significant in limiting membership than limitation of assets. Poor agropastoralists depend on their informal networks to have access to other assets. This enables them to maintain their membership. Moreover, there is a difference between self-organized and imposed collective action in terms of rule enforcement and sanctioning. Institutions also produce different incentives in that free riding leads to automatic exclusion in water harvesting, whereas poor members who continue free riding can benefit from the water well. In evaluating the success, we conclude that technical capacity of members in benefiting from their collective action is limited and deserves more attention than their ability to develop effective collective action institutions. Technical capacity development of user groups needs to be central in policy and programs addressing this. Presented at the Policy Research Conference on “Pastoralism and Poverty Reduction in East Africa,” held in Nairobi, Kenya, June 27-28, 2006. An Ordered Tobit of Market Participation: Evidence from Kenya and Ethiopia May 2006 Bellemare, Marc F. and Barrett, Christopher B. Do rural households in developing countries make market participation and volume decisions simultaneously or sequentially? This article develops a two-stage econometric model that allows testing between these two competing hypotheses regarding household-level market behavior. The first stage models the household’s choice of whether to be a net buyer, autarkic, or a net seller in the market. The second stage models the quantity bought (sold) for net buyers (sellers) based on observable household characteristics. Using household data from Kenya and Ethiopia on livestock markets, we find evidence in favor of sequential decision-making, the welfare implications of which we discuss. In American Journal of Agricultural Economics 88(2):324-337, May, 2006 Welfare Dynamics in Rural Kenya and Madagascar February 2006 Barrett, Christopher B., Paswel Phiri Marenya, John McPeak, Bart Minten, Festus Murithi, Willis Oluoch-Kosura, Frank Place, Jean Claude Randrianarisoa, Jhon Rasambainarivo and Justine Wangila This paper presents comparative qualitative and quantitative evidence from rural Kenya and Madagascar in an attempt to untangle the causality behind persistent poverty. We find striking differences in welfare dynamics depending on whether one uses total income, including stochastic terms and inevitable measurement error, or the predictable, structural component of income based on a household’s asset holdings. Our results suggest the existence of multiple dynamic asset and structural income equilibria, consistent with the poverty traps hypothesis. Furthermore, we find supporting evidence of locally increasing returns to assets and of risk management behaviour consistent with poor households' defence of a critical asset threshold through asset smoothing. In Journal of Development Studies 42(2): 248-277, 2006 In Understanding and Reducing Persistent Poverty in Africa, Christopher Barrett, Peter Little, Michael Carter (eds.), Routledge, 2007. Persistent Poverty in North East Ghana February 2006 Whitehead, Ann This paper explores local poverty and wealth inequality in the Upper East Region of northern Ghana in the period from 1975-89. Land was not scarce and the social management of household membership and household labour were critical to household security, but this social management was not independent of wealth status. There was a virtuous circle between wealth and household labour supply and a vicious circle between poverty and small household size. Poverty traps existed so that those with too little labour and too little wealth engaged in strategies which entrenched them in poverty. In Journal of Development Studies 42(2): 248-277, 2006 In Understanding and Reducing Persistent Poverty in Africa, Christopher Barrett, Peter Little, Michael Carter (eds.), Routledge, 2007. Rural Income and Poverty in a Time of Radical Change in Malawi February 2006 Peters, Pauline E. Malawi is one of the poorest countries in Africa. There is widespread, though not universal, agreement about the shape of poverty in the country and the policy challenge this sets. Agriculture continues to be the most obvious means to stimulate broad-based rural growth and to provide levels of food security and income needed for the majority rural population. A longitudinal study over a decade during which radical policy and political changes occurred provides the data and basis for discussing the appropriate policy directions for reducing poverty. In Journal of Development Studies 42(2): 322-345, 2006 In Understanding and Reducing Persistent Poverty in Africa, Christopher Barrett, Peter Little, Michael Carter (eds.), Routledge, 2007. Fractal Poverty Traps January 2006 Barrett, Christopher B. and Brent M. Swallow This paper offers an informal theory of a special sort of poverty trap, one in which multiple dynamic equilibria exist simultaneously at multiple (micro, meso and/or macro) scales of analysis and are self-reinforcing through feedback effects. Small adjustments at any one of these levels are unlikely to move the system away from its dominant, stable dynamic equilibrium. Governments, markets and communities are simultaneously weak in places characterized by fractal poverty traps. No unit operates at a high-level equilibrium in such a system. All seem simultaneously trapped in low-level equilibria. The fractal poverty traps formulation suggests four interrelated strategic emphases for poverty reduction strategies. In World Development 34(1):1-15, 2006 Poverty and Well-Being in Post-Apartheid South Africa January 2006 Bhorat, Haroon and Ravi Kanbur “The end of the first decade of democracy in South Africa naturally resulted in a wide-ranging set of political events to mark this date. South Africa’s formal baptism as a democracy in April 1994 received international acclaim and recognition — and to this day serves a model for other countries undergoing difficult and protracted political transitions. However, perhaps the greatest struggle since the early post-apartheid days has been the attempt to undo the economic vestiges of the system of racial exclusivity. Alongside the political evaluation and praise, therefore, there has been a vigorous local research programme broadly aimed at measuring the changes in well-being that occurred during this ten-year period. In addition, a number of studies have also concentrated on measuring the performance of the government in meeting its stated objectives of reducing poverty, inequality and unemployment. This volume brings together some of the core pieces of academic research that have been prominent in this ten-year review, focusing on poverty and policy in post-apartheid South Africa...” Introduction to Poverty and Policy in Post-Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Ghana’s Economy at Half Century: An Overview of Stability, Growth and Poverty November 2005 Aryeetey, Ernest and Ravi Kanbur As Ghana enters its second half century, we are faced with a paradox. Despite a solid transition to democracy in the political situation, despite recorded recovery in the last fifteen years from the economic malaise of the two decades preceding, and despite reductions in measured poverty, there is widespread perception of failure of the economic and political system in delivering improving living standards to the population. This essay introduces a volume of papers that call for a deeper examination of the macro level data on growth and on poverty. A sectoral and regional disaggregation reveals weaknesses in the levels and composition of private investment, in the generation of employment, in sectoral diversification, and in the distribution of the benefits of growth. At the same time, the push for decentralization, and for better allocation, monitoring and implementation of public expenditure has raised more questions than it has answered. These are the challenges that Ghana faces if it is to fulfill the bright promise of its independence in 1957. The papers in this volume set out an analytical agenda that we hope will help in laying the ground work for the path that the nation’s policy makers will have to steer on the road to 2057. Introduction to Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. What Drives Change in Ghana? A Political-Economy View of Economic Prospects November 2005 Killick, Tony President Clinton famously had the slogan, ‘It’s the economy, stupid’, hanging in the Oval Office as a constant reminder to himself of what his priority should be to keep the American electorate on his side. Giving priority to the population’s economic well-being is good advice to all democratic politicians but I will argue that, if we want to understand the half-century of the Ghanaian economy’s experiences, we should invert Clinton’s priority and pay most attention to institutions and politics. The mantra for economists trying to understand the performance of Ghana’s economy should be, “It’s the polity….” [readers to supply their own epithet]. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. L’augmentation des budgets suffit-elle à la qualité des systèmes éducatifs? Cas du Gabon (Is a rise of public expenditures enough to improve the quality of educational systems? The Gabonese evidence.) November 2005 Oyaya, Jean Rémy The present survey is a contribution to the means to reach the objective education of quality for all. So it contributes at first to set out the dysfunctions of the Gabonese education system to justify the rise of the budget for the education. Using an econometric model of analysis, it thereafter contributes to the identification of the main determinants of the evolution of these public expenditures. But a rise of these expenditures is not enough to improve the quality of the educational system. So the study pleads subsequently for the stake of a preventive system of education. It concludes while putting the accent on the necessity of the State to fight against the corruption and to hold its liability, the one guarantee to the success of the reforms that a quality system of education for all supposes. Paper prepared for the Regional Conference on “Education in West Africa: Constraints and Opportunities” in Dakar, Senegal, November 1-2, 2005 Rice Price Stabilization in Madagascar: Price and Welfare Implications of Variable Tariffs November 2005 Dorosh, Paul and Bart Minten Given the large share of major staples in the budgets of the poor, governments in many developing countries intervene in food markets to limit variation in the prices of staple foods. This paper examines the recent experience of Madagascar in stabilizing prices through international trade and the implications of adjustments in tariff rates. Using a partial equilibrium model, we quantify the overall costs and benefits of a change in import duties for various household groups, and compare this intervention to a policy of targeted food transfers or security stocks. Does City Structure Cause Unemployment? The Case Study of Cape Town October 2005 Rospabe, Sandrine and Harris Selod Several theoretical and empirical findings suggest that the spatial organization of cities can be a source of unemployment among unskilled workers and ethnic minorities, stressing either the role of residential segregation or that of the physical disconnection between work and residence. The present paper investigates this issue in South Africa by focusing on the example of Cape Town, a sprawling and highly segregated city. Using the dataset of the 1998 study on the Migration and Settlement in the Cape Metropolitan Area complemented by local population statistics extracted from the 1996 Census and local employment statistics extracted from the City of Cape Town’s 2000 RSC Levy database, we regress the unemployment probability of a selection of workers in 24 different areas of the city on their individual and household attributes as well as on the characteristics of their locations. Results obtained so far suggest that (i) distance to jobs, (ii) rural origin (especially for women) and (iii) the length of time spent in their present dwelling reduce the employment probability of workers. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Internal Labour Migration and Household Poverty in Post-Apartheid South Africa October 2005 Posel, Dorrit and Daniela Casale The first objective of this chapter is to briefly describe and discuss trends in labour migration over the period 1993 to 2002 using these household survey data. We show that a growing number of rural African households report labour migrants as (non-resident) household members and we discuss possible reasons why individuals may continue to migrate temporarily to places of employment. Our second objective is to explore the economic status of those who remain behind in the household of origin. We find that total household income on average is significantly and consistently lower in migrant, than in non-migrant, households. Remittance transfers are a more important source of income than the earnings of employed resident members in migrant households. Since 1993, however, both the receipt and the average real value of remittance income have fallen. We conclude our study with a discussion of factors that may account for this trend and the possible development implications of migration for rural African households. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Half Measures: The ANC’s Unemployment and Poverty Reduction Goals October 2005 Meth, Charles This paper looks behind the [ANC’s 2004 election] manifesto at policy and other documents in an attempt to discover what the ANC in government understands by these commitments. Finding little evidence of a coherent view there, the paper delves into unemployment and poverty statistics in South Africa in an attempt to see whether or not greater precision than that displayed so far in specifying each of these targets, is possible. In each case, the search for precision opens a window overlooking an impressively wide plain of ignorance. In view of this, the paper ends with some recommendations about what to do about the two commitments. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Public Spending and the Poor Since the Transition to Democracy October 2005 van der Berg, Servaas Fiscal expenditure analysis, or benefit incidence analysis, as it is often referred to, deals with the distribution of the statutory incidence of public expenditure, usually by income group, although some studies incorporate geographic or even gender dimensions. (Demery n.d.) This is the topic dealt with in this chapter, although the South African situation requires that incidence analysis along racial grounds should also be considered. The chapter addresses a number of interrelated questions, relating to targeting of, and shifts in, public social spending, but also to the capacity to transform social spending into social outcomes. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Poverty and Inequality in Post-Apartheid South Africa: 1995-2000 October 2005 Hoogeveen, Johannes G. and Berk Özler As South Africa conducts a review of the first ten years of its new democracy, the question remains as to whether the economic inequalities of the apartheid era are beginning to fade. Using new, comparable consumption aggregates for 1995 and 2000, this paper finds that real per capita household expenditures declined for those at the bottom end of the expenditure distribution during this period of low GDP growth. As a result, poverty, especially extreme poverty, increased. Inequality also increased, mainly due to a jump in inequality among the African population. Even among subgroups of the population that experienced healthy consumption growth, such as the Coloureds, the rate of poverty reduction was low because the distributional shifts were not pro-poor. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Trade Liberalisation and Labour Demand in South Africa during the 1990s October 2005 Edwards, Lawrence The 1990s heralded a period of increased globalization of the South African economy. The new democratically elected government in 1994 initiated a range of new policy reforms that were designed to encourage economic growth as well as uplift the standard of living of the previously disenfranchised majority. These reforms included significant tariff reductions in accordance with the government’s 1995 Offer to the WTO. A new macroeconomic policy (GEAR) was also implemented with the aim of transforming South Africa into a “competitive, outward orientated economy” (GEAR, 1996)... In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. From Chimera to Prospect: South African Sources of and Constraints on Long-term Growth October 2005 Fedderke, Johannes In this paper we consider the implications of evidence that has emerged over the past six years that carries insight into the growth and employment creation performance of the South African economy. The emphasis is explicitly on why limitation in the growth performance of the South African economy may have emerged. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. Decentralization and Access to Agricultural Extension Services in Kenya October 2005 Nambiro, Elizabeth, John Omiti, and Lawrence Mugunieri The form and content of decentralization has dominated development discourse and public sector reform agenda in Kenya in the last two decades. The case of agricultural extension service presents decentralization in a difficult context partly due to lack of information on its possible diverse impacts especially on resource poor farmers. This paper explores the effect of decentralization of agricultural extension on access, accountability and empowerment, and efficiency of delivering services to farmers. Secondary data, participatory research methods and primary data from a random sample of 250 farmers were used. Data was analyzed using descriptive statistics, multivariate analysis and logistic regression. The results show that there is improved access to extension services with increasing level of decentralization. Farmers from areas with higher decentralized extension also showed enhanced level of awareness of different channels for delivery of extension services. This improved knowledge, being an important component of empowerment of the farming community, resulted from the increase of service providers, who displayed synergy in their multiple methods of operation. Public delivery channels were the most affordable and were also ranked first for quality. Income, literacy levels, distance from towns and access to telephone significantly influenced access to extension services. Gender of the household-head was a key determinant for seeking out extension services in areas with high concentration of agricultural activities. For a pluralistic system to work, there is need to for better co-ordination between the various groups. Although there is evidence of partnership and synergy between service providers, there appeared to be little effective co-ordination of the groups involved. The government, and other stakeholders should work towards developing a strong institutional framework that will guide and enhance this mutually beneficial partnership. Supermarkets, International Trade and Farmers in Developing Countries: Evidence from Madagascar September 2005 Minten, Bart, Lalaina Randrianarison, and Johan F. M. Swinnen Global retail companies (“supermarkets”) have an increasing influence on developing countries, through foreign investments and/or through the imposition of their private standards. The impact on developing countries and poverty is often assessed as negative. In this paper we show the opposite, based on an analysis of primary data collected to measure the impact of supermarkets on small contract farmers in Madagascar, one of the poorest countries in the world. Almost 10,000 farmers in the Highlands of Madagascar produce vegetables for supermarkets in Europe. In this global supply chain, small farmers’ micro-contracts are combined with extensive farm assistance and supervision programs to fulfill complex quality requirements and phyto-sanitary standards of supermarkets. Small farmers that participate in these contracts have higher welfare, more income stability and shorter lean periods. We also find significant effects on improved technology adoption, better resource management and spillovers on the productivity of the staple crop rice. The small but emerging modern retail sector in Madagascar does not (yet) deliver these benefits as they do not (yet) request the same high standards for their supplies. Reforming the Formula: A Modest Proposal for Introducing Development Outcomes in IDA Allocation Procedures September 2005 Kanbur, Ravi This paper develops a modest proposal for introducing final outcome indicators in the IDA aid allocation formula. It starts with a review of the current formula and the rationale for it. It is argued that this formula, and in particular the Country Policy and Institutional Assessment (CPIA) part of it, implicitly relies too heavily on a uniform model of what works in development policy. Even if this model were valid "on average", the variations around the average make it an unreliable sole guide to the country-specific productivity of aid in achieving the final objectives of development. Rather, it is argued that changes in the actual outcomes on these final objectives could also be used as part of the allocation formula. A number of conceptual and operational objections to this position are considered and debated. The paper concludes that there is much to be gained by taking small steps in the direction of introducing outcome variables in the IDA formula, and assessing the experience of doing so in a few years’ time. In Revue d’Economie du Developpement: 2005/2-3 September, Special Issue on Grounds, Allocation and Impact of Aid, AFD/EUDN Conference 2004, pp. 79-99 Agricultural subsidies removal in North countries: what about the effects in Senegal? July 2005 François Joseph Cabral In this paper, experiments of the impact north countries subsidies removal on Senegal is performed based on a general equilibrium framework. The model that we suggest includes 19 sectors and four factors: capital, labour, land and water. In agriculture, we distinguish two sub-sectors: the set of the irrigated sectors and that of the non-irrigated sectors. An export demand function unable us take into account constraints facing local producers on international markets. A simulation is performed based on ICAC, IFPRI, IADB and Iowa state university predictions on the impact of subsidies removal on world prices. It appears from the experiments carried out that the elimination of agricultural subsidies in developed countries will result in a shift of agricultural supply toward external markets. However, this will induce an increase in the cost of imported cereals, in particular rice and will have an adverse effect on households, worsening their well-being, except those of Delta rural households. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Shared Growth in Ghana: Do migrant remittances have a role? July 2005 Peter Quartey The economy of Ghana has recorded modest net growth rates over the past decade. However, the current growth rates are inadequate to move the economy to a middle income status by 2015. Besides, not all benefited from the growth recorded so far and there is no doubt that the level of growth necessary to propel the country towards middle-income status cannot be achieved with the current levels of savings and investments within the domestic economy. The obvious issues are: how do we fill the savings gap and ensure shared growth? And how do we ensure that growth trickles down to the poor? The study believes that migrant remittances can serve the dual purpose; fill the savings gap, ensure shared growth and poverty reduction. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Women Education and Economic Empowerment in Tanzania: A Women Business Survival Model Analysis July 2005 Aurelia N. Kamuzora This paper examines the survival analysis of credit supported women businesses in Tanzania using various survival models. Survival models have been used in studies of lifetime bonds, labour strikes, market preferences, and business survival. By examining several predictor variables, the analysis demonstrates some variables can be used to business mortality. We use Product limit estimators, life table method, Cox Product Hazard Models to investigate women businesses over 22 years period. The median (half-life) of all businesses is exact 3.6 years. It was found, however, that level training and level of education before credit provision to have an impact on business survival. In this paper, the dataset of women businesses in Kagera region-Tanzania was analyzed by employing Survival models. Through applied non-nested econometric model that was conceptualized in order to determine the women business survival, we have found out that there many variables that can predict women business survival in Tanzania. Two of them were found to be the level of profit and training. The baseline hazard ration was estimated. It was found out that after receiving credits so as to start businesses, the women in Tanzania the median (half-life) survival time of all women business in Kagera region were found to be 3.06 years. The methods used in estimating survival function are no-parametric univariate model (KM), parametric (Weibull distribution), and semi parametric multivariate models. Then the product limit estimator (Kaplan-Meyer), life table method, and Cox proportional hazards model was used. They’re several types of Cox hazard models. In this study, Weibull distribution function was used. Weibull distribution is the commonly used in econometric (Greene, 2003). This paper examines the survival analysis of women businesses in Tanzania, using various survival models. Survival analysis have been used to study life unemployment spell, labor strike, household of durable goods, number of women worked in the labourforce, vocational expenditure (Greene, 2003), market preferences, life time bonds and many other areas (Gregoriuou, 2002). During recent years there has been a great deal of interest in the analysis of clustered data. Observations from the same cluster usually share certain unobserved characteristics and as a result tend to be correlated (Hung, et.al. 2004). Data are analyzed based on index function and latent regression function of duration models based on survival and hazard functions. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Ghana: Recent Trends in Growth and Poverty Reduction July 2005 Carlos B. Cavalcanti The received wisdom about poverty and growth in Ghana is that poverty is mostly rural and that its economic structure has changed little since independence. As a result, the country’s poverty reduction record has been mixed, with growth benefiting primarily urban and export producing regions, leaving behind deep poverty in regions of subsistence agriculture, especially in Northern Ghana. Recent evidenced indicates, however, that poverty continuous declining, especially in rural areas, with slight increases in urban areas, albeit from much lower levels. This development reflects the fact that the structure of employment in the Ghanaian economy has changed quite significantly, with a shift away from agriculture and toward urban activities linked to trade and other services, as well as to manufacturing and construction. These labor market transitions are even more pronounced among younger workers, reflecting rapid urbanization and rising rates of educational attainment. While this virtuous cycle of urbanization has lead to progress in poverty reduction, sustaining the progress achieved so far will depend on maintaining the current economic expansion and raising the rate of job creation. The economic expansion of the last three years has been driven by the exceptional combination of record cocoa crops and historically high world market prices for cocoa and gold. Export growth, combined with rising workers remittances from abroad and continuous aid flows, have allowed the urban economy to expand and workers to move from rural to urban areas. This transition is still unfinished, however, as most of the new jobs are being created in the informal sector, meaning lower wages, greater job insecurity and lower productivity. Lower productivity, in turn, means less scope for raising real wages, and is a reminder that removing obstacles for the growth of private sector firms is essential for the sustainability of poverty reduction and the economic expansion. The rest of this paper elaborates on these points. It begins with a quick overview of changes in Ghana’s poverty profile. It considers next the transitions in the labor market, and how these reflect broader changes in the economy. It proceeds then to investigate the factors driving or hindering these labor market transitions. The last section concludes with a summary of the main findings. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Institutional Foundations for Shared Growth in Sub-Saharan Africa July 2005 Machiko Nissanke and Alice Sindzingre The paper examines the dynamically evolving triangular relationships between institutions, growth and inequality in the process of economic development, in order to deepen the understanding on institutional conditions for pro-poor growth and shared growth. In this specific context, the paper discusses the institutional conditions found in Sub-Saharan Africa, which may have produced the growth pattern that are unequal and against the poor. The analysis shows that Sub-Saharan African countries require transforming institutions for embarking upon and sustaining a development path which would ensure shared growth in years to come. The paper first evaluates the growth-inequality-poverty nexus, as found in the recent literature, which increasingly challenges the trade-off between growth and equity, as postulated in the traditional theories. Various definitions of pro-poor growth are discussed and a sharper definition of the concept of ‘shared’ growth is provided. Definitions of institutions are then examined, as well as the triangular interrelationships between institutions, inequality and poverty. The paper finally analyses specific institutional conditions found in Sub-Saharan Africa that prevent economies from emerging out of low-equilibrium poverty traps that are characterised by low economic growth, unequal distribution of income and wealth as well as unequal access to resources and power. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Is Sub-Saharan Africa a Convergence Club? July 2005 Johnson P. Asiama and Maurice Kugler The African growth effect has been found to be significant in many empirical growth research papers — suggesting that even after controlling for a wide range of variables that potentially affect growth, the Sub-Saharan African dummy has an adverse impact on economic growth. This has thus remained one of the unexplained empirical puzzles in the growth literature. Earlier studies have attributed this growth tragedy to factors such as macroeconomic instability; external shocks; human capital inadequacies, institutional and political uncertainty, geography, ethnic fractionalisation, etc. Moreover, the recent perspective about the effect of colonial, geographical and disease factors in previously colonised regions such as Africa, also offers significant insights about the growth situation in Sub-Saharan Africa. On the other hand, some have suggested that Sub-Sahara Africa could simply be an example of club convergence from the lower end. We evaluate the latter view, and provide some new evidence on long run growth dynamics in Sub- Sahara Africa. We make use of the dynamic panel GMM methodology, which by construction controls for such country-specific and time-invariant effects due to history, disease or geographic factors. Our findings suggest that Sub-Saharan Africa is not an example of a convergence club. Rather, countries conditionally converge to their own steady states, and this could explain the increasing heterogeneity in economic conditions across the sub-region. In addition, we found openness, the extent of financial development, and foreign direct investment provide beneficial marginal effects on the steady state growth path of each country in the region. By contrast, government consumption, inflation, and excessive monetization have a negative effect on growth. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Organizational Culture, Performance and Public Sector Reforms in Africa: The Ghanaian Case July 2005 Francis Owusu Public sector reform programs implemented across Africa, including the World Bank’s “first” and ‘second” generation reforms, are based on the assumption that all public organizations are inefficient. This paper argues that this assumption is problematic and has had significant implications for policy. By failing to recognize that not all public organizations perform poorly, we ignore any potential lessons that could have been learnt from the experiences of organizations that have managed to perform effectively under the same social, political, economic and institutional environment. The study is based on the premise that the performance of an organization is influenced by the culture within the organization—which results from the ways in which organizations adapts to the external environment and the ways they ensure internal integration. Some organizations develop cultures that support, encourage and reward high performance; whereas others adopt a culture that perpetuates poor performance. Thus, public-sector reforms must be viewed as changing, or in some cases sustaining, organizational culture. Using Ghana as a case study, the study highlights lessons that can be learnt from studying differences in the performances of public organizations. It focuses on three-related issues. First, it addresses one major flaw of past reform policies—the assumption that all public organizations are ineffective. Second, it explores the relationship between organizational culture and performance. Third, it provides broad outlines of a comprehensive public sector reform strategy, centered on changing organizational cultures. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Local Governance and Resource Allocation July 2005 Sagre Bambangi and Al-hassan Seidu An important function of District Assemblies in Ghana is to ensure that the benefits of growth are shared equitably and fairly. One way of achieving this is to promote efficiency in resource allocation at both individual and community levels. This paper utilizes the case study approach to assess efficiency of resource distribution in four Districts in the Northern and Upper East regions of Ghana with emphasis on infrastructure, micro-credit, human and information resources. The conclusion is that the Medium Term Development plan prepared within the framework of the themes of the Ghana Poverty Reduction Strategy (GPRS) is an important guiding document in resource allocation. The allocation of community facilities such as schools, health and administrative infrastructure have been found generally to conform to the plan in spite of occasional erratic influences and decisions of some personalities. However, in terms of resources that are allocated to individuals such as the Poverty Alleviation Fund (PAF) the guidelines are often circumvented. It is recommended that Government policy of zero tolerance for corruption needs to be demonstrated at the local level in terms of the disbursement of the PAF. Priority must be given to development considerations instead of partisan party loyalty in appointing DCEs in order to check politicisation of resource allocation. A serious consideration must be given to the full implementation of the sub-district structures to facilitate information dissemination. For the people to “feel the growth in their pockets” resource allocation at the local level needs to be closely monitored to ensure compliance with guidelines. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Economic Success or Human Development Failure? Development Partners or Development Parasites? The truth behind the truth: Evidence from Uganda July 2005 Diego Angemi During the 1990s, and especially over the second half of the decade, Uganda experienced high economic growth, falling income poverty, and relative political stability. In addition, while it’s still too early to assess properly the medium term impact of direct budget support (DBS) on the lives of poor people, Uganda features among the few countries where real gains have been made in terms of scaling up the delivery of basic health and education services, increasing the focus of the budget, and giving people confidence to claim their rights (DFID, 2004). There is evidence to support the claim that the period between 1992 and 2000 may mark the transition of Uganda from recovery to fresh growth. Recovery has necessitated the rehabilitation of traditional export crops, the restoration of the public sector and a reversal of the retreat to subsistence. In this economic environment, the percentage of Ugandans who were poor decreased sharply from 56% in 1992 to 34% in 2000. . . . Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Gender Inequalities and Economic Growth: New Evidence from Cassava-based Farm Holdings in Rural South-Western Nigeria July 2005 Awoyemi Taiwo Timothy It is a widely accepted fact that persistent inequality between men and women constraints a society’s productivity and ultimately slows its rate of economic growth. The economy pays for this inequality in reduced labour productivity today and diminished national output tomorrow. Motivated by this the study aim is to assess the possibilities of enhancing productivity gains by improving the efficiency of small-scale agriculture through gender-responsive intra-household allocation of resources in South-Western Nigeria. It adopts a stochastic parametric decomposition method which yields efficiency measures that are not distorted by statistical noise to estimate the efficiency level of resource allocation by small-scale cassava producers. The results indicate that average overall productive efficiency in the sample was 75.78 per cent implying that small scale cassava farmers in the sample could reduce total variable cost by 24.22 per cent if they reduce labour, fertilizer, land and capital applications to levels observed in the changing input mix (technical efficiency) and then obtain optimal input mix for the given input prices and technology (allocative efficiency). The average technical efficiency and allocative efficiency indexes for the sample were 82.2 per cent and 92.2 per cent respectively. Also, evidence from empirical analysis of data from the male respondents showed that the average economic, technical and allocative efficiency indexes were 88.06 per cent, 89.34 per cent and 78.67 per cent respectively while the same computed for the female sample were 94.9 per cent 74.85 per cent and 71.03 per cent respectively. Labour was the most limiting factor in cassava production suggesting that the technologies that enhance the productivity of labour are likely to achieve significant positive effects on cassava production. The paper shares the notion that producers control over the means of production and impact of development are related and has influence on the economic efficiency and growth of society. Again, technical inefficiency constituted a more serious problem than allocative inefficiency thus most cost savings will accrue to improvement in technical efficiency. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Risk and Asset Management in the Presence of Poverty Traps: Implications for Growth and Social Protection June 2005 Barrett, Christopher B. and Michael R. Carter This note suggests a behavioral approach to poverty and vulnerability that escapes the standard, troublesome dependence on an arbitrary money-metric poverty line. More importantly, our approach, which is based on an empirically estimable dynamic asset poverty threshold, has immediate implications for both the linkage between poverty, risk and growth and for the design of social protection policies. One can identify the dynamic asset poverty threshold either by testing for asset smoothing behavior or via tests for bifurcated/split accumulation dynamics. We illustrate the concept and the estimation of dynamic asset poverty thresholds through brief applications to Ethiopia and Honduras. Getting the Inputs Right for Improved Agricultural Productivity in Madagascar, Which Inputs Matter and Are the Poor Different? June 2005 Randrianarisoa, Claude and Bart Minten We found that while farmers are willing to pay for improved irrigation infrastructure through water use associations, the amounts they are willing to contribute are significantly below the costs – and significantly below international standards – and this especially so for the poorest farmers. For chemical fertilizer, a more rational structuring of the fertilizer supply chain, with clear and consistent market signals, might help at least the more accessible regions to more readily adopt this input. Paper presented during the workshop “Agricultural and Poverty in Eastern Africa,” June, 2005, World Bank, Washington D.C. Can Africa Achieve Millennium Development Growth Targets Through Effective Negotiations of the Doha Development Mandate? June 2005 William A. Amponsah The general consensus of opinion in international economic development circles is that Africa is lagging far behind in global efforts to meet the Millennium Development Goals (MDGs) by its target date of 2015. Africa is still far from reaching the targeted goal of an annual growth rate above 7 percent a year required to achieve economic convergence with other developing countries and to maintain similar quality of life. In particular, sub-Saharan Africa (SSA) has seen poverty rise and life expectancy decline in the five years since the Goals were declared in 2000 (United Nations Economic Commission for Africa, 2005). But achieving the MDGs would provide a unique opportunity for Africa and its development partners to seriously tackle the important issue of reducing endemic poverty for the continent. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Market Structure and Productivity Growth in Ghanaian Cocoa Production June 2005 Andrew Zeitlin This paper argues that market structure, and in particular the degree of competition among Licensed Buying Companies, is an important determinant of productivity in the Ghanaian cocoa industry. This issue is studied in the context of a two-year doubling of cocoa output at the national level. Evidence from microeconomic data confirms a significant increase among existing farmers, although this rate of in- crease is smaller than that observed at the national level. Analysis of production reveals an economically significant and statistically robust relationship between village-level Licensed Buying Company competition and the level and growth rate of total factor productivity. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Labor Market Flexibility, Wages and Incomes in sub-Saharan Africa in the 1990s June 2005 Geeta Kingdon, Justin Sandefur and Francis Teal This paper provides an overview of how African labor markets have performed in the 1990s. It is argued that the failure of African labor markets to create good paying jobs has resulted in excess labor supply in the form of either open unemployment or a growing self-employment sector. One explanation for this outcome is a lack of labor market ‘flexibility’ keeping formal sector wages above their equilibrium level and restricting job creation. We identify three attributes of labor market flexibility. First whether real wages decline over time, secondly the tendency for wages to adjust in the face of unemployment, and thirdly the extent of wage differentials between sectors and/or firms of various size. Recent research shows that real wages in Africa during the 1990s may have been more downwardly flexible than previously thought and have been surprisingly responsive to unemployment rates, yet large wage differentials between formal and informal sector firms remain. This third sense of the term inflexibility can explain a common factor across diverse African economies - the high income divide between those working in large firms and those not. Those working in the thriving self-employment sector in Ghana have something in common with the unemployed in South Africa - both have very low income opportunities relative to those in large firms. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Characteristics and Determinants of Urban Youth Unemployment in Umuahia, Nigeria: Implications for Rural Development and Alternative Labour Market Variables June 2005 Raphael N. Echebiri Umuahia metropolis typifies a fast growing capital city in terms of population growth rate. Its population grew from less than 20,000 residents in 1991 to an estimated excess over a million at present. This astronomical growth in population followed the creation of Abia State in 1991 and the subsequent change in the status of Umuahia as a state capital territory. Following this tremendous rise in population, Umuahia North metropolis which is the core capital city now has a teaming population of youths, most of whom are unemployed. This study was conceptualized against the backdrop of the increasing social and economic problems associated with youth unemployment in the metropolis. Some effort was made to characterize youth unemployment in the city from the perspective of the socio-economic and labour market perceptions of a sample of 220 youths drawn from areas with varying residential configurations. The sample randomly included youths, unemployed and employed in order to provide some basic counterbalancing assessment of the situation. It was found that youth unemployment in the town shared common characteristics with that observed in several other cities in the developing world. In particular, age of respondent was found to be inversely related to level of unemployment, hence suggesting that unemployment in the city was most pronounced among youths. Educational attainment and job preference were interrelated variables which had direct relationship with unemployment level. It was particularly noted that majority of the unemployed and first-time job seekers preferred salaried employment to self-employment. This orientation, although deriving from the economic and human capital development realities of the country, could be retrogressive in a liberalized market-driven economy. The youths showed strong aversion to rural-residency for several reasons prominent among which were lack of employment opportunities and poor social and physical infrastructures. Some policy issues were raised to provide a basis for a stronger community-driven rural and agricultural development strategy and alternative labour market variables. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Can Africa Reduce Poverty by Half by 2015? The Case for a Pro-Poor Growth Strategy June 2005 Arne Bigsten and Abebe Shimeles This study uses simulations to explore the possibility of achieving the target of halving the percentage of people living in extreme poverty in Africa by 2015. A pro-poor growth scenario and a constant inequality scenario are compared. It is shown how initial levels of inequality and mean per capita income determine the cumulative growth and inequality reduction required to achieve the target. The simulations show that small changes in income distribution have a large impact on the possibility of halving poverty. It is shown that the trade-off between growth and inequality varies greatly among countries and that their policy choices thus are quite different. In some cases small changes in income distribution can have a large effect on poverty, while in others a strong focus on growth is the only viable option. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Shared Sectoral Growth: Evidence from Côte d’Ivoire, Ghana, and Zimbabwe June 2005 Niels-Hugo Blunch and Dorte Verner This paper examines agriculture, industry and service sector growth in Côte d’Ivoire, Ghana, and Zimbabwe over more than three decades. The analyses find at least one long-run sectoral relationship in each country. This indicates the existence of a large degree of interdependence in long-run sectoral growth, implying that the sectors “grow together” or, similarly, that there are externalities or spillovers between sectors. This also provides evidence against the basic dual economy model, which implies that a long-run relation cannot exist between agricultural and industrial output. The impulse response and short-run sectoral growth analyses support these results, as both imply the existence of a positive link between growth in industry and growth in agriculture. Policy implications are also discussed; these include directing more attention towards the interdependencies in sectoral growth broadly defined. In particular, our findings have implications for the design of education and health programs, as well. This improved understanding of intersectoral dynamics at all levels may facilitate policy implementation aimed at increasing economic growth—and thereby ultimately improving peoples’ livelihoods—in Africa. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Why Has Burundi Grown So Slowly? The Political Economy of Redistribution June 2005 Janvier D. Nkurunziza and Floribert Ngaruko This study analyses Burundi’s economic performance over the period 1960-2000 and finds that it has been catastrophic. The usual economic factors determining growth are endogenous to political objectives, suggesting that politics explains the dismal performance. This finding limits the relevance of textbook models of growth relying on the assumption of a competitive resource allocation environment. When cronies rather than qualified managers are running the economy, when priority is given to investment projects in function of their location rather than the objective needs of the economy, economic models lose their explanatory power. Economic performance has been shaped by the occurrence of violent conflicts caused by factions fighting for the control of the state and its rents. The capture of rents by a small group has become the overarching objective of the governments that have ruled the country since the mid-1960s. In this regard, economic performance will not improve unless the political system is modernised from a dictatorial regime playing a zero-sum game to a more democratic and accountable regime. It would be naïve to advocate economic reforms as a way of boosting the country’s economy if they are not preceded or at least accompanied by political reforms. One central message of this study is that Burundi’s growth failure is the result of specific identifiable factors evolving around governance. There is nothing fundamentally wrong with Burundi: Development failure may be reversed if the problems identified in this study are properly addressed. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana An Analysis of the Impact of HIPC Initiative on Poverty Alleviation in Developing Countries: Evidence from Cameroon June 2005 Arsene Honore Gideon Nkama After independence in 1960, Cameroon’s real economic growth was optimistic. Growth averaged 6 per cent during the 65-86 with agriculture being the main source of growth. When oil production started by the end of the 70s, Cameroon experienced a boom period. Its external resources balance that was negative in 1977 became positive. Gross domestic investment increased from 21% of GDP in 1977 to more than 30% in 1986. GDP per capita increased at about 4 percent during the 65-86. The boom period led to traditional growth sectors carelessness so their productivity declined. Public enterprises created during this period were highly inefficient. The banking system became very dependent on oil revenue as well as on government deposits…. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana An Inquiry into the role of personal wealth in the pastoralist - agropastoralist conflict resolution in Yerer and Daketa Valleys, Eastern Ethiopia May 2005 Ayalneh Bogale and Benedikt Korf Capitalizing on the mobility of livestock is one of the major ways in which pastoralists have managed ecological uncertainties and risks, as it enables them the opportunistic use of the resources. However, agricultural encroachment onto rangelands by nearby agro-pastoralists has led to a shortage in grazing area and threatened the mobility of the pastoralists. As this process leads to a significant disruption and weakening of the risk-management systems of pastoralists, they seek for various institutional arrangements with agropastoralists to enable them access to common grazing land. Based on an exploratory survey and data derived from interview of 146 households in eastern Ethiopia, this paper uses an adaptation of the sequential rationality game theoretical model and institutional analysis to discrete choice models. The analytical framework, in its entirety, presents a simple model of household and community level decision-making, in which they are concerned about their welfare along many different dimensions. Choice of institutional arrangement, namely no opinion, reciprocal, sharing milk and the right to use milk, is modelled using multinomial logit discrete choice procedure. The model chi-squared statistic is significant at the 1% level of probability. For all arrangements, there are three to five observable characteristics of household that provide statistically significant predictive power for practicing a given arrangement. The paper argues resource scarcity may enhance the bargaining position of asset-poor members of an agro-pastoral society and urges the wealthier agropastoralists to comply with a nonviolent resolution of competing claims towards a resource sharing arrangement. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Social Exclusion and Insurance Failure for the Poorest: On Informal Finance through Social Networks in Kenya’s Smallholder Sector April 2005 Heidi Hogset This study looks at informal finance through social networks among smallholder farmers in Kenya. This paper explores the patterns of economic transfers within networks, and characterizes recipients and providers of informal credit and insurance, as well as the relationship between them and the purposes such transfers serve. Participation in transfer networks depends on one’s resources. The poor engage in frequent, low-value transfers in kind and in exchange labor. The poorest do not engage in cash transfers. Those of intermediate wealth engage more actively in transfers in kind, but not cash. The rich (or non-poor) are also active in transfer networks, and it is they who are able to raise large cash amounts through social networks, either as loans or gifts. As people get wealthier, they engage more in cash transfers and less in transfers in kind. People who have access to formal financial services, i.e., formal banks or Savings and Credit Cooperatives (SACCOs) participate less in transfers through networks. Those who are able to save in banks are less vulnerable to shocks. Women are more active than men in Rotating Savings and Credit Associations (ROSCAs), and they also engage more frequently in bilateral transactions within networks, especially for transfers in kind. Transfer networks are correctly perceived as kinship-based and family members are important sources of unearned income (remittances). Transfers through networks are important for consumption smoothing, in addition to investments in income-generating activities and payment of school fees, but not for assistance when a household member is seriously ill. The failure of social networks to provide support during sickness and death is particularly disturbing viewed in light of the ongoing AIDS crisis which is keenly felt in the villages where the study took place. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Growth, Inequality and Poverty: Some Hard Questions March 2005 Kanbur, Ravi This commentary poses a series of progressively harder questions in the economic analysis of growth, inequality and poverty. Starting with relatively straightforward analysis of the relationship between growth and inequality, the first level of hard questions come when we ask what policies and institutions are causally related to equitable growth. Some progress is being made here by the economics literature, but relatively little is known about the second level, harder questions—how a society comes to acquire "good" policies and institutions, and what exactly it is that we are buying into when we accept the number one Millennium Development Goal of the United Nations—halving the incidence of income poverty by the year 2015. In Journal of International Affairs 58(2): 223-232, 2005 Rural Poverty Dynamics: Development Policy Implications March 2005 Barrett, Christopher B. This paper summarizes a few key findings from a rich and growing body of research on the nature of rural poverty and, especially, the development policy implications of relatively recent findings and ongoing work. Perhaps the most fundamental lesson of recent research on rural poverty is the need to distinguish transitory from chronic poverty. The existence of widespread chronic poverty also raises the possibility of poverty traps. I discuss some of the empirical and theoretical challenges of identifying and explaining poverty traps. In policy terms, the distinction between transitory and chronic poverty implies a need to distinguish between "cargo net" and "safety net" interventions and a central role for effective targeting of interventions. Prepared for invited presentation to the 25th International Conference of Agricultural Economists, August 17, 2003, Durban, South Africa. In Reshaping Agriculture’s Contributions to Society, David Colman and Nick Vink (eds.), Oxford: Blackwell, 2005 Intertemporal Female Labor Force Behavior in a Developing Country: What Can We Learn from a Limited Panel? February 2005 Glick, Peter and David E. Sahn We analyze intertemporal labor market behavior of women in urban Guinea, West Africa using two distinct methodologies applicable to a short (two-year) panel. A multi-period multinomial logit model with random effects provides evidence of unobserved individual heterogeneity as a factor strongly affecting labor market sector choices over time. Results from simpler single period models that condition on prior sector choices are consistent with either heterogeneity or state dependence. Both approaches perform equally well in predicting individual labor market behavior conditional on past choices. In terms of observable characteristics, the estimates confirm the heterogeneous structure of the urban labor market: informal and formal employment appear to differ significantly in terms of skill requirements, compatibility with child care, and costs of entry. In Labour Economics 12(1):23-45, February, 2005 On the Relevance of Identities, Communities, Groups and Networks to the Economics of Poverty Alleviation January 2005 Barrett, Christopher B. In The Social Economics of Poverty: Identities, Groups, Communities and Networks, Christopher B. Barrett (ed.), London: Routledge, 2005: This book aims to advance economists’ understanding of such questions by exploring how individuals’ social and moral identities affect their membership in communities, groups, and networks, how those identities and social affiliations affect microeconomic behavior, and how the resulting behaviors affect poverty. Humans do not live in isolation: their behavior depends on the relations that shape their world. Variation in relationships can perhaps lead to predictable variation in behaviors and economic outcomes, which, in turn, affect social relationships through subtle feedback mechanisms. Partly as a consequence, the dynamics of human social interactions and the effects on persistent poverty have become a very active area of economic research. Pareto’s Revenge January 2005 Kanbur, Ravi Consider a project or a policy reform. In general, this change will create winners and losers. Some people will be better off, others will be worse off. Making an overall judgment on social welfare depends on weighing up the gains and losses across individuals. How can we make these comparisons? In the 1930s, a strong school of economic thought led by Lionel Robbins held that economists qua economists have no business making such judgments. They only have a basis for declaring an improvement when no such interpersonal comparisons of gains and losses are involved. Only a change which makes nobody worse off and at least one person better off, can be declared an improvement. Such a change is called a Pareto Improvement (PI). If no such changes are possible, the state of affairs is described as being Pareto Efficient (PE), a Pareto Optimum, or Pareto Optimal (PO). Named after Vilfredo Pareto, PI and PE are central to post 1945 high economic theory. After all, PE makes an appearance in the two fundamental theorems of Welfare Economics. These are that every competitive equilibrium (CE) is PE, and every PE allocation can be achieved as a CE, under certain conditions. Through these theorems, the post second world war economic theory of Kenneth Arrow and Gerard Debreu links back to Lionel Robbins and Vilfredo Pareto, and thence to Adam Smith’s Invisible Hand of competitive markets. From there the links come full circle back to stances taken in current policy debates on the role of markets and government. In Journal of Social and Economic Development 7(1): 1-11, 2005 Dynamic Poverty Traps and Rural Livelihoods December 2004 Barrett, Christopher B. and Brent M. Swallow This chapter brings together two concepts in development economics: (1) the concept of poverty traps, which explains the co-existence of groups of national economies that continually grow, invest and become prosperous with other groups of economies that stagnate, under-invest and remain poor; and (2) the concept of livelihood strategies, which is used to explain the interconnections between asset portfolios, multiplex strategies of groups and individuals, and outcomes for the welfare of the poor. Implications for applied research, rural development policy and planning are drawn out. In Rural Livelihoods and Poverty Reduction Policies, edited by F. Ellis and H. A. Freeman, London, Routledge, 2004. Evolution of the Labour Market: 1995-2002 December 2004 Bhorat, Haroon, and Morné Oosthuizen Since 1994, the South African economy has undergone significant changes with the government implementing various policies aimed at redressing the injustices of the past, fleshing out the welfare system and improving competitiveness as South Africa becomes increasingly integrated into the global economy. These policies have, directly or indirectly, impacted on the labour market and, consequently, on the lives of millions of South Africans. This paper’s chief objective is the analysis of some of the changes in the South African labour market in the post-apartheid era. The period, between 1995 and 2002, began with much promise and many challenges as the economy liberalised and normal trade relations were resumed with the rest of the world. Soon after the African National Congress came into power, the macro-economic strategy named “Growth, Employment and Redistribution” (or GEAR) was unveiled in 1996. This strategy predicted, amongst other things, employment growth averaging 270 000 jobs per annum from 1996 to 2000, with the number of new jobs created rising over time from 126 000 in 1996 to 409 000 in 2000 (GEAR 1996). Unfortunately, for a variety of reasons, these projections were not realised. In fact, in terms of the labour market, the experience of the second half of the 1990s appears to have fallen short of even the baseline scenario contained in the GEAR document, which projected a net increase in (non-agricultural formal) employment of slightly more than 100 000 jobs per annum. In Poverty and Policy in Post Apartheid South Africa, edited by Haroon Bhorat and Ravi Kanbur. Cape Town, South Africa: HSRC Press, 2006. The African Peer Review Mechanism (APRM): An Assessment of Concept and Design November 2004 Kanbur, Ravi The African Peer Review Mechanism (APRM) has been proposed as a key element of the New Partnership for Africa’s Development (NEPAD). It is important that the APRM be thoroughly debated in terms of concept and design. This paper is a contribution to the debate. The paper derives design criteria for peer review mechanisms after looking at some functioning examples. These criteria are—Competence, Independence, and Competition. It is argued that while the APRM is a welcome addition to pan-African institutional structure, its design will have to be improved for it to be truly successful. First, APRM should greatly narrow the scope of its reviews if it is to deliver competent assessments. Second NEPAD should devote significant resources to allow civil society in the reviewed country to do assessments of their own, and to critique the APRM assessment. In Politikon 31(2):157-166, November, 2004 Operationalizing Pro-Poor Growth: A Country Case Study of Ghana October 2004 Andrew McKay and Ernest Aryeetey This paper is prepared as part of the multi-donor Operationalising Pro-Poor Growth study, which is focusing on aiming to provide advice to governments on how to facilitate the involvement of poor people in the growth process. It is prepared as one of 14 case studies prepared as part of this project, and following a common outline structure and analytic approach. The case study papers are prepared to assess country-level evidence on the relationships between growth performance and trends in poverty, and on how this can be enhanced. This implies therefore an analysis which combines macro and sectoral analysis of the determinants of growth and its distributional pattern, with more micro-level poverty analysis. While much of the analysis investigating the links between pat-terns of growth and changes in poverty is historical, assessing past evidence, there is also an important forward looking component on how poverty-reducing growth can be initiated, sustained or enhanced…. Presented at the International Conference on "Shared Growth in Africa," July 21-22, 2005, Accra, Ghana Macroeconomic growth, sectorial quality of growth and poverty in developing countries: measure and application to Burkina Faso October 2004 Dorothée Boccanfuso and Tambi Samuel Kabore Economic growth generally refers to GDP growth. The studies on the link between growth and poverty dynamic (Datt and Ravallion, 1992; Kakwani, 1997; Shorrocks, 1999) measure growth by mean household per capita expenditures. Furthermore, many countries experience at the same time economic growth and growing poverty. It is therefore important to establish a link between these two types of growth. This key link allows a formal shift from macroeconomic growth (GDP growth) to mean per capita household expenditure growth. The purpose of this paper is to discuss the link between macroeconomic growth and mean per capita household expenditure growth with the evidence drawn from Burkina Faso data. The paper also analyzes the impact of sectoral growth on poverty using Shapley value-based decomposition approach. National Accounts consumption - which is smaller - gives greater poverty incidences for 1994 and 1998 compared to the incidence from the surveys’ consumption. An annual 3.99% increase in real per capita consumption based on the survey gives a 13.37% decrease in poverty incidence, while a 6.59% annual growth in GDP yields only 6.59% decrease in poverty incidence. Agricultural sector growth accounts for at least 80% of the decline in poverty incidence, gap and severity. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa How responsive is capital formation to its user cost? An exploration of corporate tax effects October 2004 Stephen F. Koch and Albert de Wet The responsiveness of business investment spending to price changes is central in economic analysis. Despite the key role played by the user cost of capital in economic analysis, there is less supporting evidence for the existence of a substantial user cost elasticity. This study investigates the empirical user cost of capital with specific focus on the contribution that corporate taxes has on the price elasticity of investment in the South African economy. Making use of a disaggregated data set of corporate tax revenues we are able to get better understanding of how firms perceive their tax burden. Using vector auto regression and cointegration techniques we estimate the long run user cost elasticity to be –0.18%. Average total elasticity of companies with respect to effective corporate taxes is estimated at 0.09% implying that taxes plays a very important role in the price determination of capital. We have also shown that additional taxes placed on companies like secondary taxes, are perceived in a different light than normal profit taxes inducing more and bigger changes investment behaviour. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Financial Services and the informal economy October 2004 Cally Ardington and Murray Leibbrandt This paper examines the impact of formality of employment on the utilisation of financial services, using data from the October 2000 Income and Expenditure Survey and the September 2000 Labour Force Survey. The presence of an employed member in the household is seen to be important for the utilisation of both bank accounts and funeral insurance, even after controlling for income. Furthermore there are strong links between the nature of this employment and utilisation of financial services. Employees are more likely to utilise financial services than the self-employed. Among employees, the probability of utilising financial services increases with the degree of formality of employment. These effects are stronger for formal banking services than for funeral insurance which includes informal burial societies. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Swaziland: In the pursuit of economic liberalization and growth. How poverty is reproduced at the micro-level under changing labour market regimes? October 2004 Gabriel Tati Why is poverty so pervasive in Swaziland despite substantial economic growth achieved through extreme economic openness over several years? Is poverty alleviation in Swaziland a more reachable goal than was in the past, as this country strives to restore rapid economic growth through AGOA facilitating greater insertion into the global commodity market chains? How have macroeconomic developments impacted on poverty within the labour markets, cross-border and domestic alike, and what measures can be taken to improve competitiveness in the labour market? The paper explores these issues by looking into some prominent structures of the labour market regimes in Swaziland from both the cross-border and domestic perspectives. Understanding the relationships between trade, labour market regimes and poverty reproduction is critical for this country, as insufficient analytical attention has been paid on what is happening at their interface. Economic growth has been exceptional over the past years, and the country strives to attract more investors to rip the benefits of African Growth Opportunity Act (AGOA). Yet efforts to reduce the high incidence of poverty affecting most Swazis remain very disappointing, and elusive as inequality of all forms is substantially in rise. The heavy concern put on opening up the national economy to foreign investors has tended to obscure the realities lived on the ground by most of those engaged in making this liberalisation possible: the ordinary Swazis workers. Public considerations at the macroeconomic level seem to have been disconnected from those at the micro-level, as lived by the actors engaged in the crossborder and domestic labour forces. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Exporting from manufacturing firms in Sub-Saharan Africa: Micro evidence for macro outcomes October 2004 Neil Rankin, Måns Söderbom and Francis Teal The poor performance of many African economies has been associated with low growth of exports in general and of manufacturing exports in particular. In this paper we draw on micro evidence of manufacturing firms in five African countries - Kenya, Ghana, Tanzania, South Africa and Nigeria - to investigate the causes of poor exporting performance. Micro empirical work on manufacturing firms has focused on the relationship between export participation and efficiency. The evidence for SSA shows that exporters te nd to be larger, more capital intensive and produce more output per unit of labour than non exporters. We show that firm size is a robust determinant of the decision to export. It is not a proxy for efficiency, for capital intensity, for sector, for time -invariant unobservables or for the fixed cost of entry into exporting. The implication of these findings is that large firms are necessary for exporting. However larger firms are more capital intensive. Small firms may create jobs, they will not be able to export. We also find that efficiency only impacts on the decision to export regionally, defined as within Africa, not internationally. The implications of these findings are discussed. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa In Journal of African Economies 15(4):671-687, 2006 Small Business Entrepreneurship in Dar es salaam -Tanzania: Exploring Problems and Prospects for Future Development October 2004 Rashid M. Mfaume and Wilhelm Leonard Small Business Entrepreneurship haves been seen as a hub in generating income for the majority of urban dwellers with no formal paid employment. In Tanzania, entry into small business entrepreneurship is usually not seen as a problem. One can start small business at any time and in any place. However, the development of this informal sector has been profoundly characterized by two parallel phenomena which are perhaps contradictory in character. One is the increasing politicization effort encouraging people to engage in Small and Medium Entrepreneurship (SME). This has led to the proliferation and mushrooming of small business most of which are in the form of petty trading, at least everywhere in the urban centres. The second is the parallel increase in events suggesting prevalence of crime and bureaucratic hurdles which affect SME and counter reaction from the small traders. While the second can be characterized as due to the increasing repressive action by city authority over vendors, the counter reaction behaviour of itinerant and small traders toward city authority is also evident in most urban areas. Generally, the sector is characterized by constant tension and feuds between small traders and urban authorities. Drawing on research findings, the present paper challenges the possibility of reducing poverty in Tanzania using the strategy of developing the small business entrepreneurship under the situation where there is an increasing level of petty crime and bureaucratic hurdles. It is argued and indeed, concluded that if the pres ent intricate and controversial situation surrounding SME and small business is not reversed, if not brought to rest, the development of SME is on slippery slope. The option suggested to tame the conundrum includes, developing discourse portfolio between small traders and bureaucratic authority and authorities formulating policies that can promote development of small business entrepreneurship. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Macro-Micro linkages in trade: Does trade liberalization lead to improved productivity in South African manufacturing firms October 2004 Imraan Valodia and Myriam Velia A feature of the post-apartheid economy in South Africa has been its reintegration into the global economy. Trade liberalisation has been a cornerstone of government policy since 1994, indeed prior to 1994 (see Bell, 1993). There has been extensive research analysis of trade issues in post-apartheid South Africa, including evaluation of the impact of trade liberalisation. A set of studies (for example Fedderke and Vaze, 2000) have examined the effect of trade liberalisation on effective protection showing declining levels of effective protection. Others, (for example Roberts, 2000) have studied the impact of liberalisation on the level of exports. A number of studies have explored the impact of liberalisation on the labour market, with Edwards (2001) arguing that technological change, rather than trade liberalisation, is the primary cause of falling employment in South Africa. Bhorat (2000) finds that trade liberalisation has had a positive impact of labour demand in manufactures. A feature of all of these studies is the focus on macroeconomic, or economy- wide, effects of liberalisation. To be sure, there have been a number of microlevel studies examining the competitiveness of the manufacturing economy, or of one or other industry (for example, Barnes 1998 on the automotive industry, Roberts 2001 on the plastics industry). There is, however, no systematic study in South Africa on the relationship between trade liberalisation at the macro level, and its micro or firm- level adjustment effects. It is this gap in the South African trade and industry literature that this paper proposes to address. Specifically, this paper aims to explore how manufacturing firms are adjusting to the liberalization of trade, how firms are adjusting their production in the face of a change in incentive structures, how they are dealing with the currency risks associated with increased international trade, and the linkages between export growth and productivity at the level of the firm. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa In Journal of African Economies 15(4):688-721, 2006 Budget Reform as a Means to Strengthen the Link Between Macro and Micro Policies October 2004 Taz Chaponda, Neil Cole, Mickie Schoch, and Chris Gadsden The paper argues that a credible budget provides the link between broad macroeconomic policies and strategies and microeconomic policies facilitating the achievement of development and poverty reduction targets. The paper’s thesis centres around the Medium Term Expenditure Framework (MTEF) which has been lauded as the method to translate broad macroeconomic aggregates into effective public expenditure programmes based on a multi-year fiscal framework. While a number of countries in Africa – most notably South Africa and Uganda – have seen significant benefits, such as increased predictability in resource flows and better planning for microeconomic policies, experiences in other African countries have been mixed. The paper argues that developing credible budgets does not require an ambitious MTEF reform path. What is more important is a commitment to realistic macroeconomic projections, sensible budgeting norms, good accounting practices and regular reporting through transparent budget documents. Paper prepared for the conference “African Development and Poverty Reduction: The Macro-Micro Linkage” Cape Town, South Africa October 2004 Industrial Strategy and local economic development: manufacturing policy and technological capabilities in Ekurhulen October 2004 Thandi Phele, Simon Roberts and Ian Steuart Ekurhuleni Metropolitan Municipality is one of six metropolitan municipalities created in major urban concentrations. More importantly, it covers the largest industrial concentration in South Africa and in sub-Saharan Africa. The economy of Ekurhuleni reflects the apartheid legacy of minerals-oriented industrialisation, and the growth of an urban labour pool to supply the mines. Ekurhuleni grew on the back of the main concentration of gold mining in the country. This is reflected in the structure of manufacturing. Ekurhuleni accounted for 37 per cent of South African output of machinery and 33 per cent of metal products in 1996, with major markets for each historically being mining.2 The performance of the Ekurhuleni economy has, however, been very poor in recent years and, with the decline in gold mining, unemployment increased sharply to reach 40 per cent in 2002.3 Manufacturing in Ekurhuleni recorded an average annual growth of va lue-added of just 0.4 per cent between 1997 and 2002 (much lower than the national manufacturing annual growth of 2.3 per cent). Regeneration of the industrial base is thus crucial to addressing unemployment and poverty in the region. This paper examines the impact of national developments and policies on the development of industry in Ekurhuleni. It assesses role of local government in industrial development in light of recent literature addressing agglomeration effects, industrial districts, and the deve lopment of local economic competencies and institutions. The analysis draws on recent work on the manufacturing sector in Ekurhuleni and a case study of the foundry industry in particular, focusing on its performance and recent development in terms of firm capabilities, orientation, and the institutional framework. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Institutional framework, interest rate policy and the Nigerian manufacturing sub-sector October 2004 Michael Adebayo Adebiyi and Babasanmi Babatope-Obasa In this study, we set out to empirically investigate the impact of interest rates and other macroeconomic factors on manufacturing performance in Nigeria using cointegration and an error correction mechanism (ECM) technique with annual time series covering the period between 1970 and 2002. Some statistical tools are employed to explore the relationship between these variables. The analysis starts with examining stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test. Then, the study estimates error correction mechanism (ECM) model. From the error correction model, several interesting conclusions are drawn from the study. First, interest rate spread and government deficit financing have negative impact on the growth of manufacturing sub-sector in Nigeria. Secondly, the study empirically reveals that liberalization of the Nigerian economy has promoted manufacturing growth between 1970 and 2002. Lastly, the findings are further reinforced by the presence of a long-term equilibrium relationship, as evidenced by the cointegration, and stability in the model. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Agricultural Sector Investment and the Role of Public-Private Partnership October 2004 David J. Spielman Agricultural research and development (R&D) is critical to the improvement of incomes and livelihoods in sub-Saharan Africa. However, several studies on agricultural R&D suggest that many countries in the region are unable to bring public and private sector assets and resources together as a means of advancing agricultural R&D. This is true not only in the realm of advanced agricultural biotechnologies, but for more conventional forms of R&D as well. Evidence suggests that the constraints to greater cross-sectoral collaboration result from mutually negative perceptions between the sectors, unresolved issues of risk and liability, and high transactions and opportunity costs. A broad range of economic policies could change this, thereby putting the proper incentives in place to meet sub-Saharan Africa’s technological needs and to stimulate growth. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Foreign aid and population growth: evidence from Africa October 2004 Leonid Azarnert This paper investigates the relationship between foreign aid and population growth in Sub-Saharan Africa. Using a panel of African countries over the last four decades, it demonstrates the positive effect of foreign aid on fertility and population growth in this region. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Multilateral Organisations: Instruments for Donors’ Foreign Policy? October 2004 Espen Villanger The empirical literature on foreign aid emphasizes that foreign policy objectives are important motivations for giving multilateral aid (Cassen 1994, Alesina and Dollar 2000). Some of the recipients that receive the most aid per capita do so because they are favored in bilateral aid relationships due to their strategic importance. However, the opportunity for a donor country to use a multilateral organization strategically to promote its own policy goals has received far less attention. The gain to a donor that is able to make the World Bank or other multilaterals adapt to this donor’s view on an issue can be substantial. In that case, all the contributions from the other member nations will also stand behind the multilateral organizations’ stance in the particular issue, and recipients may feel compelled to comply with this massive counterpart. Thus, influencing the multilaterals may give much more leverage to a donor’s foreign assistance on the foreign policy arena compared to pursuing the same goals bilaterally with the same amount of aid. The U.S. General Accounting Office indicates the potential for increased influence when they state that about $2 billion in U.S. paid capital had supported World Bank loans of nearly $286 billion through cofinancing with other donors and the private sector. So, if the GOA is right in asserting that U.S. with its 22% of the total donor support to the World Bank is able to take the leadership in setting the bank’s agenda, then there is little doubt that this strategic behavior can be effective in achieving U.S. foreign policy goals... However, even if the principal-agent framework is the work-horse of the theoretical literature on foreign aid, this literature does not address how some donors’ can be able to influence the objectives of the multilaterals in order to achieve their aims for the recipient. This gap in the literature is unfortunate since this type of strategic behavior rise several important questions. First, which mechanisms allows for this type of interactions? Second, how will this type of influence change the aid allocation of the other donors? Third, what implications can we draw with regards to improving the efficiency of the multilateral infrastructure in general? Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Has the New Zealand/Australian Closer Economic Relationship (CER) been trade widening or deepening? October 2004 Ron Sandrey and Dirk van Seventer This study finds that export trade widened rather than deepened as a result of the CER trade agreement with Australia. Trade has expanded in those products that were not heavily traded prior to the agreement as opposed to an expansion of “traditional” exports that were traded at the start of the agreement. This finding is therefore consistent with other recent empirical research undertaken on this new aspect of trade expansion, and gives weight to the suggestion that these agreements are beneficial not just in the short or “static” term, but in the longer or “dynamic” term. While often cited as a benefit of bilateral liberalisation, this widening feature of a trade agreement is not generally forecast in traditional computer modelling exercises. Importantly, the analysis of the trade expansion to the ‘rest of the world’ indicated that much of the result may be directly attributable to CER and not a change in worldwide trade patterns. Moreover, this widening was most pronounced in manufacturing lines, reinforcing the value of CER in that it had not merely diverted our traditional (and supply constrained) exports away from third markets. This was underlined by a similar analysis of the “mirror” imports of manufactured products from New Zealand into Australia. This showed an increase post-CER and confirms the trade widening hypothesis. As New Zealand prepares to begin negotiating an FTA with China, this study adds weight to the general conclusion that comprehensive bilateral agreements are likely to produce more welfare benefits than may be forecast by traditional means (ie computer models). It also supports the broad assumption that trade agreements are likely to significantly contribute to a growth and innovation export-oriented drive. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The Global Market Place: How far can Nigeria go with the present non-oil product mix? October 2004 Rosemary N. Okoh This paper is an empirical analysis of the demand for Nigeria’s non-oil export merchandize with a view to providing an answer to the question of how far the present product mix would go in the global market. The study employed the Johansen’s test of co-integration and analysis of structural characteristics of the integrated stochastic variables in the error correction vector. The results of the study show that the present product mix of non-oil merchandize export, have low and negative long run income elasticity of demand, but high long run price elasticity of demand, such that prices rise and fall in response to the highly volatile global commodity market prices. This study has important implication for international trade policies in Nigeria and other Africa economies. Nigeria cannot maximize gains from global integration until the basic prerequisites for industrialization and modernization of the productive base have been properly established. Entering the global market prematurely is a deterrent to growth in export. Nigeria must do the first things first - invest on innovation and reduce the efforts towards global integration, since this will continue to be inimical to the Nigerian economy as long as the present mix of non-oil exports products remains. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa South African Trade Reform since Democracy October 2004 Rashad Cassim and Dirk van Seventer As part of a wider investigation by the National Institute for Economic Policy, covering a range of economic policy issues, the main aim of this paper is to provide an overview of how trade policy has evolved since democracy. We use standard quantities measures of trade policy analysis as an input into a discussion of the impact of the trade regime on the economy. The paper also undertakes some sensitivity analysis about how we think about some basic welfare concepts. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Youth labour markets in Africa October 2004 Murray Leibbrandt and Cecil Mlatsheni This paper makes use of a review of the literature on African labour markets, the international literature on youth and the labour market and a fifteen country African data set to analyze the current situation of youth in sub-Saharan labour markets. Economies in Sub-Sahara Africa are generally viewed as having achieved poor economic growth over the past four decades or so (Bigsten 1996, Collier & Gunning 1999, Kaplan 1996). This has had an adverse impact on poverty and inequality. On the whole per capita incomes have fallen since the early 1970s (ADB 1997). Some of the reasons cited in this literature for the poor growth performance of sub-Saharan Africa include: lack of openness to trade, lack of financial depth, deficient public services, lack of social capital, high incidence of shocks and misguided economic policy. The process of economic development involves the allocation of labour within sectors and the reallocation of labour between sectors and to the extent that this process is impeded, the transformation of the economy is slowed and made less efficient (Bigsten and Horton 1997). Thus the functioning of the labour market is central to economic growth, income distribution and poverty alleviation and is thus an important (if not the most important) prong in the various areas that should be considered for policy intervention. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The mystery of South Africa’s ghost workers in 1996: measurement and mismeasurement in the manufacturing census, population census and October Household Surveys October 2004 Martin Wittenberg Absences can be as telling as presences, as Sherlock Holmes reminds us. Some times, however, it is difficult to know whether one is really dealing with an absence or not. In the case of South African labour economics some absences have attracted attention: the surprisingly small size of the informal sector, or the surprisingly small rate of job creation during the 1990s. To these mysteries can be added another: the disappearance of about 300 000 manufacturing workers from the 1996 population census. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Have Minimum Wages Benefited South Africa’s Domestic Service Workers? October 2004 Tom Hertz In September of 2002 South Africa’s roughly one million domestic workers – about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners1 – were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Infrastructure privatisation and poverty reduction in Africa October 2004 Afeikhena Jerome and Ademola Ariyo Despite the perceived role of efficient infrastructure as critical element for economic growth, poverty reduction and the attainment of the millennium development goals, there is clear evidence that the provision of infrastructure in Africa has been much below standard in terms of quantity and quality. Over the past decade, there has been a change in the perception of the roles of the public and private sectors in infrastructure development. This study evaluates the linkages between infrastructure reform and poverty reduction in Africa. The findings indicate that the results of a decade of regulatory reform, implementation of the privatization and liberalization agenda, combined with the influx of private investment in infrastructure have decidedly been mixed. In spite of modest achievements, especially in telecommunications, there has been a gap between popular perceptions and reality on ground. Africa’s atypical experience and unique socioeconomic characteristics are such that the policy preconditions that are indispensable for effective liberalization and privatization are rarely met. Overall, infrastructure privatization has proceeded without adequate consideration being given to the needs of the poor. Even in telecommunications where privatization has improved national access to services through network expansion, weak regulation has had a negative impact on the poor through poor service quality and service cutbacks. There is now a significant base of experience around the world from which lessons can be learned. Infrastructure privatization should be viewed as a means to an end, and not an end in itself. The goal should be a more efficient sector delivering quality service while fulfilling its social responsibilities. Privatization is only an effective means towards the achievement of this goal if it is done in the context of an appropriate market and regulatory framework. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Credit demand and credit rationing in the informal financial sector in Uganda October 2004 Nathan Okurut, Andrie Schoombee and Servaas van der Berg This paper focuses on identifying the factors that influence credit demand and also those that result in the poor being credit rationed by lenders. An understanding of both these sets of determinants could assist policy formulation to enhance the welfare of the poor through improved credit access. In this respect we were fortunate in having a dataset that contains questions not only on actual credit given, but also on loans applied for. This allows us to investigate both credit demand and credit supply, and to model these using observed household and individual characteristics. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Capital Flight from South Africa, 1980 to 2000 October 2004 Seeraj Mohamed and Kade Finnoff Capital flight is a serious problem for South Africa, which if not addressed will continue to impede its ability to deal with structural issues such as high unemployment and concentration of wealth. This paper presents an estimate of the wealth that left South Africa in the form of capital flight during the period 1980 to 2000. We find that from 1980 to 2000 average capital flight as a percentage of GDP was 6.6 percent a year. In this paper, we deviate from the existing literature on capital flight from South Africa by suggesting that the motivation of people involved in capital flight before and after the fall of apartheid may have changed. We find that capital flight as a percentage of GDP was higher after the democratic elections in 1994, even though, there was much more political and economic instability during the period investigated before the democratic elections. The increase in capital flight as a percentage of GDP may reflect the discomfort of those involved in capital flight in the post-apartheid democratic process. We also consider how international capital flows and structural weaknesses in the economy have influenced capital flight. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Have labour market outcomes affected household structure in South Africa? A preliminary descriptive analysis of households October 2004 Farah Pirouz In this paper we comprehensively examine household size and structures in the October Household Survey 1995, 1997, 1999 and the Labour Force Survey September 2001 and 2002. Over the 1995-2002 period, the average household size has decreased significantly, by 0.4 household members. A rising share of single households from 12.6% to 21% of all households mostly drives this result. We investigate the question of how such changes in the patterns of household composition could be correlated to changes in labour force participation rates, unemployment rates, and employment rates. We further trace the distribution of unemployment andemployment over South African households over time. The shares of workless households where no member is employed, and full employment households, where all working age adult members earn income from work, tell about employment polarisation. Not surprisingly, the share of households with unemployed members has doubled to 27% in 2002. Findings may also provide explanations for why rising household inequality and household poverty are observed. Given the absence of a comprehensive social security net, a rising number of workless households in which no member earns work income may explain an increase in inequality measures over the same period. The paper aims to be a starting point for further econometric investigation on how households’ demography is influenced by individual labour market outcomes and vice versa. Therefore the explorations are general and the argumentation follows several avenues. To further explore household dynamics in conjunction with labour forcedynamics, panel data is required. In South Africa, panel data is limited to a two-wave survey of African households in KwaZulu-Natal (KIDS). The Labour Force Survey is designed as a rotating panel, and Statistics SA is still in the process of matching household and individual observations. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Trade liberalisation and regional integration in SADC: policy synergies assessed in an industrial organisation framework October 2004 Martine Visser and Trudi Hartzenberg Trade liberalisation has a significant impact on firm-market dynamics in a regional context. The purpose of this paper is to use an industrial organisation framework, focusing on the analytical units, the firm and the market, to assess the impact of trade liberalisation within the Southern African region, SADC. It is specifically the firm-level responses to various policies that will provide insight into changes in national industrial configurations, regional patterns of industrialisation and the potential for sustainable supplychain development in Southern Africa. The purpose of intra-regional trade liberalisation is to facilitate trade within a regional economic space, and through enhanced trade opportunities to elicit firm-level decisions to expand productive capacity. Such expansion of productive capacity, through various modalities of investment, can have important implications for the development of markets and market processes, resulting in robust, sustainable regional development. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Financial Intermediation and Access to Finance in African Countries South of the Sahara October 2004 Neren Rau This paper describes the status of financial systems for a number of African countries south of the Sahara, identifying various problems that hinder access to finance, especially for the poor, and subsequently those issues that deter economic performance and development. The countries surveyed were selected on the basis of a range of criteria including: geographical spread, economic size and development, level of financial market development and availability of information. Although Angola, Botswana, Gabon, Ethiopia, Kenya, Mauritius, Mozambique, Nigeria, Senegal and South Africa are the focus countries of this survey, many of the scenarios presented in this paper are applicable to other African countries south of the Sahara. Broad policy measures to tackle the bottlenecks that currently undermine financial systems' responsiveness to the needs of the real economic sector are recommended. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa The economy-wide impacts of the labour intensification of infrastructure expenditure October 2004 Anna McCord and Dirk van Seventer This paper examines the performance of public works in addressing both micro and macroeconomic policy objectives relating to growth, employment and poverty reduction in South Africa. Survey data on the micro-economic impact of public works programme participation is used alongside a social accounting matrix (SAM) for the South African economy which models the impact of a demand stimulus to the South African economy reflecting a hypothetical annual public works programme of R3billion1, using data from a labour based road rehabilitation programme. Drawing on recent survey data from two public works programmes in South Africa, the microeconomic impacts of public works programme participation in terms of income poverty, non income poverty and labour market performance are reviewed. These microeconomic findings are then linked to recent research examining the macro-economic impacts of public works programmes and the two are considered together in order to assess the micro-macro linkage of public works programmes and theircontribution to development and poverty reduction. This analysis is particularly relevant given the popularity of public works as an instrument for labour market and social protection intervention throughout the continent. The microeconomic analysis suggests that while participation in a public works programme may contribute to a reduction in the depth of poverty, with improvements in participation in education and nutrition, and have positive psychosocial benefits, the impact of a short term programme may not be significant in terms of a reduction in headcount poverty or improvements in asset ownership (material or financial). In this case the public works programme income may function essentially as a temporary wage shock, since the insurance function of the transfer is limited by the short duration of the employment period. If targeted to poorer groups, with lower levels of school participation and poorer nutrition, impact may be greater per unit of wage transferred, interms of contributing to human capital, but is still not likely to move participants out of poverty, but rather reduce the depth of their poverty. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Labour migration and households: a reconsideration of the effects of the social pension on labour supply in South Africa September 2004 Dorrit Posel, James Fairburn and Frances Lund This paper re-examines the effect of the South African social pension on the labour supply of working-age adults using data from 1993. We take account of the fact that households may include non-resident members, and therefore that the pension may play a role in facilitating migration to work or look for work. We find that rural African women are significantly more likely to be migrant workers when they are members of a household in receipt of a pension, and that it is female pension income that drives this result. We explore a number of possible reasons why pension income might have this effect. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Does Inflation in Ghana Hit the Poor Harder? April 2005 Andy McKay and Nii K. Sowa One of the defining characteristics of the Ghanaian macroeconomy over the past 40 years has been its high, and often variable, rates of inflation. Inflation was particularly high and variable in the politically turbulent 1970s and early 1980s, but has persisted throughout the gradual economic recovery since 1983. Though inflation has been lower and less variable in the latter period, it still remains high in absolute terms and by comparison with many other countries...This paper focuses on the question of whether the inflation rate for the basket of purchases of the poor is higher than for the population as a whole. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Household Savings in Ghana: Does Policy Matter? July 2004 Peter Quartey and Theresa Blankson The level of financial savings in recent years has been low by African standard and although various monetary policies have been pursued in Ghana to liberalize the financial sector, the level of savings has not increased substantially to accelerate the economy towards the growth path. Ironically, the few studies that have examined savings behaviour in Ghana have focused on aggregate savings (national or private savings) which does not sometimes reveal enough on household savings. Secondly, these studies have not examined the macro-micro inter-relationship between household savings and macro-financial policy. This study mainly aims to examine this relationship using the Ghana Living Standards Survey (GLSS) Waves III and IV. The paper found that macrofinancial sector policies pursued between 1991/92 and 1998/99 did not have appreciable effect on household savings. Secondly, children and the aged on average had higher savings balances than the working population, contrary to the life cycle hypothesis. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Effects of Exchange Rate Volatility and Changes in Macroeconomic Fundamentals on Economic Growth in Ghana July 2004 Stephen Kyereme This paper examines the determinants of per person real output growth (a measure of economic growth), exchange rate volatility, and price inflation—and their interactions and implications for economic development—using vector autoregression models. The roles of money and interest rates in price and output determination in Ghana are also explored. Using the Johansen cointegration procedure, tests are done to find out if long run relationships exist between pairs of the above variables. Results suggest: money as the key determinant of inflation; the exchange rate as the main determinant of output; and the exchange rate itself and price as the main determinants of the exchange rate. Interest rate shocks explain interest rates and money. Cointegration tests suggest: (a) a significant long run relationship between real output growth and the exchange rate; (b) a significant long run relationship between price inflation and the exchange rate; and (c) an insignificant long run relationship between the real interest rate and the exchange rate. These results reinforce the vector autoregression results discussed above. Policy makers, researchers, and future research may find insights from this study useful. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana A General Equilibrium Analysis of the Impact of Inward FDI on Ghana: The Role of Complementary Policies July 2004 Lawrence Arbenser The need for external capital (FDI) inflow to finance the current account deficit of developing countries cannot be over-emphasized. Foreign direct investment takes predominance over other types of capital inflow into developing countries. How would an increase in FDI and a reduction in import tariff levels in isolation affect household welfare and other macroeconomic indicators? How would the concurrent application of the two enhance expected impact? This paper explores the above questions by using a Computable General Equilbrium (CGE) model for Ghana, implemented in the General Algebraic Modeling System (GAMS) to carry out specific counterfactual simulations. This paper concludes that the primary benefit of an increase in FDI inflow for a developing economy is the increase in current consumption. It also establishes that policies which ensure increase in FDI flow and reduce tariff levels are complementary policies that enhance household welfare. It also emphasizes that the two policies will have different impact on macroeconomic indicators, inter alia exchange rate, export, import and trade deficit. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Terms and Access to Credit: Perceptions of SME/Entrepreneurs in Ghana July 2004 Kwadwo Ansah Ofei This research reports on the impact of financial sector liberalization program on the access to funding by Small and Medium Enterprises (SME’s) in seven regions in Ghana. Especially, it examines the extent to which differences in the development of the seven regions can cause access to funding. Small and Medium Enterprises (SME’s) in Ghana. in constitute a greater percentage of the economy of Ghana. There are, however, several constraints to the development of SME’s. Especially, the lack of access to resources and financial markets (Aryeetey et al 1994). Other constraints to SME development include difficulty in finding skilled labour to employ. There is also a problem of having access to modern technology. Many firms use old machinery, and have problems with finding replacements parts to purchase (Andrea 1981) Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Coping with Performance Below Expectations July 2004 Blair Rourke The weak economic performance of Ghana since independence has been a source of much disappointment. A similar situation applies as well to most other African countries, and for many, the performance has been even worse. Much attention has been given both to failed government policies and to the failure of international assistance. It will be argued that one factor that is frequently not given sufficient attention in the discussion of the growth in the economy of Ghana is the extent to which the 1950s, the period during which Ghana obtained its independence, was an abnormally favorable period for Ghana and for most other primary commodity producing countries. The focus of the argument here is somewhat different from that usually advanced in studies showing the critical importance of the terms of trade to Ghana. It is that the favorable external environment for Ghana in the 1950s was the result of rather unique events, and the degree to which they were unique was not fully appreciated at the time and for many years thereafter. This experience of Ghana in the early postindependence period raises more general questions as to how to differentiate between permanent and transitory events, and further, when major errors occur, questions as to how the situation can be rectified. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Financial Development, Political Institutions and Economic Growth in the ECOWAS Sub-Region: An Empirical Analysis July 2004 George A. Dampare and Jennifer Piesse The enormous cross-country differences in economic development and growth in recent years, have led to a resurgence of research interest in the determinants of economic growth, a subject which has been extensively debated. The resultant literature contains competing explanations of economic development and growth and the notable ones are the roles of institutions (Easterly and Levine, 2003; and Rodrik et al 2002), importance of geography, culture and history (Acemoglu et al. 2001) and quality of macroeconomic policies (Frankel and Romer, 1999; Aryeetey and Fosu, 2002; and Berg and Krueger, 2003). A common characteristic of the series of research papers that have examined this issue is that they relate to a combination of developed and developing countries. Interestingly, the results have been very persuasive, but not conclusive and this characterizes the issue as one of continuous research importance. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Real Exchange Rate Response to Capital Inflows: A Dynamic Analysis for Growth July 2004 Oliver Morrissey, Tim Lloyd and Maxwell Opoku-Afari One of the most challenging problems in developing countries such as Ghana is exchange rate management, that is, ‘getting the exchange rate right’ especially in the context of exchange rate misalignment. The major research and policy question is what constitutes the equilibrium real exchange rate (ERER) and how can it be measured? Acknowledging the importance of fundamentals in determining the equilibrium real exchange rate, the paper concentrates on the effects of capital inflows (by decomposing capital inflows into official inflows, “permanent” inflows and “non-permanent” inflows). Vector Autoregressive (VAR) techniques are used to model the long-run equilibrium real exchange rate in Ghana, and based on a multivariate orthogonal decomposition technique, the equilibrium steady state path is identified which is used in estimating misalignments. As predicted by the Dutch Disease theory, results indicate that capital inflows tend to appreciate the real exchange rate in the long-run. Capital inflows is the only variable generating real appreciation in the long-run; technology change, trade (exports) and terms of trade all tend to depreciate the real exchange rate. The only variable that has a significant (depreciating) effect on the real exchange rate in the short-run is trade, implying that changes in exports are the major driver of exchange rate misalignment. It is also shown that the real exchange rate is slow to adjust back to equilibrium, implying policy ineffectiveness or inflexibility. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Persistent Public Sector Deficits and Macroeconomic Instability in Ghana September 2004 Curtis E. Youngblood and David L. Franklin Over the decade of the 1990s Ghana was considered an example among African countries regarding the pace and extent of its economic reforms affecting its trade regime, its financial sector, and the conduct of its fiscal and monetary policy (Kapur et al., 1991). This reputation was earned in the latter half of the 1980s when Ghana’s government instituted a series of policy measures to rescue its economy from the depths of its most severe crisis in the post-colonial period. This program, the Economic Recovery Program (ERP), placed Ghana on a path of modest economic growth: from a per capita GDP of $309 in 1983, per capita income grew at an average rate of 1.8% per year to $371 in 1993. In spite of this early promise and the good reputation it achieved with the international financial institutions, international donors and its own private enterprise sector, Ghana’s economic growth has continued to be moderate. Per capita GDP in 2000 was $411, so that per capita incomes grew at only 1.5% per year from 1993 through 2000. At this rate, incomes will double in 50 years. This is a far cry from the ambitious growth rates envisioned in official growth plans such as Vision 2020, which was predicated on per capita growth rates of 5%-7% per annum. Yet, it is perplexing to most observers that in March 2001 the recently elected government of the New Patriotic Party (NPP) sought relief under the Highly Indebted Poor Countries (HIPC) initiative, as it dealt with the aftermath of a massive currency crisis. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Economic Growth in Ghana: 1960-2000 July 2004 Ernest Aryeetey and Augustin K. Fosu It was fairly common in the 1980s and early 90s to read commendations of Ghana’s economic growth achievements. Leechor (1994) described Ghana as a frontrunner in the economic reform process, and the Bretton Woods institutions regularly put Ghana forward as a showcase of economic success in Africa. But this occurred at a time when many Ghanaians showed little appreciation of that growth achievement (Aryeetey and Tarp 2000). The continuing fragility of the economy and the significant social costs of adjustment made it difficult to appreciate economic growth in a period of reforms. While there is no doubt about the fact that the economic growth record of the last two decades, following reforms, differed from that of the first two decades in terms of consistency, it is also clear that the factors behind the growth experiences of shorter periods in-between show remarkable similarity. Whenever there has been considerable capital injection into the economy, this has been followed by significant growth. It is the difficulty in making those injections consistently in the absence of structural change that has left the economy still fragile after four decades of independence. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Ghana’s Exchange Rate Reform and its impact on Balance of Trade July 2004 Frank W. Agbola Since the breakdown of Bretton Wood Accord in 1973, and the advent of floating exchange rates, there has been renewed interest about the effect of devaluation on the trade balance of both developed and developing countries. This paper examines the impact of devaluation on trade balance of Ghana. Annual data spanning the period 1970 and 2002 were employed in the analyses. The Johansen MLE multivariate co-integration procedure reveals that Ghana’s trade balance and key determinants are co-integrated, and thus share a long-run equilibrium relationship. The Stock-Watson dynamic OLS model (DOLS), which is superior to a number of alternative estimators, finds empirical evidence of significant long run relationship between Ghana’s trade balance and real domestic and foreign income, domestic and foreign interest rates and exchange rates. The empirical result suggests that devaluation does not improve the trade balance of Ghana in the long run. The response in trade balance to movements in the exchange rate appears to be characterised by an M-curve phenomenon. The policy implications of the results are discussed. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Decentralization and Poverty Reduction July 2004 Felix A. Asante and Joseph R. A. Ayee This paper concentrates on one of the most important reasons behind the implementation of decentralization programmes in sub-Saharan Africa, that is, the capacity of decentralized governments because of their closeness both institutionally and spatially to citizens in the rural areas who are more responsive to the needs of the poor than the central government and thus are more likely to formulate and implement pro-poor policies and programmes. Using the Ghanaian experience of decentralization, which started with the creation of 110 decentralized governments called District Assemblies in 1988/89, the paper examines the impact of decentralization on poverty reduction. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Rural and Micro Finance Regulation in Ghana: Implications for Development of the Industry September 2004 William F. Steel and David O. Andah This paper assesses how the policy, legal and regulatory framework has affected — and been influenced by — the development of rural and micro finance institutions (RMFIs) in Ghana, especially in terms of the range of institutions and products available, their financial performance and outreach. The potential of microfinance to reach large numbers of the poor is well understood (Robinson 2001). Questions for regulation are the extent to which a flexible regulatory environment can encourage innovation and a diversity of RMFIs and products serving different market niches not reached by commercial banks, and at what point special legislation may be needed, whether to facilitate commercialization and sustainability of the rural and micro finance (RMF) industry or to protect deposits and ensure the stability of the financial system. Ghana is particularly interesting because its tiered system of different laws and regulations for different types of institutions has evolved largely in response to local conditions and because so many of its institutions are savings-based. The resulting system resembles the tiered approach recommended by the World Bank’s 1999 study of microfinance regulation (Van Greuning et al.) and more recently adopted by Uganda.2 While Ghana’s approach has fostered a wide range of both formal and informal RMFIs, it has not as yet been so successful in achieving strong financial performance, significant scale, and true commercialization of microfinance. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana A Small Macroeconometric Model of Trade and Inflation in Ghana July 2004 Samuel Donyina Ameyaw and Philip Abradu-Otoo This paper uses a conventional macroeconometric model to empirically investigate the effects of credit tightening and currency depreciation on trade and inflation in Ghana. Our main findings are as follows. First, the results corroborate the view of the International Monetary Fund that both depreciation and credit restraint are effective in addressing the balance of payments issues facing developing economies, such as Ghana. Second, depreciation of the domestic currency is unfavourable to the cause of curbing inflation in Ghana. It rather leads to price increases and could lead to spiraling inflation through the agitation of higher wages by employees. Third, depreciation of the domestic official exchange rate leads to a decline in the parallel market exchange rate premium, while increases in money supply causes the parallel market exchange rate premium to increase. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Technical Efficiency in Ghanaian Secondary Education April 2005 Kwabena Gyimah-Brempong and Elizabeth N. Appiah This paper uses district-level panel data and a stochastic frontier production function to investigate the existence of, and the correlates of inefficiency in the production of secondary education in Ghana. Using the proportion of students passing the West African Examination Council’s Certificate examination, we find relatively large indices of technical inefficiency in the production of education in Ghana. These technical inefficiencies vary by subject matter and are higher at the Junior Secondary School level than at the Secondary School level. Furthermore, we find large regional differences in technical inefficiencies we estimate in this paper. Technical inefficiency, we find, also varies by subject; there tends to be large inefficiencies in the sciences and mathematics than in English. We find that average per student household expenditure on education, parent’s education, and the number of siblings are highly correlated with technical inefficiencies in the production of secondary education in Ghana. The correlation between these family inputs and technical ineffi- ciency is much stronger at the Senior Secondary School level than at the Junior Secondary School level. We also find that the education production function is neither of the Cobb-Douglas functional form nor constant returns to scale technology. Our results point to the importance of both school and family inputs in the production of cognitive abilities in Ghanaian secondary schools. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Export Performance and Investment Behaviour of Firms in Ghana July 2004 Susanna Wolf and Daniel Bruce Sarpong A strong relationship between export performance and investment behaviour at the firm level is expected to complement market access in diversifying Ghana’s exports. A 2003 survey of 100 enterprises in Ghana is used to analyse the factors that influence the investment and exporting behaviour of firms using a simultaneous equation model to allow for the endogeneity of investment and exporting. In addition the different factors that influence the investment and export decisions in different sectors are investigated. However, no significant positive relationship between exporting and investment could be found. There seems rather to be a negative association which might be explained by constraints in the access to capital. On the other hand there are several factors that work in the same direction, for example, younger firms, larger firms and more efficient firms are more likely to invest and more likely to export. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Smallholder Identities and Social Networks: The Challenge of Improving Productivity and Welfare April 2004 Barrett, Christopher B. This paper proposes a general framework for resolving the puzzle of how to reconcile the mass of recent evidence on the salutary effects of social capital at the individual level with the casual, larger-scale observation that social embeddedness appears negatively correlated with productivity and material measures of welfare. It advances an analytical framework that not only explains individual productivity or technology adoption behavior as a function of the characteristics or behaviors of others, but that also explains the aggregate properties of social systems characterized by persistently low productivity. Examples from Kenya and Madagascar are used to illustrate the phenomena discussed. In The Social Economics of Poverty: Identities, Groups, Communities and Networks, Christopher B. Barrett, editor, London: Routledge, 2005. "Two million net new jobs": A reconsideration of the rise in employment in South Africa, 1995-2003 April 2004 Daniela Casale, Colette Muller and Dorrit Posel In this paper we investigate labour market trends in South Africa between October 1995 and March 2003. In particular, we evaluate the South African government’s claim that over this period, the economy created two million net new jobs. Using the same household survey data as that used to generate official employment estimates, we also find an almost two million net increase in employment. However, we show that this increase is likely to have been inflated by changes in data capture and definitions of employment over the years, and that the real increase may be considerably less, with a lower bound of approximately 1.4 million jobs. We argue further that the rise in employment over the period must be evaluated in the context of a dramatically larger growth in labour supply and therefore rising rates of unemployment, declining real earnings, and an increase in the number of the working poor, particularly among Africans. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Mixing Qualitative and Quantitative Methods of Analyzing Poverty Dynamics March 2004 Barrett, Christopher B. This paper outlines my current thinking and recent experience in mixing qualitative and quantitative methods of data collection and analysis so as to gain a firmer and more useful understanding of poverty dynamics, especially in rural Kenya. We first explore the very real differences between qualitative and quantitive poverty analysis methods, differences that make them useful complements. Then we debunk a few myths about differences that do not really exist. Finally, I discuss key lessons learned from four multi-year research projects in Kenya that have tried to implement mixed qualitative and quantitative research methods with a range of researchers from animal science, anthropology, economics, geography, range science, sociology and soil science. In Quantitative and Qualitative Methods for Poverty Analysis: Proceedings of the Workshop Held on 11 March, 2004, Nairobi Kenya, Walter Odhiambo, John M. Omiti, and David I. Muthaka, editors, Nairobi, Kenya: Kenya Institute for Public Policy Research and Analysis (KIPPRA) Quantitative Poverty Analysis March 2004 Germano Mwabu Poverty is a complex human phenomenon associated with unacceptably low standard of living. It has multiple dimensions, manifestations and causes (World Bank, 2000). Poverty analysts from a variety of disciplines have been constantly asking questions about this phenomenon, sometimes out of curiosity, but often with the aim of providing information that can be used to overcome it. Quantitative methods help provide answers to particular questions about poverty and, can only provide partial information about it. Needless to say, no single approach to poverty appraisal can capture all the essential aspects of poverty. Choice of methods of poverty analysis is dictated by issues of interest to a researcher and his research skills. Because of the complexity of the poverty phenomenon, researchers have come to appreciate the need to specialize in acquiring skills that are necessary for understanding only certain aspects of poverty, and consequently the need to concentrate their work on areas of poverty appraisal in which they have comparative advantage in skill endowments. As Barrett (2001) has correctly observed, the type of poverty appraisal that has been undertaken over the past decades has been subject-driven, and researcher-directed. This is of course no accident. The economic concept of comparative advantage suggests that there is much efficiency (in advancing knowledge about poverty) to be gained from specializing in certain approaches to poverty appraisal. Quantitative poverty analysis is a particular area of poverty research in which investigators with quantitative skills specialize. Presented at the KIPPRA-Cornell-SAGA Workshop on "Qualitative and Quantitative Methods for Poverty Analysis," March 11, 2004, Nairobi, Kenya Bridging the Qualitative-Quantitative Methods of Poverty Analysis March 2004 Enos H.N. Njeru Poverty is primarily a social problem. As such it requires meticulous definition, identification of constituent parameters and verifiable and measurable indicators. The constituent parameters should essentially single out the major causal factors. Knowledge of the latter, in effect, serves as good basis for identification of perceived solutions and methodologies to guide implementation of the proposed remedial strategies. Presented at the KIPPRA-Cornell-SAGA Workshop on "Qualitative and Quantitative Methods for Poverty Analysis," March 11, 2004, Nairobi, Kenya Poverty Mapping: The Case of Kenya March 2004 Anthony K.M. Kilele and Godfrey K. Ndeng’e Kenya like many other developing countries is currently refocusing its development policies towards poverty reduction. The emphasis on poverty reduction is primarily a response to the fact that, despite many efforts to improve the well being of the poor in the past, the majority of the people still live in poverty. Hence, finding ways to reduce poverty and inequality in Kenya is a huge challenge facing both local and national policy decision makers. Poverty is a multi-faceted problem and its levels tend to vary considerably over space. Thus, providing information on the spatial heterogeneity of poverty can greatly assist anyone trying to tackle the challenge of identifying who the poor are? Where they live? And what causes their poverty? Presented at the KIPPRA-Cornell-SAGA Workshop on "Qualitative and Quantitative Methods for Poverty Analysis," March 11, 2004, Nairobi, Kenya Social Aspects of Dynamic Poverty Traps: Cases from, Vihiga, Baringo and Marsabit Districts, Kenya March 2004 Nelson Mango, Josephat Cheng’ole, Gatarwa Kariuki and Wesley Ongadi This paper draws on qualitative research on Social Aspects of Dynamic Poverty Traps conducted in Vihiga, Baringo and Marsabit districts, Kenya. Using qualitative research techniques such as case study approach and community workshops, the paper explores the strategies that have been used by certain households to move out of poverty in the past ten to twenty years and reasons for descent into poverty by some households in the same period. Findings from this study indicate that poverty is not only an outcome of economic processes, but also an outcome of political, environmental and social processes that interact with each other and frequently reinforce each other in ways that exacerbates the deprivation of the environmental situation in which people live. The case studies presented in this report give people’s description of what living in poverty means and bears eloquent testimony to their pain. While it is tempting to think that for those who live in poverty escaping from it may seem impossible, findings from this study show that it is not. The case study materials presented in this paper indicate that poor people are not passive to their predicament but have time testesd coping and survival strategies and institutions that can even enable some of them to escape from poverty. Such strategies and institutions can be integrated into innovative poverty reduction programs because they present enormous potential for bottom-up approaches to poverty alleviation. Presented at the KIPPRA-Cornell-SAGA Workshop on "Qualitative and Quantitative Methods for Poverty Analysis," March 11, 2004, Nairobi, Kenya Indices and Manifestations of Poverty: Informing Anti-Poverty Policy Choices March 2004 Willis Oluoch-Kosura, Paswel P. Marenya, Frank Place and Christopher B. Barrett Kenya has entered the 21st century with over 50% of its population classified as absolutely poor in that they live on less than a dollar a day. Per capita income is lower than at the end of the 1960’s. Income, assets, and access to essential services are unequally distributed. The country has made important economic reforms, improving macroeconomic management, liberalizing markets and trade, and widening the scope for private sector activity in the hope of improving economic growth and welfare for Kenyans. Yet, despite these reforms the country has experienced little growth and poverty continues to afflict an ever-larger segment of its citizenry, especially in rural areas. Presented at the KIPPRA-Cornell-SAGA Workshop on "Qualitative and Quantitative Methods for Poverty Analysis," March 11, 2004, Nairobi, Kenya Survival and Success Among African Manufacturing Firms February 2004 Alan Harding, Måns Söderbom and Francis Teal Recent reforms in most African economies of their trading and exchange rate regimes have eliminated much of the protection which previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this paper we consider the roles of learning, competition and market imperfections in determining three aspects of firm performance, namely firm exit, firm growth and productivity growth. We use a pooled panel data set of firms in Ghana, Kenya and Tanzania that spans a period of five years. We find that the main determinant of exit is firm size, with small firms having much higher exit rates than large ones. Productivity impacts on firm survival among large firms, but not among small firms. Reasons for this result are discussed. We find evidence that, among surviving firms, old firms grow slower than young firms, which is interpreted as evidence consistent with market constraints limiting growth of firms in Africa. We find no evidence that larger firms have faster rates of productivity or input growth, or are more efficient in the sense of benefiting from scale economies. We also find that competitive pressure enhances productivity growth. Given that one of the objectives of the reform programmes implemented in all three countries was to stimulate higher efficiency levels, this finding shows that one aspect of the reform programme has been successful. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Labour force withdrawal of the elderly in South Africa February 2004 David Lam, Murray Leibbrandt and Vimal Ranchhod The elderly in South Africa face a complex set of challenges. South Africans over age 50 spent most of their lives under apartheid. Levels of inequality in education between races and within races are far greater among these older cohorts than they are for younger South Africans. Elderly black South Africans lived their most productive years under the restrictions on employment, residency, and other opportunities that apartheid imposed. As they now enter retirement they face new pressures caused by the impact that HIV/AIDS and high unemployment rates are having on the next generation. At the same time, South Africa’s elderly have access to an old age pension system that is among the most generous in the developing world. The old age pension helps lift many older South Africans out of the most extreme forms of poverty, and puts many of them in a position supporting their children and grandchildren. Decisions of the elderly about work and retirement are made in this complex set of circumstances. Older workers face an increasingly competitive labor market characterized by high unemployment, with limited opportunities for those with poor education and training. They often live in large extended households in which their own resources may be an important source of economic support. The pension provides an important source of support, without necessarily competing with work. The state old age pension program has spawned a considerable body of research. This research is reviewed in the next section of the paper. The review shows that state old age pension is the key plank of South Africa’s social safety net, that these pensions are well targeted at the poor and, because of the large number of three-generation and skip-generation households in South Africa, this includes many poor children. In addition, it seems that many of the unemployed survive through their links to related pensioners. More recent research has begun to explore the impact of these pensions on labor participation behavior. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Rural Livelihoods and Collective Action in Joint Forest Management in Zambia February 2004 Bwalya, Samuel M. This study examines rural livelihoods and collective action in Joint Forest Management (JFM) in six local forest communities in three of the nine provinces of Zambia. The role of forests and woodlands resources to rural livelihood strategies and rural income is examined and the determinants of collective action are identified and discussed. Our analysis of rural livelihood strategies suggests that both agriculture and forests are important sources of rural livelihoods and contributors to rural income. However, although average income from agriculture is relatively smaller than income from forest products there are more people earning income from the former than from the latter. We also find that although women appear to be more dependent on forests and woodlands for subsistence, it is rather the men who more dependent on forests for commercial income. With respect to the determinants of collective action in local forest management, results from this study suggest that household income and income inequality across households, scarcity of forest products, organizational and social capital, and individual prior experience with collective action programs promote collective action whereas market integration and proximity to urban markets (which some form of regional heterogeneity) weakens cooperation. It was also evident that programs which support both agricultural development and forest conservation will have the greatest impact on local behavior, poverty reduction and longterm local forest management in the study area. Final Report for SAGA Competitive Research Grants Program Public Service Provision, User Fees, and Political Turmoil January 2004 Fafchamps, Marcel and Bart Minten Following an electoral dispute, the central highlands of the island of Madagascar were subjected to an economic blockade during the first half of 2002. After the blockade ended in June 2002, user fees for health services and school fees were progressively eliminated. This paper examines the provision of schooling and health services to rural areas of Madagascar before, during, and after the blockade. We find that public services were more resilient to the blockade than initially anticipated, but that health services were more affected than schools. The removal of user fees had a large significant effect on public services that is distinct from the end of the blockade and the increase in school book provision. Well-Being poverty versus income poverty and capabilities poverty in South Africa? December 2003 Geeta Kingdon and John Knight The conventional approach of economists to the measurement of poverty in poor countries is to use measures of income or consumption. This has been challenged by those who favour broader criteria for poverty and its avoidance. These include the fulfilment of ‘basic needs’, the ‘capabilities’ to be and to do things of intrinsic worth, and safety from insecurity and vulnerability. This paper asks: to what extent are these different concepts measurable, to what extent are they competing and to what extent complementary, and is it possible for them to be accommodated within an encompassing framework? There are two remarkable gaps in the rapidly growing literature on subjective well-being. First, reflecting the availability of data, there is little research on poor countries. Second, within any country, there is little research on the relationship between well-being and the notion of poverty. This paper attempts to fill these gaps. Any attempt to define poverty involves a value judgement as to what constitutes a good quality of life or a bad one. We argue that an approach which examines the individual’s own perception of well-being is less imperfect, or more quantifiable, or both, as a guide to forming that value judgement than are the other potential approaches. We develop a methodology for using subjective well-being as the criterion for poverty, and illustrate its use by reference to a South African data set containing much socio-economic information on the individual, the household and the community, as well as information on reported well-being. We conclude that it is possible to view subjective well-being as an encompassing concept, which permits us to quantify the relevance and importance of the other approaches and of their component variables. The estimated well-being functions for South Africa contain some variables corresponding to the income approach, some to the basic needs (or physical functioning) approach, some to the relative (or social functioning) approach, and some to the security approach. Thus, our methodology effectively provides weights of the relative importance of these various components of well-being poverty. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Inequality in South Africa: Nature, Causes and Responses November 2003 Stephen Gelb Speaking in South Africa’s parliament in 1998 in the debate on the report of the Truth and Reconciliation Commission, (then-Deputy) President Thabo Mbeki argued that "material conditions have divided our country into two nations, the one black, the other white. [the latter] is relatively prosperous and has ready access to a developed economic, physical, educational, communication and other infrastructure...The second, and larger, nation of South Africa is black and poor, [and] lives under conditions of a grossly underdeveloped infrastructure... Neither are we becoming one nation. Unlike the German people [after unification in 1990] we have not made the extra effort to generate the material resources we have to invest to change the condition of the black poor more rapidly than is possible if we depend solely on severely limited public funds, whose volume is governed by the need to maintain certain macroeconomic balances and the impact of a growing economy." This paper examines the nature of the divide which Mbeki pointed to between the ‘two nations’ and the reasons for the limited response to this divide during the post-apartheid era since 1994 at which he hints. This paper argues that this response can be understood only through an historical analysis of the transition to democracy. Section 2 provides an overview of inequality, poverty and economic growth in South Africa and their trends during the past ten years. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa Production Changes in Ghana Cocoa Farming Households Under Market Reforms October 2003 Francis Teal and Marcella Vigneri The Ghana cocoa market has been extensively liberalised over the period since the mid 1980s. Three issues have been prominent in research on agricultural supply response to liberalisation. The first has been the size of the supply elasticity, the second the response to reduced subsidies on inputs, the third whether innovation will occur. In this paper we investigate these three issues by estimating a production function for cocoa in Ghana drawing on two household surveys covering the period from 1991 to 1998. The estimated production function allows identifying the factors underlying the change in output. It is shown that for most regions the whole rise in cocoa production occurring over the period, of about 6 per cent per household, was accounted for by a rise in land and non-labour inputs. The data is consistent with a constant returns to scale technology in which total factor productivity was unchanged in almost all regions. There were offsetting changes in factor use: the labour to land ratio fell while the non-labour to land ratio rose. Thus the analysis of the micro data shows that, contrary to much of the discussion of the effects of trade reform, the contribution of non-labour inputs to cocoa production has increased both relative to land and, very substantially, relative to labour. The reform period has seen a rise in the ratio of both land to labour and of non-labour input to labour which have increased labour productivity. Reform has not led to innovation in techniques which raise total factor productivity. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Financial Sector Liberalization on the Labour Market in Ghana April 2003 Augustine Fritz Gockel and Nora Amu One of the expected outcomes of the financial sector liberalization programme was that labour and capital resources would be priced efficiently in a competitive market. In a labour abundant country, labour intensive production techniques will emerge, as real wages fall sufficiently to contain employment and output. The study finds that firms are inclined to increase capital intensity than labour intensity given access to credit facilities. Furthermore, the high-cost-low-wage labour phenomenon plays a role in the low labour absorption in Ghana, especially where labour needs may be seasonal or dependent on the level of output. A more pragmatic labor law that allows flexibility for employers but also adequately compensate seasonal labour is needed. Presented at the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Banking Competition and Efficiency in Ghana October 2004 Thierry Buchs and Johan Mathisen This paper assesses the degree of bank competition and discusses efficiency with regard to banks’ financial intermediation in Ghana. By applying panel data to variables derived from a theoretical model, we find evidence for a noncompetitive market structure in the Ghanaian banking system, which may be hampering financial intermediation. We argue that the structure, as well as the other market characteristics, constitutes an indirect barrier to entry shielding the large profits in the Ghanaian banking system. In Ernest Aryeetey and Ravi Kanbur (editors), The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty, James Currey, 2008. Presented at the DPRU-TIPS-Cornell University Forum on "African Development and Poverty Reduction: The Macro-Micro Linkage," October 13-15, 2004, Cape Town, South Africa and the ISSER-University of Ghana-Cornell University International Conference on "Ghana at the Half Century," July 18-20, 2004, Accra, Ghana Water Pricing, the New Water Law, and the Poor: An Estimation of Demand for Improved Water Services in Madagascar December 2002 Minten, Bart, Rami Razafindralambo, Zaza Randriamiarana, and Bruce Larson Generalized cost recovery is one of the basic principles of the new Water Law that has recently been adopted by the Malagasy government. However, the effect of this change in policy is still poorly understood. Based on contingent valuation surveys in an urban and a rural area in southern Madagascar, this study analyzes the effect of changes in prices for water services. The results suggest that a minimum size of 90 households in a village is necessary to reach full cost recovery for well construction. Given that this is significantly above the current size of villages in the survey area, full cost recovery seems therefore impossible and subsidies are necessary to increase access to improved water services. Cost recovery for maintenance is relatively easier to achieve. In urban areas, water use practices and willingness to pay for water services depend highly on household income. To better serve the poor, it is therefore suggested that rich households, who rely on private taps, cross-subsidize poor households as a significant number of households is unwilling or unable to pay for water from a public tap. Given that public taps make up a small part of the total consumption of the national water company JIRAMA, lower income from public taps are shown to have only a marginal effect on its total income. However, as experiences in other countries as well as in Madagascar have shown, a fee on public taps is necessary as water for free leads to spoilage, does not give any incentive for the distributor to expand networks, and might therefore be a bad policy for the poor overall. RETURN TO MAIN PUBLICATIONS BY RESEARCH THEME PAGE

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