African Journal of Economic Review

Macroeconomic Determinants of Energy Consumption in Eastern Africa: An Empirical Analysis Using Panel-ARDL Models

Nanzia F. Mmbaga — 2024-08-10

Energy security is crucial for Eastern Africa's economic prosperity and the improvement of living standards. Exploring the drivers of energy consumption is essential for crafting effective energy policy actions that are aligned with focused developmental goals and leveraging available energy resources. Using the Panel Autoregressive Distributed Lag model, this study examines the short and long-run macroeconomic drivers of energy consumption in Eastern Africa from the period 2000-2021. Results reveal that inflation (i.e. consumer price index) exhibits a short-run negative impact on energy consumption. However, in long term, inflation has a positive relationship with energy consumption. The study also show that population size has a negative short-run effect on energy consumption. However, in long term an increase in population size drives energy consumption in EAC. Moreover, trade openness influences short-run consumption and foreign direct investment impacts long-run consumption. The mechanisms influencing these macroeconomics determinants of energy consumption are discussed. We suggest addressing population trends, inflation crisis, and trade-induced fluctuations in the short run, while fostering an environment conducive to attracting foreign direct investment and controlling inflation in the long run. Achieving regional energy security and economic resilience necessitates a balanced approach that considers both internal and external factors across different timeframes.

Early Marriage of Women and Education of Children in Sub-Saharan Africa: Cases of Mali and Nigeria.

Jean Claude Saha — 2024-08-10

We analyzed the impact of early marriage of women on children's education in Mali and Nigeria using data from the 2018 Demographic and Health Surveys. We employed instrumental variables, Binary Probit, and multiple linear regression models to conduct our analysis. Our findings reveal several key insights. Firstly, early marriage of women reduces the number of years of schooling for children in Mali and in Nigeria. Secondly, early marriage of women diminishes the likelihood of children completing primary school in Mali and Nigeria. This latter discovery is the most crucial contribution of our research, as no previous study has explored this relationship. Additionally, we confirmed the mother's education as a pathway through which this negative impact on children's number of years of schooling is transmitted, but we have not confirmed it as a channel for influencing school completion. As policy implications for the amelioration of children’s education in these countries, we recommend that their governments work for an increase in the age at first marriage of girls, through an improvement in their education and a delay in their first sexual intercourse.

Crowding-out Effect of Public Debt on Private Sector Credit in Nigeria

Terungwa Paul Joseph Jato — 2024-08-10

This paper investigates the effect of public debt on private sector credit in Nigeria, aiming to determine if public-sector borrowings crowd out private sector credit through rising interest rates. Utilizing the quantile autoregressive distributed lag (QARDL) model, the study examines the long-term equilibrium effect of public debt on private sector credit across various quantiles. The Wald test was employed to assess the time-varying relationship and the constancy of integrating coefficients across quantiles. To address potential contemporaneous correlations between variables, a projection method is used to derive a QARDL-ECM model. Findings indicate a significant crowding-out effect, with a one-unit increase in public debt leading to a 1.49-unit decrease in private-sector credit. This negative impact is observed both in the short and long run, and the effect varies across quantiles, from positive at lower quantiles to negative at higher quantiles. Additionally, per capita GDP positively influences private sector credit, while interest rates and institutional quality index have negative effects of varying magnitudes. The study concludes that public-sector borrowings indeed crowd out private-sector credit in Nigeria. It is recommended among others that the Nigerian government should adopt strategies to manage and reduce public debt to mitigate its negative impact on private-sector credit and diversify its sources of funding to reduce reliance on borrowing.

Electricity Accessibility and Household Business Start-ups in Rural Uganda: Evidence from Quasi-Experimental Analysis

Maxwell Clovice Kamanyire — 2024-08-10

This article examines the impact of access to electricity on rural household business startups across 3 channels: (1) access to rural electrification programmes, (2) access to power (irrespective of the source) and (3) connection to the grid. We use inverse probability weighted regression adjustment on survey data collected from the central region of rural Uganda and apply propensity score matching (PSM) as a check to the robustness of our results. Our primary results reveal substantial and significant impacts of electricity access on household business start-ups across the three channels. Our findings remain robust, and hidden bias does not affect our results. We find that access to power seems to have a more significant impact than access to the other two channels. This suggests that for a better understanding of how electricity affects rural areas, a comprehensive analysis of all power sources is crucial. Additionally, we show that access to electricity primarily influences the establishment of service-related enterprises rather than manufacturing and processing enterprises. From a policy standpoint, our results indicate that developing a rural transformation program through enhanced electrification interventions necessitates multiple support programmes beyond merely extending the grid lines to rural areas.

The Nexus Between Trade Openness, Gender Gaps and Unemployment in Nigeria

Mohammed Shuaibu — 2024-08-10

Unemployment is a major concern for developing countries such as Nigeria, despite the deployment of several policy measures to address the challenge. Although trade is a major driver of growth and job creation, addressing unemployment remains daunting, and women are more vulnerable. This study examines the impact of trade openness and labour market gender gaps on unemployment in Nigeria using a time series analysis covering the period 1991 to 2021. This study specifically relies on co-integration and vector error correction models to analyse the long- and short-run relationships. The long-term analysis revealed the existence of a co-integrating association among unemployment, trade openness, gender gaps, and the other independent variables. The estimates indicate that trade openness negatively and significantly affects unemployment. However, the short-run estimates showed that real wages negatively and significantly impact unemployment. In contrast, the male-female labour force ratio (an indicator of the gender gap) negatively and significantly affected Nigeria's unemployment. The coefficient of trade openness was negative but statistically insignificant in the short run. The results make a case for pursuing more liberal trade policies that can complement other job-creating initiatives of the government. In addition, a move toward more market-reflective wages could be considered, while gender gaps in the labour market need to be addressed by creating more opportunities for women.

Determinants of Current Account in Nigeria

Bukonla G. Osisanwo — 2024-08-10

The study analyzed the determinants of the current account balance in Nigeria between 1981 and 2020, using three different models: oil current account balance, non-oil current account balance, and total current account balance. The dependent variables were the respective current account balances, while the explanatory variables included income, consumption, investment, budget deficit, exchange rate, financial deepening, broad money supply, unemployment rate, inflation rate, and age dependency ratio. The data was analyzed using the autoregressive distributed lag (ARDL) technique. The results indicated that budget deficit, exchange rate, and financial deepening were statistically significant in determining the oil current account position in the short run, while income, budget deficit, and exchange rate were statistically significant in the long run. For non-oil current account position, budget deficit, money supply, unemployment rate, inflation rate, and age dependency ratio were significant determinants in the short run, while budget deficit, money supply, unemployment rate, and inflation rate were significant in the long run. In the case of the total current account position, budget deficit, financial deepening, unemployment rate, and age dependency ratio were significant in the short run, while budget deficit, unemployment rate, and age dependency ratio were significant in the long run. The study suggests that policymakers in Nigeria should focus on reducing budget deficits, promoting financial deepening, and maintaining stable exchange rates to improve the current account balance, particularly in the short run.

Do small businesses benefit from microfinance loans in the era of free market capitalism? A critical analysis of PRIDE, Tanzania

Musa Magufuli — 2024-08-10

This study examines the perceptions of small business operators on microfinance loans received from PRIDE (Promotion of Rural Initiative and Development Enterprises)-Tanzania in Kinondoni Municipality in relation to poverty reduction. The study involved 96 small business owners who worked in hair-dressing and cutting salons, food vendors, and tailor shops in Kinondoni Municipality. We used a cross-sectional design for data collection, which included structured questionnaires, interviews, and focus group discussions. Additionally, we analyzed quantitative data using descriptive statistics. The findings show that about 74% of small businesses had initial capital of less than 500,000 Tanzanian shillings or US$190 to start a business, while PRIDE prefers group loans. Small business borrowers expressed dissatisfaction with the loans offered by PRIDE. The focus group discussions suggest that the provision of loans has not contributed to an improved standard of living but rather trapped people in poverty as they sell their assets to repay the loans. Factors that lead small businesses to fail to repay the loans include high PRIDE operating costs, higher risk associated with lending to poor businesses, and lack of collateral or credit repayment histories among borrowers. These findings imply that PRIDE-Tanzania aligns with the neoliberal agenda, relying on market mechanisms to provide financial services to small businesses in Kinondoni that cannot translate into an improved standard of living, but rather into poverty. The policy implication is for policymakers to develop revised policies that regulate the operations of other microcredit institutions to protect the interests of small business owners.

The Dynamics of Political Stability and Military Expenditure on Economic Growth: Insights from Tanzania

Zawadi Ally — 2024-08-14

This study investigates the relationship between political stability, military expenditure, and economic growth in Tanzania, from 2002 to 2022. The study uses the ARDL model due to its ability to handle variables with different orders of integration, its flexibility in capturing dynamic relationships, and its robustness in providing insights into both short-term and long-term interactions among variables. The ARDL bounds test has revealed the existence of cointegration, suggesting the presence of long-run relationships among variables. Moreover, the empirical results show that past GDP is positively related to current economic growth, while the effect of voice and accountability on economic growth remains statistically insignificant. Further, the effects of regulatory quality and the rule of law on economic growth exhibit mixed effects. Also, the individual effects of political stability and military expenditure on the economy remain positive and statistically significant. However, the interaction of political stability and military spending is negatively related with the current economic growth but positively correlated with economic growth in the long run. These findings underscore the imperative of political stability and strategic military expenditure as critical ingredients in generating sustainable economic growth in Tanzania.