African Review of Economics and Finance

From Speculation to Survival Technique - The Role of Bitcoin in Different Economic Circumstances Based on the Analysis of Selected African Countries

2024-05-21T07:49:07+00:00

The article aims to reveal that the relationship of the bitcoin-derived exchange rate with the inflation level in a crisis-driven economy allows the citizens to use bitcoin as a “survival” asset. We analyse data on bitcoin transactions in local currencies of selected African economies (Ghana, Kenya, Nigeria, and South Africa) up to January 2021. Based on the bitcoin data, we derive the unofficial exchange rate for each country and compare it to the official one. We show that in countries of high inflation, the discrepancies between the two rates may be so high that it is impossible to establish even a long-term relationship between them. Moreover, the difference between the monthly-averaged bitcoin-derived and official rate positively relates to inflation in the same month. It suggests that the citizens may utilise bitcoin money-like properties to overcome the consequences of high inflation, buying bitcoin for local money and selling for US dollars instead of using the direct exchange rate or simply using bitcoin to store their wealth.

The role of tourism development in improving environmental quality in South Africa: Insights from novel dynamic ARDL simulations approach

2024-05-21T07:53:26+00:00

One approach to tackling environmental problems and achieving environmental sustainability goals is to boost the tourism industry, but this paradigm is also contested. Using the recently developed novel dynamic autoregressive distributed lag (DARDL) simulations framework, this study evaluates the influence of tourism development in promoting environmental quality in South Africa from 1960 to 2020. The results demonstrate that: (i) the growth of the tourism industry reduces CO₂ emissions over the short and long terms; (ii) the scale effect worsens ecological environment while the technique effect is ecologically friendly, supporting the environmental Kuznets curve (EKC) theory; (iii) trade openness strengthens ecological integrity in the short term but considerably intensifies environmental degradation over the long term; (iv) industrial production, foreign direct investment, economic complexity, and energy use increase CO₂ emissions while composition effect reduces it; (v) tourism development, industrial growth, trade openness, foreign direct investment, energy use, economic complexity index, composition effect, technique effect and scale effect Granger-cause CO₂ emissions in the short, long and medium term. These findings raise important policy questions.

Foreign Direct Investment by Emerging Market Multinationals in Africa: Impact on Domestic Capital Formation

2024-05-21T08:14:41+00:00

Foreign direct investment (FDI) flows within developing countries are rising. This article investigates whether FDI from emerging markets (EM) contributed to the domestic capital formation in Africa and how this compares to flows from developed countries. Fixed-effect estimates, based on panel data drawn from African countries covering the 2001-2012 period, suggest that total FDI and FDI from developed countries exerted favourable short-run and cumulative effects on total gross fixed capital formation (GFCF). We find that the effect of FDI from BRICS is significantly positive at least in the short run, while the average effect of FDI from other developing and transition economies is neutral. The indirect evidence of the crowding-in effect on private domestic investment by local enterprises is mixed. The results point to the relevance of the quality of institutions and extractive-sector activity in host economies as mediating factors between FDI and GFCF.

Are Children From Financially Included Households Less Likely to Work?

2024-05-21T08:27:12+00:00

Several factors including poverty, productivity shocks, labor market imperfections and parental education account for the incidence of child labour. However, little is known about the impact of financial inclusion on children’s propensity to work in the Ghanaian context. Using ordinary least squares and instrumental variable regressions, this study quantifies the effect of household financial inclusion on the tendency of children to work. This study finds that children from financially included households are less likely to work compared to their counterparts in financially excluded households. This negative and statistically significant link between financial inclusion and children’s tendency to work becomes strong after assuaging endogeneity concerns.

The Competitiveness of Nigeria’s Exports: Does the Choice of Exchange Rate Regime Matter?

2024-05-21T08:29:46+00:00

This study examines the extent to which the exchange rate regime affect the competitiveness of exports in Nigeria between 1987 to 2019. The study employed the Auto Regressive Distributed Lag (ARDL) model to assess the short-run and long-run changes in competitiveness in response to the exchange rate regimes implemented and other explanatory variables. The findings reveal that a flexible exchange rate regime causes a significant decline in export competitiveness. While there is a positive proportionate change in competitiveness in relation to trade openness and inflation, an increase in international oil prices has a negative short-run impact on competitiveness. The study identified exchange rate regimes and oil price increases as the two channels through which both currency depreciation and appreciation could adversely affect export competitiveness. The implication of this finding is that when there are sudden oil windfalls, policymakers should resist the temptation to absorb all the petrodollars domestically to prevent a sharp appreciation of the naira that will cause ‘Dutch disease’ and erode competitiveness. The study also suggests that policymakers should emphasize exchange rate stability by adopting de facto intermediate exchange rate regimes which ensures the stability of the exchange rate within a limited band and close the wide gap between official and parallel market exchange rates.

Impact of Loan Portfolio Characteristics on Microfinance Institutions: The Case of Morocco

2024-05-21T08:46:47+00:00

This paper identifies how loan portfolio characteristics impact the financial performance and sustainability of Moroccan microfinance institutions (MFIs). Using the Mix Market dataset, fixed and random panel regression models were adopted to analyze six Moroccan MFIs between 2003 and 2018. These models analyze the impact of loan portfolio size, type, risk, return, management effectiveness, write-offs, and recoveries variables on MFIs’ return on asset (ROA), return on equity (ROE), and operational self-sufficiency (OSS). As a set of proxy variables is used to measure each loan portfolio characteristic, empirical findings indicate that the nature of the relationships between these variables and the dependent variables varies. Findings indicate that MFIs’ profitability and sustainability are positively impacted by many variables that include the number of outstanding loans, gross loan portfolio for enterprise financing, and portfolio at risk 90. Results also reveal that the dependent variables are negatively impacted by variables, which include write-offs, the number of borrowers per staff member, and the number of loans per loan officer.

The Moderating Roles of The Internal and External Corporate Governance Mechanisms on The Performance of Non-Financial Listed Firms in Nigeria

2024-05-21T09:02:06+00:00

This study extends the growing body of research that explores the relationship between corporate governance compliance and the performance of the firm by examining the Nigerian context with respect to the listed non-financial firms from 2012 to 2019. This study developed the first unique NCGCI of listed non-financial firms from 2012 to 2019, using 32 internal and external corporate governance mechanisms which were based on the combined corporate governance provisions of the Nigerian Code of 2011, the Companies and Allied Matters Act (CAMA) of 1990, and extant literature. In contrast to existing Nigerian findings, and using both the compliance index and the equilibrium variable models with the fixed effects panel estimation method, we argue that compliance with corporate governance codes does not necessarily lead to better performance by listed non-financial firms. Specifically, there was a negative but insignificant relationship between the NCGCI and the independent variables. Further, the CEO non-duality and female board membership indicated a significant but negative relationship with NAT, Tobin’s Q and ROE. However, the market share indicated a significant positive relationship with ROE. The frequency of board meetings indicated a negative and significant relationship with NAT only. The gender diversity was significant but negatively associated with Tobin’s Q and NAT and not with ROE. The study motivates the need to base corporate governance frameworks on the peculiarities of the firm, industrial sector and country.

Fundamental Sources of Risk in Frontier Equity Markets

2024-05-21T09:25:46+00:00

Asset pricing has attracted innumerable attention from many stakeholders in capital markets. However, a considerable lack of consensus exists regarding the full list and identity of risk factors and the ability of the already studied risk factors to optimally price risk. This problem is pronounced in frontier equity markets due to the unpredictability of the underlying risk fundamentals. We highlight that frontier equity markets are largely characterised by market frictions that misalign with the established asset pricing fundamentals, thereby complicating risk pricing using the existing frameworks. Other confounding factors include sizeable downside risk, stale prices, acute illiquidity, and unstable macroeconomic fundamentals. This study is based on these constraints. Using monthly data on a list of 16 macroeconomic variables from 20 countries between January 1996 and February 2020, we arrived at interesting results at a country level and in a combined sample. At the country level, the results were mixed. However, a pooled sample of the 20 markets revealed the existence of some commonalities among both domestic and global macroeconomic factors. The empirical evaluation using both Fama and MacBeth (1973) two-step and GMM regressions established that unanticipated inflation (UI), market-wide volatility (VOL), market liquidity (LIQ), consumer confidence index (CC), trade-weighted US dollar exchange rates (TW$) and VIX volatility index (VX) were not only significant drivers of risk variations but also priced in the returns of frontier equity markets. Given these results and the increased investor attention to these markets, a favourable policy environment is needed to accelerate capital market development and investment in these countries.

Smooth Transitioning Growth in Malawi: The Role of Economic Policy

2024-05-21T09:33:24+00:00

Malawi adopted orthodox neoliberal economic policies in 1981 to replace Keynesian-based demand management, developmental state, and protectionist policies. However, the sub-period from 2004 to 2012 witnessed some reversion to elements of the pre-liberalisation period. This paper analyses the response of the Malawian economy to the critical economic policy shifts experienced since 1960. A smooth transition regression (STR) model is estimated to explain the country’s real output, setting its trend as the threshold variable. Augmenting the model with proxies for labour and capital is found to be unrewarding, but the heuristically determined logistic STR model fits the data well. The transition process is subsequently used to explain the response of economic growth to policy changes. We find that Malawi’s growth did not transition until after 2004, and the change was practically fully accomplished by 2011. Real output growth was significantly faster during this transition period. The findings of this study imply that the appropriateness of orthodox neoliberal economic policies is questionable in Malawi. This should motivate astute policy-makers seeking to adopt post-neoliberal economic management policies, mutatis mutandis.

Analysis of Factors Affecting the Performance of Moroccan Exports

2024-05-21T09:44:20+00:00

This study uses the autoregressive distributed lag (ARDL) technique and the error correction model (ECM) to investigate the long-run and short-run associations between export performance and macroeconomic variables in Morocco. These macroeconomic variables are GDP growth, real effective exchange rate (REER), consumer price index (CPI), foreign direct investments (FDI), and gross capital formation (GCF). Using data that covers the period between 1990 and 2020, empirical results support a negative long-run association between exports and REER, and a negative long-run relationship between exports and CPI. At a 10% significance level, results also support a positive long-term relationship between exports, FDI, and GCF. The results derived from the ECM model suggest that the short associations are between exports and GCF at a 5% significance level, and between exports and REER at a 10% significance level, which accounts for a positive coefficient and a negative one, respectively. The findings reveal insightful policy implications to enhance Moroccan exports through controlling REER, encouraging foreign investments, and enhancing GCF.

Verifying the Tunisian exchange regime stability in the post-revolution period by state-space models and high-frequency data

2024-05-21T09:56:35+00:00

The 2010-2019 period was marked by a steady depreciation of the Tunisian Dinar (TND) against the two major international currencies: a depreciation rate of 95% against the United States Dollar (USD) and 63% against the euro (EUR). To examine whether this depreciation is caused by a discrete manipulation of the de facto exchange regime and exchange rate or a natural result of the supply and demand fundamentals under a floating regime, this study applies the State-Space Model technique to daily data because it serves to check whether the weights are time-varying or stagnant. The results show that the steady depreciation of the TND cannot be exclusively attributed to market forces. The de facto regime is crawl-like with implicit time-varying weights that have opposite trends, except in 2017. The TND is implicitly anchored to the two major currencies and the monetary authorities intervene to modulate and moderate its fluctuation. These findings may be important to anticipate the future exchange rate trend; develop an effective hedging strategy; or examine the effect of external shocks and economic fundamentals changes on the exchange rate evolution.

COVID-19 and Trade in Zimbabwe: An Auto-Regressive Distributed Lag (ARDL) Analysis

2024-05-21T10:04:00+00:00

This study examined the impact of COVID-19 pandemic on trade in Zimbabwe for the period 03/2020 to 06/2022. The pandemic necessitated the enforcement of lockdown measures. Prudent as they are, they brought several socio-economic problems. However, during this period, trade outperformed the previous comparable period. This motivated the current study which provides a novel contribution to the impact of COVID-19 in Zimbabwe. The current study is the first to provide an econometric COVID-19 impact analysis, let alone on trade in Zimbabwe. The auto-regressive-distributed-lag (ARDL) estimation technique was used to analyze the relationship. The headline result is that the COVID-19 pandemic had an unfavorable impact on total trade and exports and a favorable impact on imports. The impact was bigger and more significant on imports than exports. This suggested expenditure switching from foreign to locally produced goods. The results provide a case for revamping the import substitution industrialization approach. Specifically, the government should support firms producing import-substituting goods. To avoid failures of previous ISI approaches, the focus should be on reducing import dependency through increasing local firms’ productivity and competitiveness through value-addition and beneficiation. Furthermore, it is time for Zimbabwe to penetrate emerging foreign markets. This can be done by export incentive schemes such as favorable export surrender requirements and (2) simpler import and export procedures. Also, the private sector needs to (1) glocalise (attracting foreign investment towards local production) and (2) enhance value addition and beneficiation to produce high-end goods that are currently exported as raw materials and/or semi-finished.

Ecological Imperialism, Development, and the Capitalist World-System: Cases from Africa and Asia

2024-05-21T10:17:43+00:00

Ecological Imperialism, Development, and the Capitalist World-System: Cases from Africa and Asia, Mariko Lin Frame 2022, Routledge, ISBN 9780367204105 (Hardcopy), 224 pp.