Botswana Journal of Economics

Determinants of Commercial banks’ interest rate spreads in Botswana

Tshegofatso Nanjunga, Mogale M. Ntsosa, Gaotlhobogwe Motlaleng — Tue, 07 Mar 2017 00:00:00 +0000

The paper investigated the determinants of commercial banks’ interest rate spreads in Botswana using time series cross-sectional analysis for the period of 2004Q1 to 2014Q4. Factors empirically tested are bank-specific, industry-specific and macroeconomic data. Results indicate that bank intermediation, GDP, inflation and bank concentration are positively related to interest rate spread. The negative sign of the tax variable was unexpected as higher taxes are expected to lead to wider spreads. Financial crisis and monetary policy seem not to affect interest rate spreads. The significance of GDP, inflation and bank concentration variables show the importance of maintaining stable macroeconomic factors.

Keywords: Botswana; Banks; Interest rate Spreads

Food Prices and Economic Well-Being in Sub-Saharan Africa

Ibrahim A Odusanya, Anthony Akinlo — Tue, 07 Mar 2017 00:00:00 +0000

Over the years, Sub-Saharan Africa has been one of the regions worst hit with the deleterious effects of food insecurity owing to the soaring prices of food items. Therefore, this paper examines the effects of rising food prices on economic well-being in 31 Sub-Sahara African countries from 2001-2012 using panel regressions. Findings from the study reveal that both contemporaneous and the initially prevailing food prices impact negatively on economic wellbeing in the region. Thus, it is recommended that governments should put in place policies and measures (like social safety nets, targeted food subsidies, special cash transfers) that will enhance and supplement income earnings of the people and improve their economic access to sufficient food.

Keywords: Food prices, Food insecurity, Economic well-being, Panel regression, Sub-Saharan Africa

Do economic policy decisions affect stock market development in Ghana?

Grace Ofori-Abebrese, Eugenia Amporfu, Daniel Sakyi — Tue, 07 Mar 2017 00:00:00 +0000

The Efficient Market Hypothesis proposes that macroeconomic policy actions do not influence stock market development but the Tobin’s q theory argues otherwise. This paper uses the autoregressive distributed lag (ARDL) technique to investigate the impact of macroeconomic policy on the development of the Ghana Stock Exchange for the period 1991-2011. The paper finds government revenue and exchange rate reduce stock market development. A policy mix identified was that, the outcomes of government expenditure and government borrowing interest rate exert no influence on stock market development. For equity investors not to easily transfer their investments in response to changes in macroeconomic policies among others, the study recommends good macroeconomic management.

Keywords: Stock Market Development, Macroeconomic policy, Government spending, ADRL, Ghana, West Africa

Testing the validity of Wagner’s law in the Namibian context: a Toda-Yamamoto (TY) granger causality approach, 1991-2013

Honest Dembure, Emmanuel Ziramba — Mon, 07 Mar 2016 00:00:00 +0000

This paper examines the validity of Wagner’s (1883) hypothesis on the direction of causality between sectoral public expenditures and economic growth in Namibia for the period 1991- 2013. It focuses on public expenditure on education, health and capital goods. Wagner law states that an increase in economic activity would lead to an increase in public expenditure while Keynesian law states that an increase in public expenditure would lead to an increase in economic activity. The bounds testing to cointegration also known as Autoregressive Distributed Lag (ARDL) proposed by Pesaran et al. (2001) is used to test for cointegration between variables while the modified version of Granger Causality test proposed by Toda and Yamamoto (TY) (1995) is utilised to determine the direction of causality. The bounds test to cointegration reveals long-run relationship between economic growth proxied by real Gross Domestic product (GDP) and public expenditure components. The results of TY Granger Causality indicate bidirectional causality between education expenditure and economic growth as well as between capital expenditure and economic growth which validates both the Wagner’s Law and Keynesian Law. Thus, the government of the Republic of Namibia should continue increasing the public expenditure on education and capital goods as there is simultaneous cause and effect between economic growth and public expenditure on both education and capital goods based on the results of this study.

Keywords: Public Expenditure, Economic Growth, Wagner’s law, Namibia, South Africa

The impact of drought on technical efficiency of smallholder farmers in hurungwe, Zimbabwe

Carren Pindiriri, Clever Mumbengegwi, Honest Zhou — Tue, 07 Mar 2017 00:00:00 +0000

Increasing drought frequencies due to climate change, pose a serious threat to rain-fed farmers in rural Africa where the policy thrust points to improving efficiency of these farmers. This article uses cross sectional data collected from 411 randomly selected farmers and applies the stochastic frontier method (SFM) to investigate the extent to which drought influences technical efficiency of smallholder farmers in Hurungwe, Zimbabwe. First, technical efficiency of smallholder farmers is computed using the SFM. Second, two groups of farmers, one from drought prone areas and the other from wet ecological zones, are compared with regards to their technical efficiency levels using a binary covariate which classifies the farmers into two groups. The findings show a low level of technical efficiency of maize farmers in Hurungwe. The average technical efficiency level is 45.3%. Drought is found to be detrimental to technical efficiency, with farmers in drought prone areas being 19% less efficient than those in wet ecological zones given their different demographic characteristics. Drought experience, education, farming experience, modern methods of forecasting and access to credit contribute positively to technical efficiency. The findings point to the need for improving technical efficiency of maize farmers. Negative effects of drought on efficiency could be reduced by building irrigation infrastructure in drought prone areas or by reallocating farmers to wet ecological areas. In addition to construction of irrigation infrastructure and reallocation of farmers, we also recommend increased education support, financial inclusion of rural farmers through the development of rural financial institutions and publication of drought related information for farmers’ consumption.

Key words: Farmers, Drought, Technical efficiency, Hurungwe

The response of banking sector development to financial and trade openness in the presence of global financial crisis in Africa

Onanuga Olaroke Toyin, Onanuga Abayomi Toyin — Tue, 07 Mar 2017 00:00:00 +0000

Africa’s financial system is strongly bank-based and so this paper investigate whether economic growth, financial openness and trade openness contribute to the development of the banking sector in the presence and absence of global financial crisis. The results from PMG/ARDL suggest that banking sector develops independently of economic growth in lower-middle and high income countries while it develops as demand for finance increases in low and uppermiddle income countries in Africa. Being cautious of global financial crisis, trade openness is found to be more effective in high and lower-middle income countries, financial openness is more effective in low income countries and neither is more effective in upper-middle income countries. It is also discovered that, in the long run, global financial crisis generally reduce banking sector development in Africa but not in high income countries however the banking sectors of lower-middle and low income countries suffer the most from such crisis.

Keywords: Financial Openness, Trade Openness, Banking Sector Development, Global Financial Crisis, Africa, Income group