Journal Articles

The efficiency of public expenditures on basic services: The case of South African municipalities

Abstract:

This paper examines the efficiency of service delivery across 213 local and metropolitan municipalities in South Africa, focusing on four critical areas: electricity, water, sewerage and waste removal. Utilising a order-m partial frontier efficiency analysis (PFEA), the study calculates output-oriented efficiency scores for each municipality, incorporating adjustments for service quality based on an ‘infrastructure quality-index’. Our empirical findings indicate marked variations in efficiency, with electricity services exhibiting the highest efficiency rate at 35%, while waste removal lags behind at 22%. Additionally, municipalities centred around small urban towns are found to be more efficient, challenging the widely held view that larger municipalities are better equipped for efficient service delivery. The analysis offers empirical insights into local government performance in South Africa, underscoring the need for targeted policy interventions to address efficiency gaps. These results not only inform fiscal and administrative decentralisation strategies but also set the groundwork for future research exploring the underlying factors affecting municipal efficiency.

FDI, production networks and firm behaviour: Evidence from the South African automotive industry

Abstract:

Firms in developing countries can learn advanced technology and management know-how through foreign direct investment (FDI). The extent (or the lack) of transmission of technology and knowledge depends on the structure of production networks. In the automotive industry, networks consist of vehicle assemblers and their layers of parts suppliers. We used the South African automotive industry as a case study to examine how the behaviour of assemblers and parts suppliers is linked. Based on statistical analysis using the original firm-level data, we found that the first-tier suppliers significantly increased their production with the regional expansion of automotive production. However, such growth linkages were not observed among lower-tier suppliers. Further, we obtained the suggestive evidence that only multinational (and not local) first-tier firms improved their production efficiency, indicating the importance of production networks among multinationals in transmitting technology.

Just transition transaction in South Africa: an innovative way to finance accelerated phase out of coal and fund social justice

Abstract:

A just transition transaction (JTT) in South Africa aims to address complex challenges of financing a transition away from coal, and social justice. Accelerated decarbonisation of electricity is essential for mitigation globally and in SA. However, the national utility Eskom, a state-owned enterprise, is in crisis with major operational, structural and financial problems, including legacy debt of €25bn. How and to what extent can a just transition transaction catalyse deep, structural change that is required in SA’s electricity system and promote social justice? What can we learn from the case study of a JTT about transition finance? The architecture of the JTT includes a blended finance vehicle, combining international concessionary and domestic commercial finance. Finance enables transition if it respects certain principles, promotes ambitious decarbonisation and assures compliance. A tough problem is whether such finance is provided at activity – or entity-level. We explore options for watertight remedies to ensure compliance with ambitious climate change action, though these merit further research. The innovation proposed to fund social justice is that concessional value provides significant and predictable flow of funds into a Just Transition Fund. The JTT partially addresses Eskom’s financial challenges, and thereby the strain on the country’s fiscus against a background of increasing public debt. Significant mitigation on the scale of 1–1.5 Gt CO2-eq over thirty years is achievable. The transaction may be of wider interest: Emerging economies with high coal dependence and socio-economic risk during energy transition might translate lessons from South Africa’s JTT for their own contexts.

Tempering and enabling ambition: how equity is considered in domestic processes preparing NDCs

Abstract:

The considerations of how Nationally Determined Contributions (NDCs) to global climate action under the Paris Agreement are ambitious and fair, or equitable, is expected to guide countries’ decisions with regards to the ambition and priorities of those contributions. This article investigates the equity aspect of the NDCs of four cases (Canada, the EU, Kenya, and South Africa) utilizing a combination of document analysis and expert interviews. It interrogates both the NDC documents themselves and, uniquely, the role of international and domestic equity considerations within the domestic policy processes that led to the formulation of the NDCs. For this, 30 participants and close observers of these processes were interviewed. We find countervailing effects of equity on ambition, with an enabling, or ambition-enhancing, effect resulting from international equity, in that these four Parties show willingness to do more if others do, too. In contrast, tempering effect appears to result from domestic equity concerns, for example with regards to real, perceived, or anticipated adverse distributional impacts of climate action across regions, sectors, and/or societal strata. Political cultures differ across the four case studies, as do the key actors that influence domestic policies and the preparations of NDCs. This paper also demonstrates that research on equity in NDCs can benefit from expanding its scope from the contents of NDC submissions to also examine the underlying decision-making processes, to generate insights that can contribute to future NDCs being both equitable and ambitious.

Linking the energy transition and economic development: A framework for analysis of energy transitions in the global South

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We are observing a significant increase in the deployment of large scale solar and wind technologies in the global south, and it is therefore a strategically and academically important focus of inquiry to understand context specific spaces for locally-embedded actors to initiate energy transitions. This paper examines the linkages between the energy transition and economic development, and has attempted to do this by developing an approach that brought into focus the institutional micro-economics of four key dimensions of the economic development process, namely (a) the impact of the auction mechanism; (b) the key role MNCs play in the global value chain;(c) how developmentally-oriented states have attempted to harness the resulting investment flows by using LCRs; and (d) the local-level development impacts of utility-scale renewable energy power plants on local communities. Drawing from the South African energy transition as a case we argue that the complex interaction between highly globalized value chain actors, path dependent local institutions and interests of incumbent local actors sheds new light on the dynamics of rapid institutional change during energy transitions in a global South context. We use the South African case to develop a framework for analysing the energy transition in the global south that brings into relief the complex dynamics of change, learning and experimentation. Our focus is on the way rule-setting and the actions of actors within institutions (dis-)enables financial flows, institutional change and socio-technical adaptation in a fast-changing environment driven by responses to climate change and the challenge of rapid decarbonisation.

Regional integration, regional value chains and the automotive industry in Sub-Saharan Africa

Abstract:

To date, regional automotive value chains have not developed to any significant extent in Africa. Growing demand for vehicles across the continent, closer economic integration and the desire on the part of some larger African countries to establish an automotive industry have improved prospects. But major obstacles remain: the political geography of the subcontinent and the tendency of the industry to cluster in a few locations indicate that many smaller countries are likely to miss out on attracting investments. This should not matter if they are attracting investment in other sectors. It does however imply that it is unlikely that the automotive industry will drive regional integration independently of a broader integration process which sees the development of regional value chains across a multitude of sectors helping to bind the continent into a larger common market.

The persistence of apartheid regional wage disparities in South Africa

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In this article, we use a new economic geography (NEG) model to estimate the extent to which the persistence in apartheid regional wage disparities in South Africa is an outcome of economic forces such as market access. We estimate a structural wage equation derived directly from the NEG theory for 354 regions over the period 1996 to 2011. We find support for an augmented NEG model in explaining regional wage disparities across regions in South Africa, although the market access effects are highly localised in view of high distance coefficients. We also find, even after controlling for NEG and other region-specific characteristics, a persistent wage deficit in the former homelands, where under apartheid black South Africans were forcefully relocated according to their ethnic groups. Average wages of workers in homelands remained approximately 17% lower than predicted between 1996 and 2011, despite the reintegration of these regions into South Africa and the implementation of regional policies after the end of apartheid.

The role of regional value chains in fostering regional integration in Southern Africa

Abstract:

Regional integration is making steady progress in Africa and a key objective is to improve the prospects for industrialisation by expanding the regional market. The paper draws on a combination of trade data analysis and industry case studies to better understand the links and synergies between regional value chains and regional integration. The trade data and case studies of two diverse sectors (garments and food retailing) demonstrate the expansion and diversity of regional trade and regional value chains in Ssouthern Africa. This increasingly diverse composition of regional exports is suggestive of an opportunity to further enhance industrial development through intra-regional trade. From a political economy perspective, the long term sustainability of Southern African regionalism will require that the benefits are widely spread. In turn this requires the recognition of the importance of regional industrial policy, which takes account of the dynamics driving global and regional value chains and facilitates regional linkages.

Military Spending, Corruption, Persistence and Long Run Growth

Abstract:
This paper contributes to the analysis of the impact of military spending and corruption on economic growth, by considering not only the political dimension of corruption, distorting the allocation of resources to sectors, but also the impact on the efficiency of the bureaucratic environment.  It does this by developing the model of Mauro (2004) in the context of an endogenous growth model to deal with corruption in the defence sector. It then uses data from the International Country Risk Guide to produce a novel measure of corruption that combines corruption within the political system, institutional strength, quality of bureaucracy and the degree of military participation in the country and estimates the model for a large panel of countries. The results suggest that both military spending (as a share of total government spending) and corruption have significant negative long run effects on output. As the model also suggests that multiple equilibria can exist, a comparison is made between high and low corruption groups of countries and clear differences are indeed found. These have interesting policy implications, suggesting effort is needed by the international community to encourage and coerce high corruption and military spending  countries, but low corruption and military spending countries are likely to need little attention.

The Future of SA-UK in a post-Brexit World

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This article discusses the relationship between South Africa (SA) and the United Kingdom (UK) in the post-Brexit era. An overview of the history of the SA-UK relationship until the negotiation of the SACU + M-UK agreement in 2019 is provided. At least two scenarios in a post-Brexit UK-European Union trade relationship are analysed and their implications for SA-UK relations are discussed. The article explores the question: will the post-Brexit period be characterised by an increasingly aggressive Britain striving to re-assert its power in the world, or shall the world see a new idealist Britain seeking to increase cooperation in its own region and globally? The article argues that South Africa should expect the first scenario but also prepare to influence the UK towards the second scenario.

A Developmental Regionalism Approach to the African Continental Free Trade Area (AfCFTA)

Abstract:

The African Continental Free Trade Area (AfCFTA) was launched on 21 March 2018 at a Summit of the African Union, held in Kigali, Rwanda. This paper discusses the question: How can the AfCFTA benefit all African countries? The paper critiques the conventional approaches to regional integration as propounded in the academic literature. The paper proposes that African policy makers should develop an approach to regional integration that is best suited to Africa’s own development needs. The paper argues that by adopting a “developmental regionalism” approach to the AfCFTA African member states can stimulate a virtuous circle of fair trade, transformative industrial development, increased cross-border investment and strengthening of democracy in Africa.

Global Value Chains, Industrial Policy and Economic Upgrading in Ethiopia’s Apparel Sector

Abstract:

This article examines whether low-income countries can still benefit from participating in manufacturing global value chains (GVCs) in terms of broader industrial development in a global context of greater competition and higher requirements. It contends that developing internationally competitive local firms and domestic linkages, in addition to upgrading, is crucial for participation in GVCs to drive industrialization. The study focuses on Ethiopia’s recent experience with developing an apparel export industry through strategic industrial policy. Based on original empirical data collected through firm-level surveys and interviews with government officials, industry experts and buyers, the article analyses the upgrading and localization trajectories of foreign and local apparel-exporting firms. It argues that value-capture benefits in assembly positions in apparel GVCs have become more difficult. The potential for localization benefits depends on the type of global buyers and foreign producers and their levels of embeddedness, but whether this potential is realized also depends on local firm characteristics and related industrial policy. Ethiopia’s industrial policy has been relatively successful regarding national economy linkages, but less successful in developing competitive local export firms due to a weak local manufacturing tradition combined with a global context that has led to a supplier squeeze.

The effects of local content requirements in auction schemes for renewable energy in developing countries: A literature review

Abstract:
Given the increasing cost-competiveness of renewable energy (RE) technologies, competitive auction schemes have increasingly been adopted in recent years across various developed and developing countries. Local content requirements (LCRs) are frequently used as part of RE auction schemes to promote local industrial development. In this paper, we present a review of the literature on the effectiveness of LCRs in fostering local industrial development across various developing countries focusing on South Africa, Brazil, India and China. Specifically, this paper analyses the effectiveness of LCRs in promoting the establishment of local manufacturing facilities of onshore wind turbine and solar PV components in these countries. Further, the paper provides a review of the main determining factors stressed in the literature to account for variations in the effectiveness of LCRs. We have found that the literature generally ascribes importance to the role of LCRs in stimulating local component production in developing countries. However, previous research on the effectiveness of LCRs in establishing local component manufacturing differs across the technologies and the countries analysed. The variation in the effectiveness of LCRs can be explained by a framework that combines the following four determining factors: (i) market size and stability; (ii) policy design and coherence; (iii) the restrictiveness of the LCRs; and (iv) the domestic industrial base. The paper highlights a lack of systematic approaches and rigour in existing research, thus proposing the development of a common framework and set of indicators to assess the efficiency of LCRs.

Unbundling the incumbent and deployment of high-speed internet: Evidence from France

Abstract:
In this paper, we study the impact of competition on the legacy copper network on the deployment of high-speed broadband. We first develop a theoretical model, which shows that the relation between the number of competitors and investment in a quality-improving technology can be positive if the quality of the new technology is high enough, and is negative otherwise. We test these theoretical predictions using data on broadband deployments in France in more than 36,000 local municipalities. First, using panel data over the period 2011–2014, we estimate a model of entry into local markets by alternative operators using local loop unbundling (LLU). Second, using cross-sectional data for the year 2015, we estimate how the number of LLU entrants impacts the deployment of high-speed broadband with speed of 30 Mbps or more by means of VDSL, cable and fiber technologies, controlling for the endogeneity of LLU entry. We find that a higher number of LLU competitors in a municipality implies lower incentives to deploy and expand coverage of high-speed broadband with speed of 30 Mbps or more.

Trade and industrialisation in Africa - SMEs, manufacturing and cluster dynamics

Abstract:
Trade in manufacturing through global and regional value chains has played an especially prominent role in global economic growth in recent decades. However, Africa faces severe challenges in growing manufacturing activities in the face of China and Southeast Asia’s competitive dominance of global manufactured product markets. Traditionally, global trade is heavily concentrated at the corporate level. But this reliance on large firms as a driver of trade is problematic for Africa given its need for a more inclusive synergistic trade and economic growth path that is more employment intensive, more decentralised and which provides scope for enhanced activities by indigenous and small-scale industry. This is not to argue for the exclusion of large firms or foreign direct investment in economic growth, but rather to argue the case for an increased presence of indigenous small-scale firms in the economy and in export trade. There is evidence of dynamism in Africa, both within individual Small- and Medium-sized Enterprises (SMEs) and in clusters of SMEs. In understanding the challenges faced by this sector, and in examining the prospects for their participation in external trade, we review the experience of 25 African clusters using four dimensions: the nature of unintended externalities (e.g., external economies), market orientation and upgrading and growth trajectories, cluster dynamism and joint action for upgrading, external institutional support and upgrading. In terms of policy challenges for SMEs and export trade we discuss four major areas: (i) participation in governed global value chains feeding into high-income markets, (ii) export sales to non-regional low-income markets, (iii) export sales to regional markets and (iv) informal sector cross-border trade to regional economies. We conclude that for Africa, trade and industrialisation are integrally linked and attempts to facilitate regional trade policies cannot ignore the need for developing appropriate industrial policy and adopting an approach of developmental regionalism. This is especially evident with respect to SME development.

The Size of the Border and Product Market Integration Between Lesotho and South Africa: A Production-Consumption Approach.

Abstract:
Despite efforts to increase integration within Africa, product markets remain segmented between countries. This paper examines the magnitude of price gaps, known as the border effect, between Lesotho and South Africa using retail price data for 49 products in 35 cities over the period 2006–2009. Using a production–consumption pair approach, we estimate that crossing the border between South Africa and Lesotho is associated with an absolute product price gap that widened from 18% in 2006 to 24% in 2009. The structure of relative prices also differs markedly revealing a lack of convergence to a common set of internal relative prices. These results are robust to the choice of alternative production centres in South Africa and the imposition of distance thresholds between region pairs. The results indicate that the border between South Africa and Lesotho remains an impediment to trade flows and price competition, despite their joint membership in a customs union and monetary area.

Military Spending, Conflict and External Debt in Sub Saharan Africa

Abstract:

The damaging economic effects of the debt crises on Africa in the late 1980s encouraged considerable research on the determinants of external debt in developing economies. Although sub-Saharan Africa's (SSA) debt was cut by two-thirds by 2008, through two debt relief programmes, debt in the region has since been rising at an increasingly rapid pace. This study provides an empirical analysis of the determinants of external debt in SSA over the period 1960–2016, using dynamic panel methods. It also considers two potentially important factors that have received relatively little attention. One is military spending, rarely considered, despite a number of well-publicised scandals over the procurement of unnecessary and expensive high-tech weapons systems. A second, is the possibility that the countries studied have been involved in conflict. The empirical results point to a positive impact of military spending on external debt, but with some evidence of heterogeneity across the countries. Furthermore, findings indicate that the positive effect of military expenditure on debt becomes more marked in countries that have been affected by conflict. These results imply that policies to improve security and reduce military spending could be beneficial in reducing external debt and, potentially, improving economic performance in the region.

Costs of Civil War and Fragile States in Africa

Abstract:

This paper provides an analysis of the costs of conflict for the countries that are most affected by it, namely low‐income and fragile countries in Africa. It provides an analysis of the impact of conflict on economic growth using a panel of African countries and investigates the differences between those categorized as fragile and others. It finds that there are significant differences, with fragile countries most affected by conflict. It also considers the potential spillover effects of conflict and finds that fragile states also suffer more from conflicts within neighboring states. Finally, it considers whether the results are robust to endogeneity of the conflict variable. Using instrumental variable estimation confirms the negative effect of conflict and the larger effects on fragile states and gives even larger coefficient estimates.

Military Expenditure, Endogeneity and Economic Growth

Abstract:

While not always a concern for the general economic growth literature, the debate over the effects of military spending on growth continues to develop, with no consensus, but a deepening understanding of the limitations of previous work. One important issue that has not been adequately dealt with is the endogeneity of military spending in the growth equation, mainly because of the difficulty of finding any variables that would make adequate instruments. This paper considers this issue, using an endogenous growth model estimated on a large sample of 109 non-high-income countries for the period 1998–2012. The empirical analysis is framed within an instrumental variable setting that exploits the increase in military spending that occurs when unrest in a country escalates to turmoil. The estimation results show that endogeneity arising from reverse causality is a crucial issue, with the instrumental variable estimates providing a larger significant negative effect of military spending on growth than OLS would. This result is found to be robust to different sources of heterogeneity and different time periods.

Military Expenditure, Investment and Growth

Abstract:

This paper considers the issues involved in estimating the effect of military expenditure on growth and the reasons for the lack of consensus in the literature. It briefly reviews the economic theory, emphasising the difficult identification issues involved in determining the interaction between military expenditure and output and discusses econometric methods for panels. It then takes advantage of the extended SIPRI military spending to construct a relatively large balanced panel of countries for the period 1960–2014. Rather than the usual focus on the direct relation between military spending on growth, it focusses upon the investment channel. It provides estimates of various models examining the interaction between the three variables and finds that the data do not suggest any strong relations between military expenditure and either investment or growth. This is not unexpected given the theoretical and econometric problems identified.

Conflict Determinants in Africa

This paper considers the determinants of conflict in Africa. It revisits the greed– grievance debate to consider the specific regional context and changing nature of conflict in sub-Saharan Africa. This is a literature that has grown rapidly in economics and political science, but some recent developments in modeling and conceptualization are providing important new contributions. It proposes and uses modeling techniques that deal with the problem of excess zeros, revisits the definition of conflict, and improves upon some proxy measures. Understanding the nature of conflict in Africa is vital to designing post-conflict economic policies and interventions, to ensure policies can prevent conflict-affected states from returning to conflict or remaining fragile.

Mapping Law and Development from African Perspectives: An Overview

Abstract:
This piece provides an insight into various contributions made by participants at the Law and Development Conference 2017. Participants converged in Cape Town, South Africa in September 2017 from institutions in different parts of Africa, as well as from other continents to deliberate on the theme of law and development from African perspectives. Over six panels of presentations, contributors wove a collective tapestry of reflections, critiques, debates and ideas showing the intersectionality of different fields of law in constructing, shaping and re-defining multiple development pathways for various constituencies. These discourses present a matrix of needful conditions, content and uses of law for its optimal application to development processes in and for the continent of Africa.

Transition from copper to fiber broadband: The role of connection speed and switching costs

Abstract:
We estimated a mixed logit model using data on the broadband technologies chosen by 94,388 subscribers of a single European broadband operator on a monthly basis between January and December 2014. We found that consumers have similar valuation of DSL connection speeds in the range between 1 and 8 Mbps. Moreover, in January 2014, the valuation of FttH connections with a speed of 100 Mbps was not much higher than of DSL connections with a speed of 1 to 8 Mbps, but it has increased quickly over time and became significantly higher at the end of the period in December 2014. The small initial difference in the valuation of DSL and FttH connections may be because consumers’ basic Internet requirements such as browsing, emailing, reading news, shopping, and even watching videos online could be satisfied with a connection speed below 8 Mbps. We also found that consumers face significant switching costs when changing broadband tariff plans, which are substantially higher when switching from DSL to FttH technology. According to counterfactual simulations based on our model, switching costs between technologies are the main factor which slows down consumer transition from DSL to FttH.

Impact of Competition, Investment, and Regulation on Prices of Mobile Services: Evidence from France

Abstract:
In this paper, we assess the impact of competition, investment, and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality‐adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality‐adjustment of 8.7%. In a second step, we relate the quality‐adjusted prices to a set of competition, investment, and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low‐cost tariffs without commitment which were introduced to pre‐empt the entry of low‐cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality‐adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%. We conclude that the reduction in quality‐adjusted prices in the last years was largely caused by competition between operators for a new 4G technology and by entry of a fourth low‐cost operator.

Standards, Regulation and Sustainable Development in a Global Value Chain Driven World

Abstract:
Regulations and standards have become an increasingly important factor affecting the capacity of producers to participate in global markets. Directly and indirectly, they not only determine the terms of market-entry but also affect the extent to which different producers are able to position themselves in global value chains in a manner which provides for socially and environmentally sustainable income growth. Standards compliance can enhance producer capabilities and assist in meeting many of the SDG objectives. But it may also involve trade-offs between different SDG goals. Standards compliance is simultaneously inclusive (facilitating the participation of low and middle income countries producers in global production and spreading incomes more widely globally) and exclusive (barring small producers from market access and displacing unskilled labour from supply chains). What policy measures will best lead to the most positive outcomes as standards diffuse through global value chains?

Rents, Power and Governance in Global Value Chains

Abstract:
This paper addresses the generation of rents and the distribution of gains in the global operations of governed Global Value Chains (GVCs) and seeks to provide an architecture for analyzing the governance of GVCs. It distinguishes between four sets of rent—gifts of nature; innovation rents; exogenously defined rents; and market power—and three spheres of governance—setting the rules -“legislative governance”; implementing the rules -“executive governance”; and monitoring rules and sanctioning malfeasance -“judicial governance.” The exercise of governance power in GVCs over the generation, protection and appropriation of rents is considered though the lens of four sets of key GVC stakeholders—the corporate sector, civil society organizations, the nation state and supranational institutions. This general analysis is given flesh through three case studies: food-safety standards in GVCs; taxation policies and competition policies. In these sectors, the corporate sector is generally much more effective in governing rent generation and appropriation in the global operations of GVCs than are the three sets of non-corporate stakeholders. From this observation we offer a hypothesis that the capacity of non-corporate stakeholders, including national states, to govern GVCs is contingent upon the extent to which this coincides with the interest of the corporate sector. However, as noted, this balance of power between private and non-corporate actors is a contested terrain and dynamic in nature.

Exporting to Fragile States in Africa: Firm Level Evidence.

Abstract:
This study analyses the effect of fragility in destination markets on firm export behavior and the role of firm size in mediating adverse outcomes. The analysis is conducted using firm transaction data on Kenyan exports to Africa over the period 2004–2013. The analysis reveals that fragility negatively affects a firm's decision to enter a given destination market, reducing Kenya's bilateral trade flows to African countries. Larger firms are more resilient to destination shocks in fragility and are less likely to exit. These results are robust to alternative measures of destination fragility, and the exclusion of bordering countries and the East African Community partner states. Our analysis reveals that the effect of business fragility (regulatory quality, government effectiveness, and control of corruption) dominates that of political fragility (voice and accountability, rule of law, and political stability), although both effects are negative and significant.

Can agro-processing lead re-industrialization in Sub-Saharan Africa? A two-stage approach to productivity analysis

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This analysis sits against the backdrop of unsuccessful attempts to reindustrialise Africa. Zambia must diversify from copper dependency to agriculture and the agro-processing sectors, and the question is whether there is enough capacity to deliver jobs or growth. This paper studied the agroprocessing sector, where mean technical efficiency was 42.5% and mean scale efficiency was 81.7%. Beverage firms fared better than food producers and, within food production, meat processing did best, while baking and milling firms did the worst. There are benefits to centralisation and being large scale, although one in five firms was too large. A reindustrialisation programme should focus on the promotion of modern technologies, capacity building and infrastructure development, as well as on improvements in the regulatory framework.

Importing and firm export performance: New evidence from South Africa

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This article uses firm‐level data from company income tax and customs declarations from South Africa to analyse the complementary relationship between direct access to imported intermediate inputs and firm exports in the manufacturing industry. There are two main findings. The first is on firm heterogeneity, showing that firms that import and export consistently demonstrate premiums in terms of productivity, employment, wages and capital intensity in production compared to firms that do not trade, or only export or import. The second supports the hypothesis that importing raises exports, especially if inputs are sourced from advanced economies.

Closer monetary union and product market integration in emerging economies: Evidence from the Common Monetary Area in Southern Africa

Abstract:

This study utilizes detailed micro price data to estimate the impact of closer monetary union on the integration of product markets across countries, considering two policy shocks from Botswana. Using the difference-in-difference approach, the results reveal that the adoption by Botswana of a crawling peg exchange policy reduced price differences between South Africa and Botswana by 4 percentage points. Subsequent changes in the Botswana monetary policy regime further reduced price gaps by 2 percentage points. These results provide support for the effectiveness of alignment in interest rate and exchange rate policies in enhancing the integration of product markets between countries.

Price-setting Behavior and Competition in Developing Countries: An Analysis of Retail Outlets in Lesotho.

Abstract:
We study the relationship between price-setting behavior and the degree of competition in a setting where markets and information flows are relatively imperfect. Using a unique dataset that combines survey data on retail outlets in Lesotho, and detailed historical information on their product prices, we find a non-monotonic relationship between the frequency of price changes and perceived competition, measured by the number of reported competitors. This non-monotonic relationship is consistent with a model of increasing costs of coordinating price changes under tacit collusion with few competitors, and a breakdown of collusion at higher levels of competition. By exploring the nature of the relationship between competition and price rigidity, our study has implications for macroeconomic and competition policy, and underscores the scope for interaction between the two.

Tobacco Price Shocks and the Malawian Economy

Abstract:

One of the major concerns facing developing economies is the implications of their dependence on commodities and the implications of price changes. Considerable literature has developed from earlier work on the macroeconomic impact of oil price shocks in developed economies that have exploitable reserves. For developing economies, the implications of commodity prices can be much more profound. Commodity price shocks can become major macroeconomic concerns and a major reduction in the international commodity price can lead to a devastating slowdown in economic growth. While some cross country studies exist, there is lack of country specific studies that take into account the different characteristics of low income economies. This paper contributes to the growing literature by considering the case of Malawi and the macroeconomic impact of price shocks in its major export crop of tobacco. Using a Structural Vector Auto-regression (SVAR) approach on quarterly Malawian data from 1980:1 to 2012:4, the paper establishes that a positive tobacco price shock has a significant positive impact on the country's gross domestic product (GDP). This also decreases consumer prices and induces real exchange rate appreciation. The results are robust to alternative specifications of a SVAR on difference stationary data and co-integrating VAR. The co-integrating VAR confirms the existence of a long run-relationship among the variables and causality runs from tobacco prices.

Issues in the Quantitative Analysis of the SIPRI Arms Industry Database

Abstract:

Although the Stockholm International Peace Research Institute’s data on the 100 largest arms (and military services) producing firms is very widely used for various purposes, there is relatively little quantitative statistical analysis of it. This article discusses some of the issues involved in the econometric analysis of the data. This is complicated by the difficulty of modeling the processes of mergers, acquisitions, and divestments which drives entry and exit from the list. Various models are estimated to examine (a) the relationship between arms sales and military expenditure, (b) the evolution of concentration and the size distribution of firms, (c) the cross-section relationship between size and growth of firms, (d) the times-series properties of the arms sales of individual firms, and (e) of arms sales by country of ownership.

Financial Innovation and Money Demand: Evidence from Sub-Saharan Africa

Abstract:

While the effect of financial innovation on money demand has been widely researched in industrialised countries, because of its major role in monetary policy, few studies have focused on developing countries. This is surprising given the considerable growth in financial innovation in Sub‐Saharan Africa in recent years and its potential implications for developing country macroeconomic policy. This paper investigates the development of financial innovation and its impact on money demand in the region using panel data estimation techniques for 34 countries between 1980 and 2013. The results indicate that there is a negative relationship between financial innovation and money demand. This implies that financial innovation plays a crucial role in explaining money demand in Sub‐Saharan Africa and given innovations such as mobile money in the region this can have important implications for future policy design.

Advancing Regional Integration in Africa through the Continental Free Trade Area (CFTA)

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The past decade and a half of the new millennium has ushered in dramatic changes to the architecture of world trade creating both opportunities and challenges for Africa’s development. The paper is critical of the recent paper of the World Bank that resuscitates the approach to trade liberalization and regional integration propagated by the Washington Consensus. The paper argues that African countries should adopt a “development integration” approach to regional integration that seeks to combine trade liberalization, industrial development and infrastructure development. The paper urges the World Bank and Africa’s trading partners from the north and south, such as the EU, the US and China, to work closely with the African Union to advance the negotiations and implementation of the Continental Free Trade Area (CFTA) and the African Union Agenda 2063.

The Changing Global Trade Architecture: Implications for Africa's Regional Integration and Development

Abstract:
This article analyses the trends in global trade since the beginning of the new millennium and discusses the implications of these trends for Africa's regional integration agenda. The article argues that the mainstream narrative of market and linear integration is inappropriate for Africa and should be replaced by a development integration approach. It calls for Africa's main trading partners; the EU, the US and China to align their trade relationships with Africa in support of Africa's own vision and Programme for regional integration reflected in the Continental Free Trade Area (CFTA) and Agenda 2063.

The AGOA Extension and Enhancement Act of 2015, the SA–US AGOA negotiations and the Future of AGOA

Abstract:
The African Growth and Opportunity Act (AGOA) is a non-reciprocal preferential trade programme that the US offers to 49 sub-Saharan African countries. President Obama's decision to extend AGOA, which was set to expire at the end of September 2015, for another ten years (2015 to 2025), was highly controversial. The Extension and Enhancement of AGOA Act, signed into law by President Obama, on the 29 June 2015, had thus included many new provisions to incorporate the views of the US Congress on the implementation of the ten-year extension and the future trajectory of AGOA. In this paper, the new Extension and Enhancement of AGOA Act is analysed to elucidate the new and additional powers that the new AGOA Act provides the US Congress, the US Administration, and US business lobbies, and the implications of these changes for sub-Saharan African countries. At least three new trends in the 2015 AGOA Act can be identified: payment for preferences, institutional attrition, and a shift to reciprocity. These trends, it is argued in this paper, are potentially contrary to a more mutually beneficial relationship between the US and Africa. The paper offers some reflections on the future of AGOA.

The impact of online sales on consumers and firms. Evidence from consumer electronics

Abstract:
In this paper we estimate a differentiated products demand model to ask three questions regarding the introduction of e-commerce. First, we ask whether the online distribution channel has increased total sales, or only diverted sales from traditional channels. We find that there is a market expansion effect but also a considerable sales diversion. Second, we ask to which extent consumers and firms benefited from the introduction of the online sales channel. We find that consumers benefited proportionately more, and this is entirely due to the appearance of an additional distribution channel and not due to increased competition. Third, we ask how the online channel has affected European market integration. We find that price differences between the EU countries for identical products are large both in the traditional channel and online. Therefore, the introduction of e-commerce did not influence price levels and international price dispersion in the traditional channel.

Infrastructure deficiencies and adoption of mobile money in Sub-Saharan Africa

Abstract:
We use survey data conducted in 11 countries in Sub-Saharan Africa in 2011 to analyze how the availability of physical infrastructure influences adoption of mobile phones and usage of mobile services. The availability of physical service infrastructure is approximated by data on nighttime light intensity in the areas in which survey respondents reside. After controlling for a number of individual and household characteristics including disposable income, we find that adoption of mobile phones is higher in areas with better physical infrastructure. However, mobile phone users who live in areas with poor infrastructure are more likely to rely on mobile phones to make financial transactions than individuals living in areas with better infrastructure. On the other hand, the use of mobile phones to access services such as email, skype, social media networks and Internet browsing is not dependent on the availability of physical infrastructure. Our results support the notion that mobile phones improve the livelihood of individuals residing in remote areas by providing them with access to financial services which are otherwise not available physically.

Trade Liberalization, Rival Exporters and Reallocation of Production: An Analysis of Indian Manufacturing

Abstract:

Employing a difference‐in‐difference estimation technique on firm‐level data on Indian exporters, we show that the removal of US textile and apparel quotas was associated with a relative increase in sales of products where India was previously quota restricted, but a relative decrease in sales and the unit value of products where China was previously quota restricted. Our study hence highlights the importance of accounting for falling trade barriers for rival exporters in analyzing trade liberalization effects. Additionally, we find evidence indicating that quota rights were not allocated efficiently, suggesting potential gains from reallocation with the dismantling of the Indian quota licensing regime.

Industrial policy, multinational strategy, and domestic capability: A comparative analysis of the development of South Africa’s and Thailand’s automotive industry
 

Abstract:
For developing countries seeking to promote the automotive industry, it has been essential to attract foreign investment, and the terms under which this takes place are key determinants of the resulting development impact. This article examines the development of the sector in South Africa (SA) and Thailand. Both industries have been driven by growing domestic demand, government support and rapid international integration, but the Thai industry has grown at a significantly faster pace. The article demonstrates that the Thai automotive industry has major firm-level cost and market advantages. The combination of a favourable location, supportive trade and industrial policy and supply-side strengths has led to large-scale investment and Thailand’s development as a major regional hub. Foreign investment in SA on the other hand has been at a lower level, aimed primarily at accessing the domestic market. The consequence has been more limited development of the automotive cluster.

The South African brain drain: An empirical assessment

Abstract:
There is no reliable data on the extent of South African skilled emigration and return migration. Statistics South Africa stopped collecting emigration data more than a decade ago. This paper provides data from the turn of the century collected in the countries to which South Africans emigrate. It first provides detailed data on emigration to the United Kingdom, Australia, New Zealand, Canada and the United States – the main destinations for emigrants from South Africa. It then provides estimates for the United Arab Emirates. Finally, it presents data for twenty-five other OECD countries. By contrast with widespread claims that there has been a very large brain gain as South Africans have returned following the global financial crisis, it shows that there was still a net brain drain, albeit at a slower pace. The most recent data suggest that the rate of emigration may be accelerating again.

Industrial upgrading and development in Lesotho's apparel industry: global value chains, foreign direct investment and market diversification

Abstract:
Many low-income countries are integrated into apparel global value chains through foreign direct investment (FDI), including Lesotho, which has become the largest Sub-Saharan African apparel exporter to the US under the African Growth and Opportunity Act. More recently, South Africa has emerged as a new apparel export market in Lesotho. The two markets are supplied by different types of FDI firms – affiliates of Taiwanese transnational producers and South African manufacturers – which are part of different value chain variants. The paper assesses the implications for industrial upgrading and development of integration into these two value chain variants in Lesotho, drawing on firm-level and institutional interviews. We show that their different characteristics in terms of investors’ motivation, governance structure, end markets, firm set up and most importantly and causally, ownership and embeddedness have crucial impacts on functional, product and process upgrading, local linkages, and skill development.

Does Military Spending Matter for Long Run Growth?

Abstract:

The effects of military spending has on the economy continues to be a subject of considerable debate, with a lack of consensus in the literature. This paper takes advantage of the Stockholm International Peace Research Institute extended data-set to contribute to the debate using empirical methods made available, or more applicable, by the extra observations. It constructs a large panel of countries for the period 1970–2014 to explore the long-run equilibrium relationship between military spending and economic growth, applies the more flexible pooled mean group estimator, and compares the results with the more restrictive dynamic fixed effect method used in earlier influential studies. It also compares results from different time and country samples. Across the specifications it finds a significant and persistent negative effect of military burden on economic growth that is robust across different country groups, with the largest impact being for OECD countries.

War, Peace and Development

Abstract:

Historically, peace and security have been important issues in economics. Yet for contemporary economics, issues of peace and security are marginal, and economists are conspicuous by their absence in debates to a degree that rivals the importance of the problems. Strikingly, economics textbooks in general, and development economics textbooks in particular, seldom give consideration to violent conflicts despite the dreadful impact they have on populations in the very poorest of countries. Similarly, they seldom deal with issues of peace and post-war reconstruction despite their importance for successful development. This article reviews some achievements within the economics of peace and security field and considers how our understanding of the preparation for violent conflict and the determinants and costs of conflict has been improved by research and what this might entail for some of the challenges ahead. In particular, the article identifies the challenge of constructing a peace economics that will allow for the design of economic systems that embed peace and overcome many of the conditions that continue to maintain the prevalence of violent conflict around the world.

The Changing Global Trade Architecture: Implications for Sub-Saharan Africa

Abstract:
This issue of Commonwealth Trade Hot Topics explores questions around the changing global trading architecture over the past 15 years. It examines how these changes have impacted on Africa’s economic development and the nature of trading relations with its traditional developed country partners, the European Union, the UK and the USA, and its main developing country partner, China. It also examines the implications of ‘Brexit’ - the UK's departure from the European Union - and offers some policy recommendations for African policy-makers and trade negotiators.

Substitution between fixed-line and mobile access: the role of complementarities

Abstract:
We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may slow down this process. We use survey data of 160,363 households from 27 EU countries during 2005–2011. We estimate a discrete choice model where households may choose one or both voice technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to-mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14.1 % higher at the end of 2011. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between the fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to protect its position in the fixed-line market, raising market share by 2.7 %, and to leverage it into the mobile market, raising market share by 5.4 % points. Third, the decline in fixed telephony has also been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of 8.7 % points at the end of 2011. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.

Is Africa Integrating? Evidence from Product Markets

Abstract:

This paper presents a price-based assessment of product market integration in Africa using disaggregated retail prices for 91 products and 12 African cities from 1991 to 2008. We find evidence of substantial deviations from the law of one price − product price differences between the cities averaged 76% over the period – a result that is consistent with the presence of large barriers to trade in the continent. Mean price differences across cities fell by close to a quarter over the period, but the decline was concentrated in the early 1990s with little progress subsequently, despite the regional trade policies implemented by the countries. Gravity-style estimates reveal that reductions in external tariffs and global trends towards price convergence in the early 1990s are the key contributors to the trend in price integration amongst the African cities.

The Last Frontier: Prospects and Policies for the Automotive Industry in Africa

Abstract:
Since the turn of the century, sub-Saharan Africa (SSA) has grown very rapidly and the expansion of the middle class is evident in the surge of demand for vehicles albeit from a very low base. The first part of the article quantifies the rapid growth in vehicle sales, which is being met mainly by imports, especially of used cars. Outside of South Africa, domestic production is minimal and the article goes on to consider the question of whether and how the region can begin to meet this booming demand by developing its own industry. The level of industrialisation in most parts of SSA is low and manufacturing capabilities are limited. Nevertheless, a number of the larger countries, for example Nigeria and Kenya, are putting policies in place to encourage domestic production. Small scale investments in assembly are underway. To make the most of this opportunity, African countries will need to adopt appropriate policies and also accelerate the process of regional integration to allow for sufficient market scale.

Responsible, Inclusive Innovation and the Nano-Divide

Abstract:

Policy makers from around the world are trying to emulate successful innovation systems in order to support economic growth. At the same time, innovation governance systems are being put in place to ensure a better integration of stakeholder views into the research and development process. In Europe, one of the most prominent and newly emerging governance frameworks is called Responsible Research and Innovation (RRI). This article aims to substantiate the following points: (1) The concept of RRI and the concept of justice can be used to derive similar ethical positions on the nano-divide. (2) Given the ambitious policy aims of RRI (e.g. economic competitiveness enhancer), the concept may be better suited to push for ethical outcomes on access to nanotechnology and its products rather than debates based on justice issues alone. It may thus serve as a mediator concept between those who push solely for competitiveness considerations and those who push solely for justice considerations in nano-technology debates. (3) The descriptive, non-normative Systems of Innovation approaches (see below) should be linked into RRI debates to provide more evidence on whether the approach advocated to achieve responsible and ethical governance of research and innovation (R&I) can indeed deliver on competitiveness (in nano-technology and other fields).

Regionalism, end markets and ownership matter: Shifting dynamics in the apparel export industry in Sub Saharan Africa

Abstract:

This paper shows the importance of ownership, end markets and regionalism within the global value chain and related conceptual frameworks. This is done through unpacking the development trajectories of the major Sub Saharan African apparel export industries against the backdrop of trade regime changes. Ownership characteristics of supplier firms shape the ability to shift between different end markets and respond to lead firm requirements; and the level of their local and regional embeddedness impacts on different forms of upgrading. The emergence of new regionalism centred around investment and end markets provides pathways for new trajectories of more sustainable value chains and local industrialization. More locally and regionally embedded firms have been able to shift with uneven success to new, and in particular regional, markets. In contrast, Asian-owned transnational producers remain focused on the US market with limited market opportunities and upgrading potential. Different types of ownership and embeddedness dynamics are therefore important to explain the co-evolution of highly differentiated value chain dynamics creating a variety of apparel industrialization trajectories in the apparel export industry in Sub Saharan African.

Thinning and Thickening: Productive Sector Policies in the Era of Global Value Chains

Abstract:
Effective insertion into global export markets offers the potential for sustainable income growth. However, inappropriate positioning in global markets may well lead to immiserising growth. The key to achieving the beneficial outcome lies in the capacity to identify, appropriate and protect rents, and in the context of intense global competition, to develop the capacity to master dynamic capabilities in order to generate rents on a sustainable basis. This rent policy agenda is necessarily contextual. We argue that the current temporal context is one in which an increasing share of global trade occurs within global value chains (GVCs), and that this is widely recognised. Less widely recognised (and we believe that this is the value added in this article) is the key sectorial distinction between vertically specialised GVCs and additive GVCs. These two families of GVCs require different corporate strategies and different forms of policy support. We refer to the two strategic agendas as ‘thinning’ (in the case of vertically specialised GVCs) and ‘thickening’ (in the case of additive GVCs). The additive GVCs tend to be relatively more important in low- and middle-income economies, particularly in Africa and Latin America and parts of South and East Asia. Critically, since effective policy support applies to the agricultural, resource, manufacturing and services sectors (and to the interconnections between them), we argue that ‘industrial policy’ is a misnomer, and instead we conceive of the policy agenda as one that addresses the ‘productive sector’.

The Evolution of the Global Arms Industry

Abstract:

This article examines the evolution of concentration in the global arms market, or industry, over the period 1990-2013 and considers its prospects. Using data from the Stockholm International Peace Research Institute (SIPRI) list of the largest 100 arms producing firms, it finds that within the international arms industry, there has been change but also continuity, particularly in the nature of the markets and the relations between the main producers and governments. While the changes that have taken place are important, it is still political rather than economic logic that shapes the evolution of the market. Certainly the arms industry remains relatively unconcentrated compared to other industries probably because of the domestic preferences in procurement by national governments. Countries do not like monopoly arms producers, but there is no western country other than the United States that can currently support more than one competitor, although in the near future Russia could and China may provide serious international competition to the U.S. What is clear is that there are economic forces pushing for increased competition, but the final outcome will be determined by political forces, and transparency and governance will become increasingly important issues.

Corruption, growth in Africa

Abstract:

A major concern in the development of African economies is the impact of corruption on economic growth and while there is general agreement on its detrimental effects, there is considerable debate over its nature and importance. In particular there is little work on the interaction between corruption, government expenditures and how this influences economic growth in countries in the region. This paper takes an endogenous growth model, extends it to include different categories of government spending and then introduces the possibility of corruption, which is allowed to have different effects on each of the categories. The results confirm the negative effect of corruption and military spending, but also show that corruption interacts with military burden, through indirect and complementary effects, to further increase its negative effect. The policy implications are that the effects of corruption on economic growth are worse than was thought in countries which have high military burdens.

Government Spending, Corruption and Economic Growth

Abstract:

There is considerable debate over the effects of both corruption and government spending on growth, but few studies have considered how the interaction between them might affect economic growth. This paper provides a contribution to the debate, starting wiGth an endogenous growth model and extending it to account for the effects of corruption on components of government spending, namely military and investment spending. It then illustrates the non-negligible indirect effects of corruption on military spending and government investment expenditure using model simulations. The resulting model is then estimated on a comprehensive panel of 106 countries and the results show that the interactions between corruption and investment and corruption and military spending have strong negative impacts on economic growth. The results also indicate important complementarities between corruption and military spending, suggesting that combating corruption will not only have direct positive effects, but is also likely to have positive indirect effects, through reducing the size of the negative impact of the military burden. They are also found to be robust across different measures of corruption, levels of economic development and groupings of countries. This suggests that policies to reduce corruption, combined with those to reduce military burdens, such as regional security agreements, would have a considerable impact on economic growth.

Military Expenditure and Economic Growth 1960-2014

Abstract:

This article compares results of our 2015 study of the effect of military expenditure on economic growth, 1988–2010, with results using an additional 28 years of data provided in the newly revised and extended SIPRI dataset, 1960–2014. When the additional data points are added, we find no substantive differences and confirm the statistically significant negative effect of military expenditure on growth reported in our prior research. Using the same estimation process, there is no evidence of a structural break in the time series. Considering nonlinearity and heterogeneity, the estimates using the new data for ninety-seven countries are remarkably consistent with the earlier results and, overall, are very similar in sign and statistical significance, and many of the coefficients are larger (more adverse) than before. The new data provide valuable extra information and support for the original findings.

The role of network effects and consumer heterogeneity in the adoption of mobile phones: Evidence from South Africa

Abstract:
In this paper we analyze the role of network effects and consumer heterogeneity in the adoption of mobile phones. We estimate the decision to adopt a mobile phone using panel survey data of South African households between the years 2008 and 2012, which includes interviews with all adult household members. We construct variables which approximate network effects on the household level and find that the greater the number of mobile phones in the household, the greater the likelihood that the other household members will also adopt a mobile phone. Moreover, network effects depend on who in the household adopts a mobile phone. Without within-household network effects the penetration of mobile phones of 76.4% in 2012 would be lower by about 9.9 percentage points. The decision to adopt a mobile phone is also explained by observed and unobserved consumer heterogeneity.

Estimating demand for fixed-mobile bundles and switching costs between tariffs

Abstract:
This paper estimates demand for fixed-mobile bundles (quadruple play tariffs) using a database of subscribers to a single mobile operator from a single town in a European country which has full coverage with both ADSL and FTTH broadband technologies. Based on the mixed logit demand estimation we find that consumer valuation of FTTH broadband in 2013 increased over time, while ADSL lost attractiveness relative to FTTH and in absolute terms, which suggests that consumers increasingly care about the speed of connection offered by FTTH. Consumer surplus increased substantially due to ongoing transition of consumers from less valued quadruple play tariffs with ADSL to more valued ones with FTTH. We also find that for quadruple play subscribers mobile data is complementary to fixed broadband access, which suggests that these consumers use Internet access via mobile data to sample online content but complete their online activity using fixed Internet access at home. On the other hand, mobile voice usage is a substitute to fixed broadband access and consumers reduce their voice consumption once they get a broadband connection. We also find that there are substantial switching costs between tariffs which, other things being equal, greatly decrease consumer surplus.

Is China "crowding out" South African exports of manufactures

Abstract:

This article analyses the impact of Chinese competition on South African manufacturing exports to its major markets in Europe, the United States and Sub-Saharan Africa. The article considers five related research questions. First, are China and South Africa competing with each other in export markets, how extensive is such competition and how is this changing over time? Second, to what extent has Chinese competition led to the displacement of South African exports? Third, in which countries have South African exports been most affected? Fourth, which South African export sectors face the greatest threat from Chinese competition? Finally, how does South Africa's experience compare to that of Brazil, another middle-income country and regional power. We find that competition between South Africa and China increased significantly over the past decade, particularly in African markets. All types of manufactured exports lost ground to China, but the impact is strongest in low-technology products. South African exports have nevertheless increased from 2001 so that ‘crowding out’ should be interpreted in relative terms.

A Disaggregated Analysis of Product Price Integration in the Southern African Development Community

Abstract:
Price-based empirical evidence on the extent to which product markets are integrated in developing regions is noticeably limited, particularly in Africa. This article uses highly disaggregated retail price data for twenty-four narrowly defined products collected at the district level in four Southern African Development Community (SADC) countries (Botswana, Malawi, South Africa and Zambia) to assess the extent to which product prices are integrated within and between these countries. We find evidence of large and persistent absolute deviations from the law of one price both within and between each of the four countries. Price dispersion is found to be higher between SADC countries than within the individual countries. On average, absolute price deviations between country pairs are smaller for countries adjacent to each other and for countries that share common membership in the Southern African Customs Union. Simple econometric estimates show that absolute price deviations between district pairs in the region increase the further apart the districts are from each other and are higher in the case of districts separated by a national border. Overall, we find no clear evidence that product markets in the SADC region have become more integrated between 2006 and 2009 (although product prices between the Common Market for Eastern and Southern Africa countries did become more integrated over this period), despite the liberalisation of tariffs under the SADC Protocol on Trade. Trade liberalisation alone appears not to be sufficient in generating greater product market integration within the region.

The Impact of Chinese Import Penetration on the South African Manufacturing Sector

Abstract:

This article uses a Chenery-type decomposition and econometric estimation to evaluate the impact of Chinese trade on production and employment in South African manufacturing from 1992 to 2010. The results suggest that increased import penetration from China caused South African manufacturing output to be 5 per cent lower in 2010 than it otherwise would have been. The estimated reduction of total employment in manufacturing as a result of trade with China is larger – in 2010 about 8 per cent – because the declines in output were concentrated on labour-intensive industries and because the increase in imports raised labour productivity within industries.

Price-Setting Behaviour in Lesotho: Stylised Facts from Consumer Retail Prices

Abstract:

This paper documents some of the main features of price‐setting behaviour by retail outlets in Lesotho over the period March 2002 to December 2009. These features include the frequency, size, duration and synchronisation of price changes. In addition, the paper compares price‐setting behaviour in Lesotho and South Africa using a comparable set of products. The findings reveal considerable heterogeneity in price‐setting behaviour across products, outlets, locations and time. Variations in inflation are strongly correlated with the average size of price changes, but rising inflation raises the frequency of price increases and reduces the frequency of price decreases. Price decreases constitute an important determinant of inflation movements. Surprisingly, the frequency and size of price changes in Lesotho differ substantially from those in South Africa, despite the presence of common retail chains and their joint membership in a customs union and common monetary area. These findings open up opportunities for further research into the sources of heterogeneity across products and Lesotho and South Africa in the setting of prices.

Military Expenditure, Economic Growth and Heterogeneity

Abstract:
This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988–2010. A major focus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors, and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.

Market definition for broadband internet in Slovakia – Are fixed and mobile technologies in the same market?

Abstract:
This paper uses a rich survey of 6446 households in Slovakia to estimate price elasticities of demand for Internet access, and draw implications for market definition. We estimate a mixed logit model, in which households choose between different broadband technologies: DSL, cable modem, fibre, WiFi and mobile. We find that a number of household characteristics influence the technology choices, and there is also significant unobserved heterogeneity. Demand for Internet access is highly price sensitive. The price elasticity of demand for DSL is −3.02, which falls in the middle of the range of elasticities for the other technologies. Furthermore, the price elasticity of demand at the level of all fixed broadband technologies (DSL+cable modem+fibre+WiFi) is equal to −1.98. For a reasonable range of profit margins, this estimate implies that mobile broadband should be included in the relevant antitrust market of fixed broadband. Our findings have implications for competition policy in Central and Eastern European countries where due to poor copper networks mobile broadband is an important alternative to fixed broadband.

Fixed-to-mobile substitution in the European Union

Abstract:
This paper analyzes substitution between access to fixed-line and mobile telephony in the European Union using cross-section panel data on households’ choices of telecommunications technologies in years 2005–2010. We estimate a structural model of household׳s demand for access to: (i) fixed-line only; (ii) mobile only; and (iii) both fixed-line and mobile. We find that growing Internet usage increases the share of ‘fixed + mobile’ households, which suggests that households keep their fixed-line connection to access Internet. However, the spread of 3G and cable broadband access decreases the share of ‘fixed + mobile’ households and increases the share of ‘mobile only’ households. Hence, fixed-to-mobile substitution was slowed down by the spread of Internet but it may continue with the spread of mobile broadband. Furthermore, bundling of telecommunications services increases the share of ‘fixed + mobile’ households and decreases the shares of ‘mobile only’ and ‘fixed only’ households. Therefore, operators which can bundle fixed-line connection with Internet or mobile services may slow down fixed-to-mobile substitution.

Estimating broadband diffusion in the EU using NUTS 1 regional data

Abstract:
In this paper we use panel data on NUTS 1 regional data for 27 EU countries in the years 2006–2010 to analyze determinants of broadband diffusion. We estimate both linear demand specification and the logistic diffusion function. We find that, after controlling for regional differences due to socioeconomic factors, inter-platform competition approximated by an inter-platform Herfindahl index has a significant positive impact on broadband diffusion. Broadband deployment is lower in countries in which DSL has a greater share in Internet access and it is higher in countries in which cable modem has a greater share in Internet access. Moreover, we find that competition between DSL providers has a significant and positive impact on broadband penetration. First, higher prices for a fully unbundled local loop connection, which represent the cost of providing copper-based Internet services, have a significant and negative impact on broadband penetration. Second, a greater incumbent share in DSL connections has a significant and negative impact on broadband penetration.

The Margins of Export Competition: A New Approach to Evaluating the Impact of China on South African Exports to Sub-Saharan Africa.

Abstract:

Chinese manufacturing exports to Sub-Saharan Africa challenge South Africa's economic influence in the region. To evaluate this, the paper develops and applies a conceptual framework that distinguishes between the intensive and extensive margins of Chinese export competition. South African exports of new and existing manufactured products to Sub-Saharan Africa are found to have been negatively affected by Chinese competition relative to exports from other countries. Consequently, South Africa's exports to the region in 2010 were 20% lower than they would have been if they had been affected to the same degree as other countries. The crowding-out effects are found to be strongest in medium- and low-technology products. Overall, the data suggest that Chinese exports of manufactures have diminished South Africa's participation and economic influence in the region.

Shifting the growth path to achieve employment intensive growth in South Africa

Abstract:
‘Employment intensive growth’ has become a centrepiece of government policy and implies that at any given level of growth, the economy needs to become more labour absorbing. State intervention (or the lack of it) is examined in two areas that are important for employment – agriculture and manufacturing. In the case of agriculture, it is argued that declining and ineffective state support has accelerated the rationalisation of commercial agriculture and failed to regenerate agriculture in the former Bantustans. With regard to the manufacturing sector, we argue that since 1994 the government has set a multiplicity of objectives but, de facto, there has been a surprising level of continuity in the overly generous assistance for heavy, capital-intensive industry. This paper argues that the negative impact of previous ‘distortions’ requires much more than a levelling of the playing field via market-based reforms. Pro-employment policies have to be placed at the centre of the policy agenda.

Towards a pro-employment growth path

Abstract:
Black is a professor with the Policy Research in International Services and Manufacturing (PRISM) unit at the University of Cape Town’s School of Economics, where Gerwel and Hasson are researchers. This paper draws on a full-length article by Black and Gerwel, “Shifting the growth path to achieve
employment-intensive growth in South Africa”

Conflict Spillovers and Growth in Africa

Abstract:
A number of studies have attempted to evaluate the costs of conflict, but few have evaluated the impact of conflict on country growth. An even more limited number of studies have attempted to evaluate the spillover effects of conflict, with those that have finding clear negative effects on primary neighbors and then positive secondary neighbor effects. There are, however, a number of issues with these studies and this paper updates and develops their analysis using a dynamic panel approach. It confirms the negative sign and magnitude of the previous findings for the host country and primary neighbors, but finds no evidence of any positive or negative effects of conflict on secondary neighbors.

The Demand for Military Spending in Egypt

Abstract:
Egypt plays a pivotal role in the security of the Middle East as the doorway to Europe and its military expenditure reflects its involvement in the machinations of such an unstable region, showing considerable variation over the last 40 years. These characteristics make it a particularly interesting case study of the determinants of military spending. This paper specifies and estimates an econometric model of the Egyptian demand for military spending, taking into account important strategic and political factors. Both economic and strategic factors are found to play a role in determining military burden/spending, with clear positive effects of lagged military burden, suggesting some sort of institutional inertia, plus negative output and net exports effects. The strategic effect as a result of the impact of Israel’s military burden is mostly positive and significant, though its impact is reduced when the impact of important strategic events are taken into account. The military spending of Egypt’s allies Jordan and Syria generally seems to have had no effect on Egypt’s spending. These results are consistent over a range of econometric techniques.

Military Expenditure, Economic Growth and Structural Stability: A Case Study of South Africa

Abstract:
This paper contributes to the growing literature on the milex-growth nexus, by providing a case study of South Africa and considering the possibility of structural breaks by applying newly developed econometric methods. Using full sample bootstrap Granger non-causality tests, no Granger causal link is found between military expenditure and GDP for 1951–2010, but parameter instability tests show the estimated VARs to be unstable. Using a bootstrap rolling window estimation procedure, however, finds evidence of bidirectional Granger causality in various subsamples. This implies standard Granger non-causality tests, which neither account for structural breaks nor time variation may be invalid.

The Industrialisation Challenge for Africa: Towards a Commodities Based Industrialisation Path

Abstract:
Since the turn of the millennium many African economies have been reintegrated into the world economy on a positive note and experienced substantial economic growth. This growth has primarily been concentrated in commodity exports. The central question facing African economies is how to use economic growth to foster industrialisation and thereby facilitate general development. This paper discusses the extent to which developing backward and forward linkages to the commodity sectors can contribute to its industrialisation project, in light of the past de-industrialisation process and recent trends in global commodity markets. It then reviews the theoretical criticism to resource-based industrialisation and proposes elements for a commodities based industrialisation strategy, including an analysis of the benefits of such strategy for Africa, and the factors contributing to its success.

Industrialisation Trajectories in Madagascar’s export apparel industry: Ownership, local embeddedness and economic upgrading

Abstract:

The paper shows the importance of ownership as a conceptual category within global value chain (GVC) analysis through analyzing firm types based on their GVC linkage, market access, and ownership profile in Madagascar’s apparel export industry. The central argument is that ownership leading to variances in embeddedness matters. Ownership characteristics of supplier firms shape the ability to shift between different end markets, respond to lead firm requirements, and pursue upgrading. With Madagascar’s exclusion from AGOA benefits this has enabled locally embedded European/French diaspora-owned firms and regionally embedded Mauritian-owned firms to shift market channels and upgrade while Asian-owned firms largely exited the industry.

Dynamic Duopoly Competition with Switching Costs and Network Externalities

Abstract:
This paper analyzes competition in a two-period differentiated-products duopoly in the presence of both switching costs and network effects. We show that they have opposite implications on the demand side, specially in the first period. Switching costs reduce demand elasticities and network effects increase them. We derive the symmetric subgame perfect equilibrium outcome of the two-period competition. An increase in marginal network benefits implies lower prices in both periods while the effect of an increase switching costs is ambiguous. We show that the first-period equilibrium prices are U-shaped in switching costs and decrease when switching costs increase around zero. Furthermore, we show that prices in a market with network effects and switching costs may be lower than those in a market without these features, with only switching costs and with only network effects.

Value Chain Dynamics of Chinese Copper Mining in Zambia: Enclave or Linkage Development?

Abstract:

This article focuses on the distinctive nature of Chinese FDI in Africa, specifically copper mining value chains in Zambia and local sourcing linkages. In order to secure supply, China has become a substantial foreign investor in the Zambian copper extractive sector acquiring control over copper mines, smelters and processing industries. The expectation is that the Chinese mines would operate as enclave operations concerned only with securing raw materials for its industrial and infrastructural needs, and promoting exports from Chinese companies. In this article, we analyse and compare the Chinese copper mines with Northern and South African mining companies in Zambia in terms of the distinctive manner in which their supply chains operate. We do this by examining the role of linkages between mining activities and local suppliers in terms of access, delineation of critical success factors and upgrading strategies.

Military Spending and Growth: A Survey

Abstract:
Until recently, a long-standing, impressively large, and growing literature on the effects of military expenditure on economic growth appeared to have failed to result in a scholarly consensus. But the availability of 20 more years of data since the thawing of the cold war has helped researchers to make progress in identifying any relation of military expenditure with economic factors. The literature is complex and difficult to summarize, with studies differing in their theoretical approach, in the empirical methods used, in the coverage of countries and time periods employed, and in their quality and statistical significance. This article extends and updates an earlier survey, now covering almost 170 studies. It finds that more recent studies provide stronger evidence of a negative effect of military expenditure on economic growth.

One thing leads to another - Commodities, linkages and industrial development

Abstract:

With a particular focus on low income economies in SSA, this paper addresses the nature and determinants of linkages from the commodities sectors and challenges the received view that enclave development is an inherent characteristic of resource extraction, particularly in the hard and energy commodities sectors. It argues that there has been a steady increase in linkage development and that there are significant opportunities for deepening this process. The opportunities may be greater for backward than for forward linkages, particularly in the minerals and energy sectors. In making this case, this Discussion Paper draws on the experience of high income countries which have resource intensive economic structures, the geographical specificity of many resources and the growing interest of large resource extracting firms in outsourcing the production of inputs which are outside of their core competences and in supporting local production of some inputs, it sets out a general model of linkage development which distinguishes between win–win and win–lose outcomes.

A strategic view of South African trade policy in relation to the future global trading environment

Abstract:

This paper puts forward a strategic view of what South African trade policy should be doing in relation to the future global trading environment. The future is uncertain, but if the past is prologue, South African trade policy needs to be positioned for a continuation of the commodity cycle, and to exploit markets in emerging economies, including Africa, more fully. Simultaneously, it needs policies to spur labour-intensive services and manufacturing exports, both because these will be needed if commodity markets are less robust and because of their employment-creating potential. South Africa's current strategy, however, is inflexible, heavily focused on domestic concerns and is in danger of placing South African exporters at a disadvantage in accessing the growing emerging economies. It also gives rise to an inherent tension between the interests of South Africa and the African region in trade negotiations. Having as the central tenet of trade policy a commitment to deal with tariffs on a case-by-case basis will not serve South Africa well in the global economy that is likely to emerge over the next 15 years. A simpler tariff structure would facilitate the conclusion of free trade agreements and actually make industrial policy more effective.

Shattering the Myths about U.S. Trade Policy

Abstract:

Many Americans blame free trade for their nation's economic slide, but the authors' research shows that free trade has been assigned a villainous role that far exceeds its real impact. The evidence exposes three myths. Myth 1: America's open trade policy is the main cause of job losses, especially in manufacturing. The real drivers of the tosses: rising productivity growth in U.S. manufacturing and a shift in demand away from goods in favor of services. Myth 2: U.S. living standards are falling and wage inequality is rising because developing countries compete with the U.S. in its export markets on cost. The truth is that the U.S. and developing countries have specialized in very different products and processes, making the latter complementary to America's growth. Myth 3: The rapid growth of emerging markets like China and India is the most important reason for the higher oil prices that hurt Americans. The primary responsibility for the shortfall between demand and supply that has caused oil prices to soar rests with developed countries, which contributed to most of the price increase from 2000 to 2008. The authors advocate a more active U.S. trade policy that emphasizes exports, bilateral cooperation with other economies to maintain a trading order that supports U.S. economic interests, and plurilateral agreements with WTO members on issues such as competition policy.

Military Spending and Growth in the EU15

Abstract:

Over the last 30 years, there has been an impressive amount of empirical work on the defence–growth nexus, using different methodologies, models and econometric techniques and focusing on individual case studies, cross-country studies or panel data studies. Despite the number and the variety of studies, the evidence on the defence–growth relationship is still far from conclusive. Rather surprisingly, very limited work has been published in the relevant literature for the European Union despite the continuous discussions for a Common European Defence Policy that would require an assessment of the economic effects of defence in this region. To fill in the gap in the literature, this paper employs an augmented Solow–Swan model and estimates it both with panel and time series methods to provide empirical evidence on the economic effects of defence spending in the EU15 over the period 1961–2007. Overall, evidence derived from both panel and time series methods is consistent and suggests that military burden does not promote economic growth in this region.

Military Spending, Growth, Development and Conflict

Abstract:

This paper makes a contribution to the debate on the economic effects of military spending using a large cross-country panel data-set for 1988–2006. As well as providing a relatively up to date analysis, sub-groups are created that allow the analysis to focus on groups of countries at different income levels and Sub-Saharan Africa (SSA), an area which has seen a large number of damaging conflicts. Estimating the empirical growth model gives results that show variation across the sub-groups, with the general picture of significant negative short-run effect and insignificant long-run effect of military burden on per capita GDP growth, not consistent across the different income groups. In addition, breaking down the SSA group into those involved in conflict and those that are not, provides some further intriguing findings that suggest the value of further work on the impact of conflict on growth.

Corruption, Military Spending and Growth

Abstract:

This paper considers the effect of corruption and military spending on economic growth, analysing both the direct impact of public spending and the effect of allocating resources between categories of public spending within the framework of an endogenous growth model. The model exhibits non-linearities as a result of the links between the components of public spending, corruption and economic growth. The main findings of the empirical analysis confirm the expectation that corruption and military burden lower the growth rate of gross domestic product per capita. They also suggest that when the effect of the complementarity between military spending and corruption is omitted, as in most studies, the impact of military burden on economic performance is underestimated.

Terrorism, War and Global Air Traffic Demand

Abstract:

It is thought that one of the affected industries of the 9/11 terror event was the global airline industry through the attack's effects on global air traffic demand for international, scheduled flights. Using data from the International Civil Aviation Organization, this article considers whether this was indeed the case. The study applies panel data analysis, focusing on the 20 largest airline companies. We find that when one takes account of potential confounding factors such as the general state of the economy, global air traffic was not greatly affected by the general level of terrorist attacks worldwide, and that it takes a truly exceptional event such as 9/11 to find a measurable impact on air traffic demand. Even then, the measured effect for the industry as a whole is small in magnitude. The reason for this finding appears to be that the demand for international scheduled air flights is rather heterogeneous across airlines. Aggregating across the whole of the global industry is not in all instances warranted.

The Asian Drivers and SSA: Is There a Future for Export-oriented African Industrialisation?

Abstract:
Export-oriented industrialisation is the orthodoxy and is widely indicated as a development path for sub-Saharan Africa. In recent years there has been a surge of clothing exports from a limited number of SSA economies to the US. In 2006 these exports accounted for more than half of SSA's manufactured exports (excluding South Africa). However, the ending of quota controls on Chinese clothing exports to the US led to a significant fall in these exports. Is this a harbinger for the future of export-oriented industrialisation in SSA in a world of a level trading playing field?

Location, Automotive Policy, and Multinational Strategy: The Position of South Africa in the Global Industry since 1995

Abstract:
The South African automotive sector has become much more integrated into the global industry since 1995. Rapid export expansion has shifted its orientation fundamentally away from its focus on the small domestic market and the industry is widely regarded as a success story of South Africa’s democratic transition. However, important vulnerabilities remain, and it is by no means clear that the mode of integration has been particularly favourable to the long-term development of the industry. The relatively small size of South Africa’s domestic market and its regional location pose clear disadvantages in terms of attracting international investment.

Chinese FDI in Sub Saharan Africa: Engaging with large dragons

Abstract:

In the context of widespread interest in the impact of Chinese investment in Sub-Saharan Africa (SSA), this paper focuses on SSA’s engagement with large state-owned Chinese firms investing in SSA’s resource and infrastructure sectors. Evidence is provided on the extent of different types of Chinese investment, before focusing on the distinctive character of large scale state-owned Chinese investors whose investments are closely bundled with aid and trade. The paper concludes that SSA countries should maximise the opportunities opened to them by their resource-base by adopting a similarly integrated and focused response to Chinese (and other large) investors who seek to draw on the continent’s natural resources. Keywords: Foreign Direct Investment, Aid, China, Asian Drivers, Sub-Saharan Africa, State owned enterprises. To be published in European Journal of Development Research Special Issue, Vol. 24, No. 1, 2009