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Policy Briefs

Credit frictions and co-movement of durable and non-durable goods in a small open economy

Hilary Patroba
Multi-sector sticky price models produce unusual outcomes when the prices of durable goods are flexible. This is because, on the one hand, as empirical evidence suggests, a monetary policy shock results in the positive movement of aggregate consumption in both durable and non-durable goods sectors. On the other, it is because the movement of durable goods is greater than that of non-durable goods, as suggested by Erceg and Levin (2002, 2006). On the other hand, Barsky et al. (2003) show that in a two-sector economy with flexibly priced durable goods and sticky priced non-durable goods, the flexibility of prices of durable goods governs the response of aggregate consumption to a monetary policy tightening. This is because the shadow value of durable goods is approximately constant owing to the typically high stock-to-flow ratio of durable goods. Thus, the responsiveness of the user cost of durable goods does not result in an improvement in total utility for the households.
Sep 2018
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Regulatory ambiguity and policy uncertainty in South Africa’s telecommunications sector

Helanya Fourie, Lara Granville & Nicola Theron
Competition policy aims to encourage efficiency and promote choice by protecting consumers from anti-competitive behaviour by firms. The rationale is that by creating competitive markets, economic welfare will be maximised. Network industries, like telecommunications or electricity, however, are characterised by scale economies and sunk costs, which create barriers to entrants and prevent effective competition from being realised. In such industries, sector specific regulation plays an important role in preventing incumbents from abusing their market power, by imposing conditions to encourage entry and competition.
Aug 2018
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Nonlinearities in Financial Development–Economic Growth Nexus: Evidence from sub–Saharan Africa (SSA)

Muazu Ibrahim and Paul Alagidede
The impact of financial development on economic growth has received much attention in the recent literature. The general conclusion is that development of the financial sector is positively related to the level of growth. However, theoretical studies have espoused discontinuities in the relationship. More importantly, the relationship between finance and economic activity is well mediated by the level of initial per capita income, human capital and existing financial development. While this is well documented at the theoretical front, empirical literature is silent on the nonlinearities in finance–growth nexus caused by the threshold variables. Beyond examining the impact of financial development on economic growth for 29 SSA countries over the period 1980–2014, in this study, we further investigate whether the impact of finance on growth is conditioned on the initial levels of countries’ income, human capital and financial sector development. Our overall finding is that, financial development is positively and significantly associated with economic growth. However, the growth–enhancing effect of finance is higher when measured with private relative to domestic credit. We re–examine the threshold effect of finance in the face of the threshold variables. Our evidence suggests that, in almost all cases, financial sector development is positively related to growth albeit insignificantly below the estimated thresholds. The only exception is the impact of private credit on growth below the income threshold where the impact is slightly significant. Similar trend is also noticed when domestic credit mediates the finance–growth nexus.
Aug 2018
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Pricing electricity blackouts among South African households

Nomsa Phindile Nkosi and Johane Dikgang
Lack of information about households’ welfare losses could lead to incorrect policy choices. Given the ever-increasing reliance on electricity, extreme weather conditions and current energy diversification strategies, it is vital that policymakers obtain information about households’ welfare losses due to power outages. According to Schmidthaler (2012), the costs associated with power outages may be direct, indirect or ongoing.
Aug 2018
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South African attitudes about nuclear power: The case of the nuclear energy expansion process

Nomsa Phindile Nkosi and Johane Dikgang
Excessive use of fossil fuels is widely acknowledged as one of the main causes of climate change. The energy sector is one of the sectors that make use of fossil fuels. Greenhouse gasses are released during the combustion of fossil fuels, such as coal, oil, and natural gas, to produce electricity. Generating electricity from nuclear reduces pollution externalities hence it is argued by some to be part of a sustainable solution to achieving low-carbon energy options. This option According to Ertor-Akyazi et al. (2012) since energy security is a critical element in an economy, nuclear energy can play a role in ensuring smooth supply of electricity; it is reliable, and can provide electricity on a larger scale, similar to fossil fuels.
Aug 2018
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An institutional comparison of private shareholding in the central banks of South Africa and Turkey

Jannie Rossouw
This paper assesses institutional aspects of private shareholding in the central banks of South Africa and Turkey. It is shown that only a small number of central banks other than the SA Reserve Bank (SARB) in South Africa and Türkiye Cumhuriyet Merkez Bankasi (TCMB) in Turkey have any form of private shareholding, although South Africa and Turkey and the only two emerging-market countries with central banks with private shareholding.
Jul 2018
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Teacher Human Capital, Teacher Effort and Student Achievements in Kenya

Fredrick Wamalwa and Justine Burns
Evidence gathered over the past 40 years demonstrates that education is important, both at the micro and macro level. Education has been associated with increase in workers’ productivity, higher economic growth, improved health status and reduced crime among other non-monetary outcomes.
Jul 2018
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Unfulfilled expectations and the emergence of the EFF

Nonso Obikili
Populism in politics is not a new phenomenon. It has been present for as long as democracy has been in existence. As far back as the time of ancient Greece, Plato remarked on the dangers of populism in democracies. Paraphrasing Plato, “The demagogue gains power by democratic means, claiming to be a champion of ‘the people’ and making wild promises; in particular he offers intoxicating quantities of the neat spirit of independence”. It is clear that populism in democracies has been a recurring feature.
Jul 2018
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Parental Bargaining and Rural-Urban Child Health Differential in Tanzania

Alfred Mukong and Justine Burns
Child malnutrition is an important indicator of poor child health status and is strongly associated with high mortality risk. Childhood malnutrition is also associated with poor health outcomes, educational performance and labour market outcome in later life. Therefore, poor health at childhood is one of the mechanisms for explaining inter-generational transmission of education, economic status and overall human capital formation and underscore why child health condition can be regarded as an important factor for future production and hence economic growth and development. Investment in child health is likely to pay o_ both to the individual in the form of higher future earnings, to the household in the form of overall household income and well-being and to the entire economy by reducing poverty inequality and strengthening economic growth. This explains why child health outcome in developing countries has been one of the concerns of most development agencies in the past decades.
Jul 2018
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The Growth Dynamics of New Export Entrants in Kenya: a Survival Analysis

Peter W. Chacha and Lawrence Edwards
Promotion of exports remain a core objective of trade policy in many countries. Information on how long or how short the duration of a trade relationship is for an average exporter may be important from a policy point of view. Policy makers from almost all countries aim to encourage exports and entry of new exporters, because exports are a major driver of economic growth and jobs. This is usually accompanied by fiscal incentives geared toward promotion of exports and raising the number of new exporters as a performance metric. However, knowledge on how many of these new exporters will be able to survive in international markets remains extremely scarce for countries in the Sub-Saharan Africa, and certainly for Kenya. This is surprising given that the length of survival can be considered one of the most comprehensive measures of exporter performance. This paper seeks to add to a growing literature examining this issue for SSA countries.
Jun 2018
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