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Policy Briefs

Rural Electrification policy: The potential in micro hydro electricity

Mary Karumba and Edwin Muchapondwa
Developing countries particularly those within the Sub-Saharan African region like Kenya account for almost half of the 1.2 Billion people in the world without access to electricity. These countries have a greater challenge of dealing with outcomes related to the lack of modern energy by rural households, who comprise a bigger proportion of their population. Part of the explanation is the energy policy preoccupation with centralized grid electrification whose economics does not favour scattered and low income households in the vast rural areas. Subsequently, even with heavy rural electrification campaigns, new patters of large section of the population that does not take up connection and limitation of electricity to very basic uses by household’s calls for alternative considerations in energy policy.
Jun 2018
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Can bank capital adequacy changes amplify the business cycle in South Africa?

Foluso Akinsola and & Sylvanus Ikhide
The phenomenon of bank regulation procyclicality requires very careful examination for both regulatory bodies and supervisory authorities given the salient role of the financial sector as an engine of growth to the real sector. Consequently, policies and regulations should be formulated in a way that will not hinder the financial deepening of the markets. Regulatory measures that promote excessive risk-taking during a crisis could have severe implications for the procyclical behavior by most banks. We suggest that the South African economy needs forward-looking policies that will mitigate the flow of credit to the real sector and at the same time ensure financial stability.
May 2018
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Gender and Birth Order Effects on Intra-Household Schooling Choices and Educational Attainments in Kenya

Fredrick Wamalwa and Justine Burns
Many schooling decisions take place within the family. For instance, when faced with resource constraints, as it is the case in many developing countries, parents can send some of their children to work and let others concentrate on studying at school. Similarly, if resources become scarce, parents can send some of their children to fee paying private schools and let others attend public schools (which are generally free of charge in most developing countries following the free primary education policies). However, research on specific family characteristics that influence such children schooling decisions is still inconclusive and has not been fully exploited.
May 2018
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What’s in a Name? Reputation and Monitoring in the Audit Market

Somdutta Basu and Suraj Shekhar
Currently, audit reports issued in the USA do not reveal the name of the lead partner at the audit firm who conducted the audit. In December 2015, PCAOB (Public Company Accounting Oversight Board) approved a new rule which mandates that the lead partner’s name be disclosed in audit reports. This rule was approved by the Securities and Exchange Commission (SEC) in May 2016 and will come into effect after January 2017 . In this paper, we analyse partner incentives under the two regimes (with and without disclosure of partner names) and explore the possible impact of the new rule on audit quality. This paper highlights an important tussle between monitoring and reputation incentives in a partnership under two different information structures - a collective reputation environment and an individual reputation environment. Thus, our paper contains a more general message but we set it in the audit market environment for two reasons - a) To analyse the impact of the proposed rule and b) To develop a rich model which incorporates many details particular to the audit industry in the hope that this model can be used for analyzing several questions related to the audit market.
May 2018
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Modelling systemic risk in the South African Banking Sector Using CoVar

Mathias Manguzvane and John W Muteba Mwamba
The current paper models system risk in the South African banking sector and identifies the most vulnerable banks to system risk. Modelling systemic risk enables policy makers and regulators to monitor the build-up of imbalances and vulnerabilities of the financial system. Failure to model system risk can lead to disastrous economic consequences as it was the case in South Africa during global financial crisis that emanated from the US housing market and impaired the private and public sector to easily access financing: South African economy lost almost a million jobs.
Feb 2018
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The Interdependence between the Saving Rate and Technology across Regimes: Evidence from South Africa

Kevin S. Nell and Maria M. De Mello
A major policy issue in developing economies is whether a faster rate of physical capital accumulation is a key determinant of growth transitions in output per capita, or whether growth shifts are primarily the outcome of an ‘unexplained’ or ‘mysterious’ total factor productivity (TFP)/technology progress component. To shed some new light on the issue, this paper hypothesises that the saving rate and the growth rate of technology are interdependently determined by a common exogenous source across regimes, so that an exogenous shock to the saving rate determines long-run growth transitions. We further advance the idea that in an open-economy setting the saving rate, rather than the investment rate itself, serves as the most suitable measure of the quality or productivity of investment, that is, whether changes in capital investment induce changes in the growth rate of technology.
Feb 2018
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Will Technological Change Save the World? The Rebound Effect in International Transfers of Technology

Mare Sarr and Tim Swanson
Experts in climate change have long stressed the need for a transfer of environmentally friendly technologies from developed to developing countries to help the latter adopt a low-carbon development path. It is typically argued that the spillover of resource-conserving technologies will reduce resource use in both developing and developed economies and hence potentially “save the world”. Policy-makers have seized upon these simple conclusions to advocate straightforward policy prescriptions, such as “the importance of technology improvements, advanced technologies, and....induced technological change for achieving the stabilization targets....” (IPPC 2007). The problem is of course that the interaction between technological choices and environmental policy is not as simple or straightforward as this. Indeed, the manner in which regulated agents (consumers or industries) respond to technological change varies considerably. For this reason, the ultimate outcome of technology-focused policies is highly indeterminate.
Feb 2018
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The Role of Alcohol and Tobacco Consumption on Income-related Inequality in Health in South Africa

Alfred K. Mukong, Corne Van Walbeek & Hana Ross
In many developing countries, there is wide inequality in the distribution of health, with those at the top end of the socioeconomic scale having better health outcomes. Mitigating the inequalities in health is the priority of most health care systems, including the National Health System in South Africa. In recent decades, many low- and middle-income countries have experienced an epidemiological transition from communicable to non-communicable diseases (NCDs). The prevalence of NCDs varies with socioeconomic status, and is driven by adopted lifestyle such as smoking, harmful alcohol use, and obesity among others. The idea is that the gradient in inequality in health between the poor and the rich is likely to depend on differences in their adopted lifestyle, and socioeconomic-related inequalities in health will widen if the negative effects unhealthy practices are concentrated among the poor. This has negative consequences on human capital development, and imposes a growing economic burden on society. Numerous studies that have attempted to examine the contribution of lifestyle factors on income-related inequality in health, have done so without considering health outcomes that are directly associated to these factors. We therefore examine the contribution of smoking and alcohol consumption to income-related inequality in health by incorporating measures of health that are directly associated to smoking and alcohol use.
Jan 2018
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Race to the top: Does competition in the DSL market matter for fibre penetration?

Helanya Fourie & Paul de Bijl
High speed broadband access creates potential productivity gains and has a positive impact on economic growth. For a country to achieve higher broadband rollout, it is imperative that the right investment climate is created to encourage fibre network rollout. As a market characterised by strong network effects, much of the focus of European Regulators have been on increasing broadband access by implementing appropriate regulations to encourage uptake and investment. This has also come onto the agenda in South Africa with the ICT White Paper, released in 2016. However, while open access regulations have managed to increase service-based competition and the uptake of broadband services in many European countries, it has not had the desired effect on investment.
Jan 2018
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Changes in the Liquidity Effect Over Time: Evidence from Four Monetary Policy Regimes

Dawid Johannes van Lill
Monetary policy, post Bretton Woods, saw the emergence of the short-term interest rate as the primary policy instrument. However, in the wake of the financial crisis, balance sheets have, again, become part the monetary policy toolkit, now empowered to perform more than an automated role in policymaking. The present-day incarnation of balance sheet policy differs in character, though, from historically used balance sheet mechanisms. We now observe that under certain monetary policy regimes, balance sheet policies operate independently from movements in the central bank policy rate. The independence of these monetary policy tools contests the conventional wisdom on the role of central bank balance sheets in policymaking (Borio and Disyatat, 2010). One of the implications is that balance sheets potentially could be used to extend the policy reach of central banks to promote financial stability.
Jan 2018
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