Latest News, Publications and Workshops

Latest Publications

Impact of macroeconomic announcements on foreign exchange volatility: Evidence from South Africa

This study focuses on scheduled macroeconomic news announcements and evaluates their impact on the volatility of the South African rand (ZAR) and US dollar (USD) exchange rate using high frequency data. The following asymmetries are studied: news items by geographical location, no-news versus surprise news announcements and positive versus negative news announcements. We make the following findings in our empirical study: (i) After the release of a news announcement, the level of foreign exchange volatility rises. This is independent of whether the news item surprised the market or not.

Private Schools and Student Learning Achievements in Kenya

Fredrick Wamalwa and Justine Burns
In a number of sub-Saharan African countries, evidence shows that the elimination of user fees in public primary schools was followed by dramatic increases in private schools. The rise in private schools has been associated with high demand for school places in the face of limited supply of quality schools from the government. Majority of these schools have been born out of community or private initiatives to establish schools mainly within the urban informal settlements, schools that levy low fees, referred to in the literature as low-cost private schools.

The effectiveness of private schools has also been discussed in the recent literature, including literature focusing on developing countries. Majority of these studies find that relative to public counterparts, private schools are better at promoting student achievements, mainly measured in terms of test scores. The validity and magnitude of the private school effect is however still debated, questioned and subject to further research. Some researchers argue that such private school advantage may be due to spurious correlations between private school attendance and unobserved student and family characteristics. Put differently, children who attend private schools may already have high academic potential or even access to complementary educational resources in a manner that is not easily observable to the researcher. The challenge is therefore accounting for such possible selection into private schools.
Despite the dramatic increases in private school provision in sub-Saharan African, only a few studies attempt to account for selection into private schools when analysing their effects. In this paper, we use rich household survey data to estimate the effect of private schools on literacy (language) and numeracy (maths) skill acquisition among children mainly drawn from lower primary grades in Kenya, a typical sub-Saharan African country. Our main contribution to the literature lies in our attempt to account for the endogeneity of private school choice. We do so by using different econometric techniques. We begin with the OLS as a baseline model. We then estimate the family fixed effects models that control for unobservables at the household levels. We proceed to check the potential size of any bias on the estimated coefficient of the private school variable due to unobservable selectivity in the OLS and the FE models. We supplement the OLS and fixed effects models with a non-parametric estimation technique, that is, propensity score matching (PSM). Similarly, we also check the extent to which our estimates based on PSM suffer from hidden bias (unobservables).
We find a positive and significant private school advantage across all the estimated methods on both literacy and numeracy skills. In maths, the premium ranges from 0.13 to 0.18 score standard deviation, based on the household FE and OLS models, respectively. Similarly, in language, the premium ranges from 0.21 to 0.27 score standard deviation, based on the household FE and OLS models, respectively. Since private school choice takes place at the household level, it is likely that a substantial part of the unobservables are accounted for by the household fixed effects model. It is for this reason that we believe that the household fixed effects model yields smaller coefficients of the private school effect.
The finding that private schools are associated with better student achievements has clear implications for policymakers. Expanding access to private schools provides an opportunity to deal with the challenge of declining quality of education in Kenya. We foresee two policy approaches. The first policy option includes implementing the school voucher system, a strategy that combines private provision of education with public finance, a common practice in the USA and Latin America. The school voucher system involves the government giving parents funds to pay for their children’s education in private schools. The second policy option involves integrating, into the current public education school system, pedagogical techniques and organizational structures of private schools.

Homelessness, Property Rights, and Institutional Logics

We explore whether there is evidence of property rights amongst the homeless, and if so, how these rights are governed. We show that although the homeless are able to derive some value from assets, and can exclude other members of their community, these rights are precarious and dependent upon state agents not seizing the “property” and overriding the community’s rules of the game. The transferring of assets are especially curtailed.

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.

While decentralized fuel based micro grids have been considered as potential options, they suffer from the problem of volatile fuel prices leaving the mostly low income rural households vulnerable to external shocks. The discourse in sustainable development calls for a shift from the reliance on fossil-based electrification, due its costly consequences on environment in terms of climate change. The use of decentralized renewable energy technologies like solar, micro hydro and even wind for generation of cheaper electricity present a new opportunity for these nations. Although solar home systems have been popularized in countries like Kenya, other renewable energy technologies like micro hydro do receive little or no policy attention.

State agencies particularly rural electrification authorities in developing nations are hesitant to formally deploy small scale interventions like micro hydro grids for electrifying rural households, partly because there is scarcity of evidence on how households might benefit from such small scale technology. Our case study in Kenya demonstrates that micro hydroelectricity can fulfil the primary electricity demand for a rural household located near such a resource. Specifically, we find that such access considerably reduces the amount of kerosene that is consumed in a household. It is our view that with support such as technical aid in repair of in micro hydro schemes, it is possible for these households to completely eliminate the use of kerosene lighting in their households.

Although such a small scale energy may not supply enough electricity for applications such as cooking, we note that cooking and other intense applications are rare events among rural households even with grid electrification due to other impediments cited in literature. Another benefit is that mobile phones can also be conveniently and cheaply charged within the household, therefore reducing instances where mobile handsets have to be taken far away from home for re-charging.

Further, it is widely believed that access to electricity leads to improved education outcomes, because it provides clean and quality reading light. It is important to not this may not be potentially be the case if the change in study time is anything to go by. Our results show that children who live in households with micro hydro connectivity actually study less (by almost an hour) compared to children who have no access to electricity. It’s our view that in the absence of other programs to improve education outcomes, children may become pre-occupied with entertainment enabled by electricity access such as TV watching at the expense of their study time. Further studies tracking the change in other education indicators must also be considered.

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.

The aim of this study was to examine the extent of linkages between business cycle and capital adequacy requirements in South Africa employing the VECM framework. We want to understand the extent to which the imposition of capital adequacy can accentuate and deepen the business cycle in the financial system. The Johansen Cointegration approach was used to ascertain whether there is indeed a long-run co-movement between capital adequacy and business cycle, but first we tested the stationarity of our series under the NG–Perron and KPSS framework, where we established that all the series were I(1), a property essential for cointegration analysis. Results from the tests and VECM model show that there are significant linkages among the variables, especially between capital adequacy and business cycle. In other words, the imposition of a capital adequacy requirement can amplify the business cycle in South Africa.

Latest Workshops

Skills Development

Monday, July 3, 2017 to Friday, July 7, 2017

Call for Application for Skills Development Training in Econometrics

The ERSA is pleased to invite applications for the Skill Development Training Programme in basic Econometrics for academics and postgraduate students (masters and PhD) with limited training in Econometrics and quantitative methods. The skills development initiative is in line with ERSA’s objective to deepen economic research capacity and to train young economists in Southern Africa.

7th Annual Meeting of the African Economic History Network: Innovation and the African Past

Wednesday, October 25, 2017 to Friday, October 27, 2017

The African Economic History Network, in association with the Laboratory for the Economics Africa's Past at Stellenbosch University, Harvard Univeristy's Center for African Studies and Economic Research Southern Africa announces a Call for Papers.

Lecture Series in Economic Theory: "Asymmetric Information in Markets and Organizations"

Monday, March 14, 2016 to Tuesday, March 15, 2016
In part 1 of this lecture, we are going to introduce the basic set-up of credence goods markets and discuss how markets should be designed to provide the right incentives for experts and their customers. The theoretical analysis will be complemented by the discussion of evidence of expert behaviour and market outcomes from empirical as well experimental studies. 
In part 2 of the lecture, the emphasis will be on information disclosure by interested parties and evidence provision by intermediaries.

The Third ERSA Political Economy Workshop

Tuesday, February 16, 2016 to Wednesday, February 17, 2016

Economic Research Southern Africa (ERSA) and the Institutions and Political Economy Group (IPEG) at the University of the Witwatersrand invite SA-based researchers with a focus on political economy, including public choice, to participate in the upcoming February 2016 workshop. Contributions, even in progress, on all political economy topics will be considered though preference will be given to: corruption, dictatorship, fiscal federalism, intergovernmental grants, political entrepreneurship, and regulation.