3. Electronic Theses and Dissertations (ETDs) - All submissions

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    Infrastructure, institutional quality and infrastructure financing gaps: the casee of selected afreican countries
    (2022) Nyamkure, Blondel
    The aim of this thesis is to examine three related issues around institutions, infrastructure and economic growth of Sub-Saharan Africa (SSA) economies. The first essay (Chapter Two) chronicles the evolution of the SSA region’s gaps in infrastructure needs and financing. We observed that the SSA region’s infrastructure investment and financing gaps are widening and ballooning over time across the four infrastructure types. We also found evidence of positive and significant correlation between infrastructure quality and institutional quality among a sub-sample of former British colonies in the SSA region, which turn to be weak and insignificant in case of other former colonies. This is also influenced by the influence of the legal origins on the infrastructure development in the SSA region. Also, of interest is the observation that the SSA region’s debt is approaching unsustainable level, in which 40% of this debt burden is as a result of leakages through bureaucrats’ rent-seeking and managerial inefficiency tendencies necessitated by porous, opaque and weak institutions. This serves as a possible reason why the infrastructure investment and financing gaps for SSA economies is continuously widening over time despite funds; more of their funding requirements are lying idle under mutual management funds’ custody, which the region is failing to tape into. Therefore, to close its infrastructure investment and financing gaps, relevant authorities of SSA countries must develop great strong institutions, implement radical structural reforms which crowd-in and promote private sector participation in infrastructure projects. Also, given the complementarity between infrastructure stock and human capital, there is need to massively invest in soft infrastructure such as education and health care. Due to the conspicuous antecedent literature dearth on the institution-infrastructure nexus, the main thrust of the second essay (Chapter Three) is to estimate the static and dynamic threshold level of institutional quality that will ensure stimulation of infrastructure development through efficient use of public debt (PD), government (GR) financial sector funds (FMD) and services as well as crowd in foreign direct investment (FDI) inflows in a panel of 46 Sub-Saharan African region between 2000 and 2017. For robustness of results, we employed a Hansen fixed effects threshold approach, Fully Modified Ordinary Least Squares (FMOLS) static models and Seo and Shin (2016) and Seo et al. (2019) recent theorized dynamic panel threshold regression approaches as informed by the New Institutional Economics theory. For our estimation approach, we adopted non-linear ii asymmetric static and dynamic modeling which gained prominence in recent econometric literature. The dynamic panel data threshold model was estimated using the Seo and Shin (2016) theoretical first differenced Generalized Method of Moments (FDGMM) estimation technique as operationalized by Seo et al. (2019). Though it varies with the aspect of economic and political institutional quality measure and whether entangled or disaggregated, overall, the results revealed that the effect of institutional quality on infrastructure development is nonlinear, with thresholds ranging between 45 – 90% in the static case and 56 – 82% in the dynamic case. This provides support for the use of a threshold regression model, with institutional quality serving as the threshold variable. Further probing was done using PD, FMD, GR and FDI as additional transition variables. In terms of the threshold level, the findings show that the index of institutional quality that will ensure the efficient use of infrastructure in stimulating growth is 0.61. The study also found that, on average, most countries in the region are operating below this threshold level, hence their huge infrastructural investment and financing gaps as well as underdevelopment observed in Chapter Two. The conclusion that is drawn from the analysis is that poor institutional quality is one of the factors hampering development of infrastructure of SSA regional countries. Coupled with a huge debt burden, low institutional quality also hinders efficient allocation of funds by financial institutions towards infrastructure development and reduction of FDI inflow to SSA regional economies. Legal origin has also been found to play a pivotal role in shaping the SSA region’s state of infrastructure development. The major strength of this study is that the methodology employed for the threshold analysis is exhaustive since it encompasses both static and dynamic panel data models developed for single and multiple threshold(s) value(s). Weak political institutions have been found to be a major drag to SSA’s infrastructure development. Thus, it is recommended that governments in the region need to formulate and implement policies targeted at improving the level of economic and political institutional quality in their countries, which can crowd-in both domestic (public and private) and foreign infrastructure investors. Essay three (Chapter four) examines the non-linear threshold effect of infrastructure, quantity, quality and access on economic growth using a rich and robust sample of 46 SSA countries. The study was provoked by the observation that despite its largest infrastructure investment and financing gaps, the SSA region also scored the least on all infrastructure iii aspects across the globe. Furthermore, economy growth of SSA economies stalled post the global financial crisis and inequality and poverty trends were on an upward trajectory. From antecedent literature, we identified the following drawbacks: (a) The literature did not determine the minimum amount of infrastructure quality or quantity which is needed to boost growth; (b). Lack of ascertainment on whether infrastructure quality and quantity has a U or inverted U-shaped effect on growth; (c). Though infrastructure access is directly and indirectly linked to welfare issues, inclusive growth and SDGs, it was conspicuously omitted and(d). at the literature did not explore whether infrastructure quantity, quality and access has complementarity or substitutability effect on growth. These issues form the basis and contribution of this study to the body of existing knowledge. Thus, this study strived to close these gaps by employing a static model (Hansen fixed effects) and dynamic model (System Generalized Methods of Moments (SGMM). We found that, firstly, the infrastructure quantity, quality and access have positive effect on growth of the SSA region, with quantity on the top followed by access and lastly quality. Secondly, the three infrastructure dimensions act as complements as opposed to substitutability since combining the three infrastructure aspects yield more growth benefits than their individual effect. Thirdly, infrastructure quantity and quality have a non-linear U-shaped effect on economic growth of SSA with optimum minima thresholds levels of 60% and 71%, respectively while that of infrastructure quality is linear. Best growth benefits will accrue to the SSA region when the quantity dimension of infrastructure is combining or interacting with both quality and accessibility, followed by quantity and quality and lastly quantity and access. Fourth, relative to the world average benchmark (excluding SSA), the growth benefit of 14.25% per annum accrues to the SSA region if it closes its overall infrastructure gap. In a more granular form, closing the quantity infrastructure gap would deliver higher growth benefit of 8.67% per year, followed by increasing infrastructure accessibility of 3.92% per annum and lastly catching up in terms of quality will raise growth by 1.66% per year. We observed that major contributors were electricity power, road network and improved drinking water. We recommend that SSA governments, development financial institutions (DFIs) and the private sector across the globe, like sovereign wealth funds, pension funds, and insurance companies devote financial resources towards infrastructure investment in the SSA region for it to reach
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    Removing the veil for the shadow banking system in China
    (2016-01-29) Chen, Nuoya;
    The paper aims to analyze the development of the shadow banking system in China and its role in the rapid economic growth in China for the past three decades. The shadow banking system supports small and medium sized firms and agricultural development projects. This has an important impact on poverty reduction in China as farmers largely refer to informal financial channels to get credit support for seeds, chemicals and animals. The shadow banking system offers credit supplies to lenders who cannot easily obtain credit from the official banking system. The credit supplies they offered use different financial instruments, come with higher interest rates, and were often disguised as financial products landing within the regulatory framework of the administration. The commercial banks also used the shadow banking financial instruments to meet capital thresholds from the People’s Bank of China. As a result, the shadow banking products create longer credit chains, distort credit flows in the financial system by diverting investments into short-term, high return, more risky financial markets. The turbulences in the interbank transaction market, the financial derivative market, the stock exchange markets (including the main-board, the “second tier” market for SMEs and the “third tier” market for start-ups), and the real estate market are all heavily involved in transactions conducted by the shadow banking entities. The shadow banking system in China has been expanding at a pace beyond the current regulatory structure. The internet P2P investment platforms, for instance, become popular with investors and raise funds up to RMB 1 billion each platform. There exist over thousands of internet investment portals, the most popular one being “Yu E Bao”, offered by Alibaba.com. The traditional regulatory institutions, however, do not cover shadow banking investment activities made online. Neither are insurance offered to insurance made online; as the new deposit insurance scheme only cover deposits made in the official banking system. With the ambition of boosting the internationalization of the RMB, financial deepening and economic reforms in China, the financial regulators in China face the dilemma resulting from the regulatory arbitrage associated with the expanding shadow bankinBBC system. Individual investors in China purchase the shadow banking investment products and assume their purchases come with implicit government guarantees, such as wealth management products sold by commercial banks for trust companies and local government investment platforms. On the other hand, it is critical for investors to make rational investments; thus, regulators are obliged to remind investors of risks related to the shadow banking products, that the fantasy of governments repaying failing shadow banking investments will be not realized. It is also the responsibility of the regulators to divert funds collected by the shadow banking entities to long-term investments to build up industrial bases. The financial deepening in China required the transformation of the shadow banking entities and financial products offered into ones with adequate capital cushions and sufficient liquidity. The internationalization of the RMB necessates the opening up of the capital, hence financial account in China. However, the 1997 Asian financial crisis, and the hyperinflation resulting from the dollarization in Latin America has led the Chinese regulators to be cautious in conducting currency liberalization and financial reforms. The opening up of the financial account with the liberalization of the exchange rate regime doubles the financial risks, increases the possibility of financial crises, and may result in the stagnation of economic growth. The function of the central bank as the lender of the last resort demands effective and prudential regulations for SIFIs, and also seeks to functioned to boost market confidence. At this critical turning point of the Chinese economy, defining the role of the shadow banking system, bringing them into the regulatory framework, and identifying risks created should be the priority of the financial regulators in China.
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    Stock market development in Africa: is there a need for a cross-regional collaborative stock exchange?
    (2013-02-21) Letlape, Bontle Virginia
    This paper explores the relationship between stock market development and economic growth in Africa. It provides a theoretical basis for establishing the channel through which stock market affect economic growth and this is empirically examined by using regression analysis to test if indeed there is such a relationship. Three stock market indicators, namely market capitalization as a percentage of GDP, turnover ratio and numbers of listed shares, are used to test whether they have any impact on economic growth, together with other explanatory variables of growth such as foreign direct investment, inflation and credit. The study uses data on four countries: Kenya, Nigeria, Egypt and South Africa for the period 1991-2010. Furthermore, the study investigated whether a collaborative regional cross-listing will improve the stock market development of the country of secondary listing. Dummy variables and interactive variables are used in regressions to test for collaborative relationships between the exchanges in the region. The results show that indeed there is an association between stock market development and economic growth. Results also show that cross-listing within a region can boost stock market development, which in turn boosts economic growth. Africa does not have a lot of cross-listings but from this paper, the evidence suggests that it is a path worth exploring.
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    MNC-borne FDI, absorptive capacity and economic growth: an empirical investigation
    (2011-10-28) Nhamo, Senia
    The liberalization of FDI is deepening, so have the incentive schemes put in place by a number of countries. Investment promotion agencies in these countries are seen to be actively promoting their countries as the best locations for foreign direct investment (FDI). With FDI emerging as a fovourite source of capital for most countries, profound questions about the true value of FDI to host countries are addressed in this study. While incentive packages may be justified on the basis of incomplete internalization of FDI benefits by foreign firms, it still remains critical to establish whether these benefits (spillovers) are substantive. As an attempt to answer these questions, this dissertation uses both firm level and country level data to investigate the effects of foreign direct investment (FDI) on productivity and economic growth. The first part of the study uses cross sectional firm level data to investigate whether foreign firms are more productive than domestic firms. We further examine whether there are any significant productivity spillovers from foreign to domestic firms or not. SIn the second part, focus is on country level analysis which uses both time series and panel data techniques. In the time series analysis we use the recent Toda-Yamamoto causality testing framework to determine the direction of causality between FDI and growth for three groups of countries: developing, emerging and developed countries. This is followed by fixed effects and dynamic panel data analyses for the 37 countries (9 developing, 12 emerging and 16 developed) where we test for absorptive capacity effects. Our findings show that results are determined to a great extent by the method of analysis. Interesting findings emerge from this study. The firm level data revealed the importance of multinational corporations in improving domestic firm productivity. With this finding, we anticipate these results to filter through the macro system and show up in the time series and panel data analyses. In the case of developing economies, productivity differences between domestic and foreign firms are confirmed only where the definition of FDI is below the full ownership level. Positive but statistically insignificant spillovers are found in the developing country sample. From the emerging economy sample, we iii find neither significant productivity differences nor related spillovers from foreign to domestic firms. With regards to developed economies, as in the case of emerging economies, there are no statistically significant productivity differences between domestic and foreign firms. Interestingly, for this sample, positive and highly significant spillovers from foreign to domestic firms are documented. The Toda Yamamoto Granger causality framework shows unidirectional causality from FDI to GDP in Colombia, Egypt and Zambia. These results suggest that in these three countries, we have a case of growth enhancing FDI. There is also evidence of causality which runs from GDP to FDI in China, Indonesia, France, Japan, Spain and the United Kingdom. This is a case where higher levels of economic activity attract foreign direct investment. We also find evidence of bi-directional causality for Argentina, Kenya and Thailand. No clear cut relationship between FDI and growth is established in the rest of the countries: Brazil, Chile, Ghana, India, Jordan, Madagascar, Malawi, Morocco, South Africa and all but four of the developed economies. The dynamic panel data analysis for the developing economy sample reveals positive effects between FDI and economic growth. A key finding from this is the negative impact of financial development, an absorptive capacity measure. This unexpected result raises the possibility of international capital flows becoming more harmful to developing economies when extensive development of the domestic financial sector makes it difficult to regulate financial transactions of relatively esoteric financial contracts. This evidence there should be a nuanced embrace of financial globalization by developing economies. In the emerging economy analysis, the roles of openness of the economy and financial development as absorptive capacity indicators are elevated. Overall, the dynamic analysis shows a largely negative and statistically insignificant effect of FDI on economic growth. For developed economies, we find that negative effects of FDI on economic growth are encountered at both the minimum and mean levels of openness. This suggests that for developed economies, a level of openness above the mean value would be ideal for economic growth to be realized through FDI. iv Corroborating our findings with the work of other scholars, we conclude that our results are complementary. It appears that the contradictions inherent in the FDI-Growth literature could be partly due to methodological differences.
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    Can South Africa use the hosting of the 2010 FIFA World Cup to address issues of unemployment and poverty?
    (2009-01-20T11:21:54Z) Kunene, Merryman
    Abstract: The South African government has boldly set a target for economic growth at 6 percent annually in an effort to reduce unemployment, create wealth and prosperity – effectively working towards the Millennium Development Goals (MDG) in 2015. While there are several other measures already put in place to achieve these goals, another aspect that could help the country reach its target for economic growth and development could be the successful hosting of the 2010 Fifa World Cup. The aim of this research is to interrogate ways in which the preparation and the subsequent hosting of the event could be managed in a manner that would enable the country to achieve its growth targets through infrastructure development and effective allocation of resources
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