Ashesi Economics Lecture Series Journal

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http://hdl.handle.net/20.500.11988/12

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Free-riding and incidence of poverty in Ghana
(Ashesi University College, published by Mot Juste, 2012-12) Ofori, Frank
Poverty levels in Ghana have largely been high among rural dwellers. The study assess the ex ante risk that if an individual is not currently below the poverty line, will slip past it, and the ex post possibility that those who are already in poverty will remain in it with increased severity. The FGT poverty class of index was first used. This showed that a proportion of 0.77 of the entire population under investigation was poor. Also, the poor trade hugely among themselves at 0.74 redistribution rate. Furthermore, to investigate the major determinants of poverty in Ghana resulting from free-riding, a dichotomous logit model was used. Most importantly, female household heads were found to be more vulnerable to poverty relative to their male counterparts. It was also observed that there has been a ‘poverty-switching’ phenomenon from the savannah zone to the coastal and forest zones of Ghana with deplorable consequences.
Trends and cycles in primary commodities: state space modelling and the Kalman filter
(Ashesi University College, published by Mot Juste, 2012-12) Alagidede, Paul
Decomposing economic time series into their temporary and permanent components have followed two broad paths: trend versus difference stationary models and detrending versus filtering. Whereas the former breaks down due to their inability to capture the underlying data generation process (dgp), the latter are either one sided filters or are based on ad hoc procedures in achieving parsimony. In this paper, we propose structural time series models in which trends, cycles, seasonal components are treated as stochastic, and which contains the traditional approach as a special case. Cast in state space form, and estimated using maximum likelihood via the Kalman filter, these models accurately predict the behaviour of commodity prices through time. Using data on agricultural raw materials and metal price indices for the 1957(1) to 2008(4) period we document the frequency and duration of commodity prices, key elements for designing policies aimed at smoothing terms of trade shocks and the resulting macroeconomic effects associated with price disruptions. We found that the individual dgp have varied over time and are best captured as stochastic rather than deterministic trends. Moreover, we uncover multiple structural breaks and outliers, far beyond what extant results would like us to believe. Finally, the models remain robust in an out of sample forecast.
Does political stability improve the aid-growth relationship? A panel evidence on selected Sub-Saharan African countries
(Ashesi University College, published by Mot Juste, 2012-12) Armah, Stephen Emmanuel
Significant ambiguity still surrounds the aid-growth relationship despite fifty years of research on the subject. For the case of Sub-Saharan Africa (SSA), a possible reason for the lack of consensus is that until recently the influence of political stability on the aidgrowth relationship had been largely ignored despite its relevance for the region. Further, although overlooked by the literature, the Instrumental Variable (IV) technique, the preferred treatment method of endogeneity in aid-growth relationships, may be ineffective in eliminating endogeneity bias because typical instruments for aid are neither sufficiently exogenous nor strong. Using a dataset of 31 SSA countries from 1984-2007, we re-visit the question of whether aid can spur growth in SSA using firstdifferencing (FD) to eliminate unobserved effect endogeneity while focusing on the role of political stability on the aid-growth relationship in SSA. Results suggest aid promotes growth conditional on political stability in SSA and that First Differencing (FD) eliminates a substantial amount of the endogeneity bias. Our results demonstrate the pertinence of a stable political environment to attaining the UN’s Millennium Development Goals (MDGs) for SSA countries since these goals inherently assume that aid can promote growth.
Media freedom and political stability in Sub-Saharan Africa: a panel data study
(Ashesi University College, published by Mot Juste, 2012-12) Armah, Stephen Emmanuel; Amoah, Lloyd G
Political stability is often cited as a key determinant of growth in Sub-Saharan Africa (SSA) although little research that identifies the factors that ensure political stability in SSA is available. A pertinent determinant of political stability in SSA may be press freedom since on one hand, the press can contribute to political stability by keeping the electorate informed thereby keeping a check on graft, fraud, embezzlement and other corrupt practices of government officials. On the other hand, however, the press can be manipulated to generate political instability by misinforming the public so the exact relationship between press freedom and political stability in SSA is ex ante unclear. By investigating the determinants of political stability and accounting for possible of endogeneity bias, this paper (i) isolates the most pertinent variables that affect political stability in Sub-Saharan Africa and (ii) investigates to what extent press freedom mitigates or worsens the incidence of political instability in the SSA region. A panel of 31 SSA countries from 1984–2007 is used in static and dynamic panel data frameworks to investigate the determinants of political stability and to verify the relationship between media freedom and political stability in SSA. Important determinants of political stability are found to be mainly related to economic performance, macroeconomic policies, unemployment the level of education and regime type. Preliminary results also suggest that media freedom may be a vital determinant of political stability in SSA although less so than economic, political and social factors. Ongoing estimations suggest elasticities of political stability with respect to media freedom calculated at different values of media freedom are nonzero. The research result should help guide policy makers in the different nation states of SSA in drafting pragmatic media and economic policies that will promote political stability in their respective countries.
Will hedging joint cocoa price and production risk benefit Ghana?
(Ashesi University College, published by Mot Juste, 2012-12) Armah, Stephen Emmanuel
This paper assesses the usefulness of risk hedging on futures markets for a cocoa exporter subject to concurrent price and output (revenue) risks. The analysis is conducted for Ghana, the world’s second largest exporter of cocoa beans. Using cocoa export revenue data, the cocoa exporter’s utility maximization problem (UMP) is solved using a Constant Relative Risk Aversion (CRRA) utility function due to Nelson and Escalante (2004) which displays risk vulnerability. Risk vulnerability is the most natural restriction on preferences (Gollier and Pratt, 1996). Simulation results from solving the UMP indicate that as a result of production risk, optimal revenue hedge ratios are much smaller than optimal price risk hedge ratios for reasonable values of the risk parameter. When transaction costs are incorporated into the hedger’s UMP , optimal revenue hedge ratios decline further although they remain positive. The findings indicate that limited use of the futures market is optimal for Ghana because it improves cocoa exporter utility relative to the unhedged position. These results should provide valuable information to policy makers in Ghana and other cocoa producing countries because they confirm that revenue risk hedging is a viable risk management alternative even when transaction costs are accounted for in the UMP of the hedger.
Economic crisis of opportunity? The ageing of Africa 2015–2050
(Ashesi University College, published by Mot Juste, 2016-07) Douglass, Richard L
Note: There is no abstract for this article. What follows is the first paragraph of the paper The purpose of this brief discussion is to highlight issues of demographic changes associated with an ageing population in Africa and what, I believe, must happen to avoid the next social crisis among African nations, especially here in Ghana. However, this is not a discussion of doom, gloom and crisis, because the demographic changes that I will discuss are products of development. These are problems to overcome, for certain, but also opportunities that we hope become part of the current agenda throughout Ghanaian society instead of considered only to be a remote or theoretical concern of the future.
Options for affordable rural broadband connectivity: a focus on TV White Space technology
(Ashesi University College, published by Mot Juste, 2016-07) Biney, Kwesi Assan
There appears to be a coordinated effort the world over to achieve digital switch over (DSO) from analogue based to digital technology. Ghana signed the Geneva agreement which set 17th June 2015 as the deadline for the DSO. This switch over will create new spectrum opportunities for many wireless technologies due to the abundance of radio spectrum the switch over provides. This paper focuses on the opportunity for using White Spaces (TV frequencies allocated to a broadcasting service but not used locally) for internet connectivity in the rural and underserved areas of Ghana, using TV White Spaces in Koforidua as a case study. The paper investigates the challenges associated with lack of internet connectivity in rural Ghana and determines if the infrastructure necessary for the implementation of White Space technology in the rural areas was present and adequate. It also documents the user experience of Africa’s first commercial TV White Space network services in Koforidua, Ghana. A combination of qualitative and quantitative data collection approaches was used. Purposive and simple random sampling techniques were used in selection and administering of questionnaires. Lack of internet in the rural areas was found to be mainly due to perceived risk by the commercial network operators because of value for money considerations of existing technology options. Negative incentives for the common ISP to go rural included technical and geographic/landscape challenges. The relevant infrastructure necessary is still undeveloped in Ghana but various infrastructural projects are being undertaken by the Ghana Investment Fund for Electronic Communication (GIFEC) to bridge the infrastructure gap in these areas. Lastly, the user experience of Africa’s first commercial service network using TV White Spaces in Koforidua, Ghana were described and documented. Keywords: TV White Space, Digital switch over (DSO), Internet connectivity and Ghana Investment Fund for Electronic Communication (GIFEC) JEL classifications: O1, O32, O34, O38, O14, O15
Strategies to stimulate Ghana’s economic transformation and diversification
(Ashesi University College, published by Mot Juste, 2016-07) Armah, Stephen Emmanuel
After metamorphosing into a lower middle income country, Ghana needs to transform and diversify its economy if it is to consolidate its lower middle income status, reach upper middle income status and drag more of its people out of poverty. Pertinent questions that remain unanswered include: what are the principal self-imposed problems Ghana needs to resolve; what are the institutional changes Ghana needs to make to transform and diversify its economy and what lessons can Ghana glean out of the experiences of other countries that have transformed their economies? Using a comparative analysis of published research and economic analyses, based on the available literature, this paper provides some answers to these questions. Key self-imposed problems include: weak institutions highlighted by a ‘winner takes all’ democratic governance structure that disenfranchises Ghanaians with no connections to the ruling party; weak management of the macro-economy; extremely high cost of borrowing; an unstable exchange rate; high import taxes; a narrow tax bracket with the majority in the informal sector paying zero taxes reducing government revenue; endemic corruption; ineffective land tenure; an inadequate transportation network; unreliable access to electric power; inability to engage in manufacturing; poor sanitation; difficulties in curtailing illegal mining and widespread indiscipline that makes management of people unduly challenging. Critical institutional reform needed includes a constitutional review that limits the power of the executive and makes him accountable for his actions. The number of appointments that the executive has to make to technical and professional leadership positions in the public service and production sectors must also be reduced. The status quo forces the President to make appointments to leadership positions in which he has no experience and confounds the political and economic lives of Ghanaians. Public institutions must be rid of political influence to purge them of political sycophancy, improve the technical capabilities of their leadership and increase their effectiveness. Ghana also needs to get aggressive about limiting avenues for corruption. This can be achieved by eliminating the loopholes and conflict of interest inherent in the constitution that allows corrupt practices to go unpunished especially on the grounds of technicalities: an independent corruption prosecution agency is essential in this regard. The rule of law must be strengthened – particularly in the rural areas and inner cities – and progressive land reform must be carried out. The current situation where fertile southern agricultural land is being co-opted for real estate must be halted to reduce the twin risks of food inflation and food insecurity in the future. A real effort must also be made to break through long-held and negative socialist and traditional views about private ownership so property rights can be properly acknowledged and enforced.
Econometric analysis of the effect of Ghana’s increasing external debt on foreign direct investment (FDI)
(Ashesi University College, published by Mot Juste, 2016-07) Alhassan, Affum
The study explored the relationship between foreign direct investment (FDI) and several covariates including external debt, GDP per capita income, and gross fixed capital formation, for Ghana from 1980 to 2013. It was conducted following Ghana’s bail out by the International Monetary Fund (IMF) to stabilise the Ghanaian currency (the Cedi) as debt levels soared and the Cedi depreciated precipitously against the Dollar. The primary research question that precipitated the study was: by how much will foreign direct investment inflows in Ghana change percentage-point wise per a unit increase in her external debt stock? In the econometric analysis, two OLS regressions were run: the ‘log-level’ model and the ‘log-log’ model. The coefficients on external debt, GDP per capita and gross fixed capital formation (a proxy for infrastructure) were all statistically significant, excluding the GDP deflator, which though had its expected sign, was insignificant at 10% significance level using ‘log-level’ regression. In the ‘log-log’ model, only external debts and gross fixed capital formation were statistically significant at 5% significance level. The R-squared explained 89.98% and 89.64% of the total variation in FDI using the loglevel and log-log models respectively. The semielasticities of log(FDI) with respect to external debts, GDP per capita and gross fixed capital formation were 0.3%, 0.2% and 7.5% respectively, while the elasticities of log(FDI) with respect to external debts and gross fixed capital formation were -1.56 and 1.38 respectively. The magnitude of the proportionate changes in log(FDI) was very large when the percentage increase in the explanatory became very large. To avoid violating the Gauss Markov assumptions of multiple linear regression, the Breusch-Pagan test for heteroscedasticity using ‘log-level’ was employed by regressing residuals-squared on all the independent variable. A correlation test was also run to ensure that there was no perfect correlation between the independent variables. Overall significance of the regression was tested using the F statistics and there was a strong rejection of the null hypothesis that none of the variation in log(FDI) was explained by the independent variables. The study finds that in order for government to attract more FDI, emphasis has to be placed on fiscal discipline, sound economic policies, and infrastructural development. The study will enable government and policy makers to estimate the percentage point fall in FDI per a unit increase in external debts so as to strategise borrowing.
Going regional: Internationalisation strategies of Ghanaian service companies within the ECOWAS market
(Ashesi University College, published by Mot Juste, 2016-07) Seglah, Samuel Kingsford; Armah, Stephen Emmanuel
This paper investigates the internationalisation strategies of Ghanaian service companies within the economic community of West African States (ECOWAS) market. The topic was necessitated by the increasing interest in the study of internationalisation processes of local firms in this era of globalisation, which hitherto was the preserve of multinational enterprises from the developed world. There is very little research on internationalisation processes of firms within the developing economy context as most of the existing literature is biased towards the developed economy context especial in the UK and USA. This paper examines the internationalisation strategies of Ghanaian service companies within the ECOWAS market in order to determine the key strategies adopted by Ghanaian service companies when expanding their operations abroad. The research was based on three case studies of service-oriented firms in Ghana using semi-structured interviews. Data was analysed using cross-case synthesis. Key strategies such as modes of entry of the three companies were analysed. The results of this study validates previous studies such as the Uppsala model which suggests that companies often expand their operations internationally on incremental and gradual fashion, and the eclectic paradigm which contends that three major sets of factors that are interdependent will influence the extent, industrial composition and geography of foreign production undertaken by a firm. Implications are also drawn for service companies, policy makers and researchers.
Assessing road construction: potential impact of constructing the Kwabenya Kitase road on the local economy
(Ashesi University College, published by Mot Juste, 2016-07) Boa-Amponsem, Nana Ama
Road construction typically confers significant benefits on the population the road serves. A recent rapid growth of urban residential areas in Ghana has necessitated the construction and rehabilitation of the roads linking these urban areas to major commercial towns in the country. The Kwabenya (Abuom) to Kitase area, straddling Ghana’s Eastern and Greater Accra regions, is a typical example. Using both primary and secondary data sources, the research reveals that agricultural production is perceived by several respondents as likely to be improved by the construction of the road. Several major sectors of the economy, such as education, real estate, arts, entertainment and recreation, construction and hospitality are also identified as likely to be improved by a better road network. In spite of these positive impacts, the research identifies certain negative implications of a construction of the Kwabenya-Kitase road. These include dust, noise and the destruction of arable land and a consequent change in the livelihoods of inhabitants, especially within the Agyemanti-Kitase area. It is established that constructing the Kwabenya-Kitase road is likely to boost the local economy, as long as an effective maintenance culture is enforced. However, responses also show a concern that an influx of businesses is likely to diminish arable land for construction and commercial purposes.

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