Growth Slowdown Under Central Planning: A Model of Poor Incentives

Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a high-effort, high-output equilibrium.http://deepblue.lib.umich.edu/bitstream/2027.42/39832/3/wp448.pd

Growth Slowdown Under Central Planning: A Model of Poor Incentives

Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a high-effort, high-output equilibrium.Political Economy, Central planning, incentives, growth

SUPPORTING AFRICA’S POST-CRISIS GROWTH: THE ROLE OF MACROECONOMIC POLICIES

The objective of this paper is to discuss macroeconomic policies that would help African countries, especially the low income countries, reach strong, sustained and shared growth in the post-crisis world. The paper first reviews, with a special focus on LICs, macroeconomic policies in Africa prior to the crisis. It then discusses factors behind ‘the Africa surprise’ that is the continent’s overall good performance during the crisis and relatively fast recovery. It underscores that in the aftermath of the crisis, the emphasis of the macroeconomic policy needs to shift from the objective of very low inflation that predominated prior to the crisis towards growth. Fiscal policy is key in this regard, through public outlays on infrastructure anchored in the medium term expenditure frameworks that would also have a counter-cyclical role. Where conditions allow, frontier market LICs may want to consider adopting flexible inflation targeting frameworks that would provide sufficient room for expansion of credit to the private sector.macroeconomic policies, growth, capital flows, Africa

Credit constraints and productive entrepreneurship in Africa

Limited access of entrepreneurs to credit constrains the creation and growth of private firms. In Africa, access to credit is particularly limited for small and medium enterprises (SMEs) due to unclear property rights and the lack of assets that can be used as collateral. This paper presents a model where firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. The shortage of collateral creates a binding credit constraint on borrowing by SMEs and hence private sector growth and employment, even though the banking sectors have ample liquidity, as is the case in many African countries. The model is tested using a sample of 20 African countries over the period 2005-09. The empirical results suggest that policies aimed at easing the binding credit constraints (e.g., the depth of credit information and the strength of legal rights pertaining to collateral and bankruptcy) would stimulate productive entrepreneurship and private sector employment in Africa.credit constraints; productive entrepreneurship; employment, policies

Can intra-regional trade act as a global shock absorber in Africa?

Trade is a fundamental driver of economic growth and productive employment. Identifying effective policies that can enhance regional economic integration is an essential component of the new Sustainable Development Goals. As part of the Africa at LSE, IGC and South Asia at LSE cross-blog series, Zuzana Brixiová, Qingwei Meng, and Professor Mthuli Ncube analyse the role of regional integration in shaping the resilience of African economies to external shocks

Eliminating extreme poverty in Africa: the role of policies and global governance

Serious commitment to eliminating extreme poverty in Sub-Saharan Africa requires a three-pronged approach: Structural transformation: requires stable macroeconomic policies, infrastructure investments and inclusive growth prioritising productive employment. Cautious regional integration: inviting trade and FDI flows to support regional growth. Improved global governance: creating space for meaningful representation of African perspectives

Assessing gender gaps in employment and earnings in Africa: The case of Eswatini

Abstract: Persistent gender gaps characterise labour markets in many African countries. Utilising Eswatini’s first three labour market surveys (conducted in 2007, 2010, and 2013), this paper provides first systematic evidence on the country’s gender gaps in employment and earnings. We find that women have notably lower employment rates and earnings than men, even though the global financial crisis had a less negative impact on women than it had on men. Both unadjusted and unexplained gender earnings gaps are higher in self-employment than in wage employment. Tertiary education and urban location account for a large part of the gender earnings gap and mitigate high female propensity to self-employment. Our findings suggest that policies supporting female higher education and rural-urban mobility could reduce persistent inequalities in Eswatini’s labour market outcomes as well as in other middle-income countries in southern Africa

Enterpreneurship and private job creation in developing and emerging market economics

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Entrepreneurship and the Business Environment in Africa: An Application to Ethiopia

Policymakers in developing countries have recognized that productive entrepreneurship can help eliminate extreme poverty. This paper develops a search model of costly entrepreneurial start-ups under a constraining business environment and skill gaps, where one of the equilibrium outcomes is a low-productivity trap. The model reflects stylized facts from the urban labor markets in low income countries such as Ethiopia where low rates of productive entrepreneurship coexist with high output growth in some sectors. Creating an enabling business environment could help move the economy into the high-productivity equilibrium if the regulatory improvements are substantial and other bottlenecks such as skill gaps addressed. We test the role of the business environment in entrepreneurial sales on data from a recent World Bank survey of enterprises in Addis Ababa.The authors thank Emerta Asaminew and Andreas Wörgötter for comments. Special thanks go also to Zorobabel Bicaba for help with the regression tests. This paper is an updated and substantially expanded version of the IZA Discussion Paper No. 7553 and the William Davidson Institute Working Paper No. 1000. The views expressed are those of the authors and do not necessarily reflect those of the African Development Bank