Growth Effects of Non-Devolved Government Expenditure: Evidence from ARDL Approach to Co integration

Although it is theoretically expected that fiscal decentralization leads to efficient provision of local public services and induces economic growth, there is a mixed outcome of the non-devolved and devolved effect on economic expansion across earlier empirical studies. This could be due to non growth-enhancing expenditures that crowd-out outlays that are meant to boost economic growth. Further, devolved allocation is small, about 15 % of total revenue, to full stimulate economic growth in Kenya. However, national government spends a substantial amount in counties to complement devolved expenditure. Therefore, the issue of which non-devolved expenditure by national government can foster permanent movements in county economic growth becomes core. The panel ARDL and Kao co integration technique were used to test the linkage between non-devolved expenditure and economic growth in Kenya during the period, 2013-2017. The panel ARDL regression results revealed that the effect of non-devolved expenditure on economic growth was positive and significant in both long-run and short-run. The findings provide a basis for recommendation on the need for national government to increase budget allocation and execution in counties to complement devolved expenditure and also stimulate county economic growth in long-run. Keywords: Non-devolved, Economic growth, Kenya, ARDL, Expenditure, Panel DOI: 10.7176/JESD/10-14-12 Publication date:July 31st 201

Determinants of Capital Flight in the East African Community

The region has lost an immense amount of capital that has led to sluggish regional integration in terms of capital formation and productive capabilities. Albeit most of these countries are in the ranking list of the huge volumes of capital flight, East Africa has never been considered as a sub-region in the capital-related studies. Cognizant of this, this paper intends to contribute to this body of knowledge by filling a noticeable gap. This paper examined the determinant of capital flight from East African Community countries that include Kenya, Tanzania, Uganda, Rwanda, and Burundi using panel data for the years 1988 to 2018 using the real gross domestic product, interest rate differential, external debt, corruption index, and exchange rate as explanatory variables. Secondary data obtained from EAC member countries National Bureau of Statistics. Levin-Lin-Chu panel unit root test was carried out and capital flight and Exchange rate found to be stationary at level. The fixed effect regression results showed that corruption, external debt, and the exchange rate had a positive and statistically significant effect on capital flight while real GDP had a negative and statistically significant effect on capital flight. Thus, policymakers should endeavor to achieve a broad investor base for its domestic and foreign obligations, with due regard to cost and risk, and should treat investors equally. In addition, there is a need to harmonize the judiciary and the executives in EAC to facilitate the fight against corruption which is a major concern for a capital flight. Keywords: Capital flight, External debt, Exchange rate, GDP, Corruption, EAC DOI: 10.7176/JESD/12-10-01 Publication date:May 31st 2021

Growth of Tobacco Exports in Zambia: An ARDL Approach

Exports are a vital component of a nation’s balance of payments as they are source of foreign exchange and economic growth. Much of the economic growth in Zambia has been driven by copper exports which have suffered from external shocks such as plummeting prices on the world market. It is against this background that the Government of the Republic of Zambia (GRZ) has devised a number of measures to promote export diversification to non-traditional exports with a view to reducing heavy dependency on copper and stabilise foreign exchange earnings. The non-traditional exports have recorded growth averaging about 30 percent during the period. However, the key determinants of the growth of the non-traditional exports are unknown. This study therefore endeavored to determine factors that affect the growth of the main non-traditional export commodity in Zambia; Tobacco. The study employed annual time series data that spans a period of 34 years from 1980 to 2014. The ARDL approach to co-integration revealed that tobacco exports are co-integrated with foreign direct investment, real effective exchange rate, real GDP of trade partners, real interest rate and world price. The ARDL analysis revealed that tobacco exports are significantly affected by real effective exchange rate, real income of the trading partner and foreign direct investment in the short-run while only real effective exchange rate and the real income of the trading partner affect the growth of tobacco exports in the long-run. Apart from creating an enabling environment through diverse export incentives that increase influx of foreign direct investment, there is also need to maintain a stable exchange rate by the government if export diversification is to be realized. Keywords: Growth, Non-traditional Exports, Co-integration, ARDL, Zambi

Economic Analysis of Spatial Integration of Pulse Market in Ethiopia; A case of Selected Pulse Market in Ethiopia

In order to solve the problem of food insecurity the Government of Ethiopia has adopted different strategies since the introduction of agricultural extension services in the early 1970s, to improve the performance of the agricultural sector. However, most of this strategy has focused on how to increase agricultural productivity at the farm level through the dissemination of improved production technologies, while the marketing aspect has been given less attention.  Considering this, in order to improve the market efficiency, significant numbers of empirical studies have been conducted on market integration but they focused mainly on cereal[1] market while pulse market has not been given adequate attention. Yet pulse is the third largest export crop in the country and generates USD 232.5 million annually and it has been showing a significant growth in export and production in the last decade. The study assesses the price transmission of selected pulse market in Ethiopia using monthly wholesale price data in Birr/Quintal covering the period January 2003 to December 2013 for Horse beans and Chickpeas from Ethiopian Grain Trade Enterprise. The stationarity of the price data was tasted using Augmented Dickey-Fuller (ADF) and Phillips-Perron tests. To test the co integration level Engle and Granger (Engle and Granger, 1987) test were applied. To identify which market price change will cause a price change in other market, Granger Causality model was used. The selected markets are Addis Ababa as a central market; Adama as closest market based on distance form central market; Diredewa as remotest both for Horse beans and Chickpeas. While Desse and Gonder as main producing market of Horse beans and Chickpeas respectively. The finding indicates that all the selected markets are co integrated. However, Addis Ababa- Desse for the case of Horse beans and Addis Ababa- Gonder for Chickpeas markets have strongly integrated.  Concerning causality, Addis Ababa - Desse, Addis Ababa - Adama, Desse - Diredawa markets are unidirectional while Desse - Adama are bidirectional for horse bean. However, for Chickpeas, all the selected markets do not Granger Cause each other in both directions except between Diredawa - Adama which were unidirectional. This implies that there is a need of improvement in market information systems especially to producing markets, and also timely accurate price information for trade participant to distribute commodities from surplus area to deficit markets. Key Words: Pulse, Ethiopia, Granger Causality, price transmission [1] Studies focused mainly on cereal market: Maize, Wheat, Sorghum and Teff (Negassa, 1998; Negassa et al., 2004; Getnet et al., 2005; Getnet, 2007; Tadesse and Shively, 2009 and Sinishaw, 2013)

Smoothening agricultural food commodities trade in East Africa Community (EAC): Balancing Tariff Barriers (TBs) and Non-tariff Barriers (NTBs)

This research work was fully funded by the African Economic Research Consortium (AERC) Abstract There is a general belief that removal of barriers to trade would promote increased trade in commodities and particularly food commodities towards improved food security. The East Africa Community (EAC) has made significant headway in eliminating tariff and non-tariff barriers to trade via the Customs Union Protocol. However, information as to whether these policy decisions have contributed to increased availability and access to food commodities is inadequate in literature.  This study, therefore, sought to identify the proportion of tariff and non-tariff barriers on intra-East Africa Community trade in agricultural food commodities from 1999 to 2014. Trade barrier data was gathered from the Trade Analysis and Information Systems database. Data on prices, production and import levels of food commodities was sourced from Food and Agriculture Organization database and national bureaus of statistics of each EAC country. Results show that despite the tariff lines being relatively higher than duty free lines for most commodities, trade of agricultural food commodities with EAC had been liberalized to a large extent, mainly through more duty-free lines, an attribute that contributed to more trade volumes over the 15-year study period. More trade was achieved for products with fewer tariff barriers like coffee. To boost trade the study recommends reducing tariff barriers through increasing the number of duty-free and ad-valorem lines. However, this should be done carefully since it’s a major source of foreign exchange to the countries. Further, there is need to reduce distance and time taken to deliver bulk products by improving infrastructure especially road and modern railway networks to bridge the distance gap between non-neighboring countries. Countries also need to ease their custom procedures. For example, Rwanda had among the least profit after tax of 36 percent compared to an average of 67 percent for all the countries. This was mainly attributed to its higher number of customs procedures which were on average five compared to others which had three custom procedures. Lastly, each country needs to specialize more on products they have comparative advantage in producing and exporting. Key words: Trade, Agricultural food commodities, Tariff and non-tariff barriers DOI: 10.7176/JESD/10-20-13 Publication date:October 31st 2019