Sub-Saharan African Economies Research Articles

How energy transition and fintech influence income inequality in Sub-Saharan Africa: Evidence from a panel-corrected standard error approach

This study explores the role of financial technology (FinTech) and the energy transition in shaping income inequality across 45 sub-Saharan African economies (SSA). By employing the panel-corrected standard errors approach, the analysis takes into account contextual and institutional factors, as well as regional specificities, for the period extending from 2000 to 2021. This research elucidates the connections among energy transition, FinTech, and income inequality, emphasizing their significance for economic progress and clean energy access. The findings reveal significant inequality in the outcomes of SSA countries, with an average Gini index of 43.197, indicating that most countries are unequal. This study reveals a notable connection between transitioning to renewable energy sources and a reduction in income inequality, with a one-unit increase in the energy transition indicator resulting in a 5.10% decrease in inequality. Moreover, FinTech is also found to contribute to a reduction in income inequality, with a 1.31% decrease observed for every unit increase in the FinTech indicator. The analysis also revealed a weak, yet statistically significant, link between population density and income inequality, with a one-unit increase in inequality of 0.00632%. Notably, industrial value added is found to be an influential factor with a statistically significant coefficient of 0.129. The key implications of the study emphasize the importance of redistributive policies, financial inclusion, and the promotion of renewable energy sources in constructing more inclusive economic systems. Furthermore, the study underscores the significant value of accurate energy production prediction for informed decision-making in energy planning and policy-making on regional and global scales.

Impacts of Irrigated Water Use on Household’s Income in South Wollo Zone, Amhara Regional State, Ethiopia

Agriculture is the backbone of the Sub-Saharan African economy. Ethiopia's GDP is also shared by 45 from the agriculture sectors. However, it is confronted and challenged by variable rainfall and climate changes. Particularly, in South Wollo zone, agriculture is not exceptional in facing such daunting challenges and effects of variable rainfall and climate change despite there are abundant alternative irrigated water resources. River and groundwater sources have not yet been used as alternative uses for agricultural production. As a result, rural households' income couldn’t meet their minimum food and nonfood requirements. This study, thus, attempted to evaluate the impact of irrigated water use on rural household's income in South Wollo Zone, Amhara regional state, Ethiopia. In pursuit of this, it employed a descriptive type of research design and triangulated research approach that consists of both quantitative and qualitative techniques. Primary and secondary data were collected from small scale irrigated households and secondary sources. Binary logistic regression was used to determine major significant factors that affect households' irrigated water use for agricultural production. A propensity core matching model was employed to evaluate irrigated water use and agriculture on household’s income. This study result (binary logistic regression result) showed that the household’s family size, land size and willingness were significant factors that determined irrigated water use for agricultural production at 95 percent level of significance. The propensity score matching model result also shows that irrigated water use significantly created significant impact on household’s income. It is, thus, keenly important to change and improve the smallholder farmer’s land size, extension services, rural credit, technology, education level, awareness about family size, and willingness to use irrigated water sources, such as, ground and river water for agriculture agricultural production that increase their level of income.

Examining the moderating role of a leader's emotional intelligence on the influence of organizational climate on job satisfaction among Youth-Owned and Managed Small Businesses (YOMSB) in Sub-Saharan African (SSA) Economy

Even though the role of effective human resource management, including organizational climate, has been cited as a crucial predictor of diverse employee outcomes such as employee job satisfaction, the mechanism through which the organizational climate and job satisfaction can be enhanced or diminished is underexplored in human resource literature. This study dwells on Herzberg's two-factor perspective to push the boundaries of knowledge by showing that the organizational climate-job satisfaction link depends on varying conditions of leaders' emotional intelligence. The proposed model was tested using survey data from randomly selected 602 Youth-Owned and Managed Small Businesses employees in Ghana. The data was analyzed using structural equation modeling with the aid of SMART PLS. The findings revealed that organizational climate has a significant positive direct effect on job satisfaction. Emotional intelligence also exhibited a significant positive relationship with job satisfaction. Additionally, emotional intelligence positively moderated the organizational climate-job satisfaction link, such that higher emotional intelligence enhanced this relationship. The findings indicate that though organizational climate drives job satisfaction, emotional intelligence serves as an amplification mechanism to extract even greater satisfaction in small businesses in Ghana. Our findings make a contemporary contribution to Herzberg's two-factor and important managerial guidance for owners and managers of Small Businesses in resource-constrained regions like SSA.

Productivity Paradox in Africa: Does Digitalization Foster Labor Productivity in African Economies?

AbstractHow the advancement of information and communications technologies (ICT) and digitalization affect labor productivity is subject of an ongoing debate. While parts of the literature find the expected positive effects, other studies have found no effect, resulting in the so-called productiviy paradox. As most of the studies have focused on economically advanced economies such as OECD countries, evidence for less developed economies has been sparse. We use a digitalization composite index from a balanced panel of 40 Sub-Saharan African (SSA) economies, using data from 2006 to 2021, to assess the effect of digitalization on aggregate labor productivity in SSA economies. We employ generalized least squares (GLS) and system generalized methods of moments (GMM) methods to capture the effects of digitalization on labor productivity levels in agriculture, manufacturing, and service sectors. Our results show a weak association between digitalization and overall labor productivity. However, when sectors are analyzed separately, digitalization has a positive effect on labor productivity in agriculture and manufacturing sectors, whereas we find evidence for the productivity paradox in the service sector, with even a negative effect of digitalization on labor productivity.

External Debt and Economic Growth Nexus in Sub-Saharan Africa: the Role of Institutional Quality

Sub-Saharan African (SSA) countries have recently embarked on an economic growth trajectory which is characterized by ambitious national development aspirations. The ability of the SSA economies to generate sufficient domestic revenues to spur their desired economic growth is limited resulting into fiscal deficits. External Debt has provided alternatives to the fiscal deficits prevalent in SSA economies. Dividends from external debt investments have been unevenly witnessed among the SSA countries. Regions with better institutional quality continue to reap considerable dividends from external debt investments while SSA economies continue to accumulate external debt with sluggish economic performance. This study made use of the Generalized Method of Moments (GMM) to examine the role played by institutional quality on the nexus between external debt and economic growth on a panel of 28 SSA countries over the period 2005 - 2021. Empirical results indicate that institutional quality influences a positive and significant relation between external debt and economic growth. Policy makers in SSA countries should therefore strive to improve on institutional quality in regard to external debt management in order to reap more economic benefits from external debt

Payment Digitization and Industrial Activity Nexus: Comparative Evidence from Key Sub-Saharan African Economies

Payment Digitization and Industrial Activity Nexus: Comparative Evidence from Key Sub-Saharan African Economies

Financial globalization, governance and economic growth in Sub-Saharan Africa

PurposeThe study aims to assess the interplay between financial globalization, effective governance and economic growth in sub-Saharan African (SSA) economies.Design/methodology/approachThis study uses the Generalized Method of Moment Estimation and the Panel Quantile Regression techniques to analyze how financial globalization and governance impact sub-Saharan African economies.FindingsThe results show that governance is vital to the region's economic development. In order to achieve significant growth, sub-Saharan African economies must prioritize actions that promote good governance.Research limitations/implicationsThe study is limited to sub-Saharan African economies.Practical implicationsIt is crucial for the sub-Saharan Africa economies to concentrate on strengthening governance frameworks in order to realize its full economic potential because improvements in governance quality would have a favorable effect on economic growth.Social implicationsThe findings indicate that both capital inflows and governance dynamics are essential for fostering economic growth in SSA economies. Also, balancing globalization's benefits with effective governance is crucial for promoting sustainable growth in SSA.Originality/valueThis paper fills a gap in literature by using the KOF financial globalization index to assess the impact of financial globalization and governance on economic growth in sub-Saharan African economies.

The effect of sovereign credit ratings on democracy in sub-Saharan Africa

PurposeThis study investigates (1) whether democratization drives sovereign credit ratings (SCR) changes (the “democratic advantage”) or whether SCR changes affect democratization, (2) whether the degree of democratization in sub-Saharan African (SSA) countries affects the associations and (3) whether the associations are significantly affected by resource dependence.Design/methodology/approachThis study investigates the effects of SCR changes on democracy in 22 SSA countries over the period of 2000–2020 VEC Granger causality/block exogeneity Wald tests, and impulse responses and variance decomposition analyses with Cholesky ordering and Monte Carlo standard errors in a panel VECM framework.FindingsThe full sample impulse responses find that a SCR shock has a long-run detrimental effect on the democracy and political rights but only a short-run positive impact on civil liberties. Among the sub-samples, it is found that the extent of natural resource dependence does not affect the magnitude of SCR shocks on democratization mentioned above but it is found that a SCR shock affects long-run democracy in SSA countries that are relatively more democratic but is more likely to drive democratic deepening in less democratic SSA countries. The full sample variance decompositions further finds that the variance of SCR to a political rights shock outweighs the effects of all the macroeconomic factors, whereas in more diversified SSA countries, the variances of SCR are much greater for democracy and political rights shocks, which suggests that democratization and political rights in diversified SSA economies are severely affected by SCR changes. In the case of the high and low democracy sub-samples, it is found that the variance of SCR in the relatively higher democracy sub-sample is greater than in the low democracy sub-sample.Social implicationsThese results have three implications for democratization in SSA. First, the effect of a SCR change is not a democratically agnostic and impacts political rights to a greater extent than civil liberties. Second, SCR changes have the potential to spark a negative cycle in SSA countries whereby a downgrade leads to a deterioration in socio-political stability coupled with increased financial economic constraints that in turn drive further downgrades and macroeconomic hardship. Finally, SCR changes are potentially detrimental for democracy in more democratic SSA countries but democratically supportive in less democratic SSA countries. Thus, SSA countries that are relatively politically sophisticated are more exposed to the effects of SCR changes, whereas less politically sophisticated SSA countries can proactively shape their SCRs by undertaking political reforms.Originality/valueThis study is the first to examine the associations between SCR and democracy in SSA. This is critical literature for the Africa’s scholarly work given that the debate on unfair rating actions and claims of subjective rating methods is ongoing.

Infrastructural development and trade performance in Sub-Saharan African countries

This study investigates the impacts of infrastructural development on trade performance in 30 sub-Saharan African economies using panel data from 2000 to 2020. The study employs the Generalized Method of Moments (GMM) dynamic pooling estimator and Dumitrescu–Hurlin (DH) panel causality tests. The empirical evidence suggests that both transport and ICT infrastructure have significant and positive effects on trade performance in sub-Saharan African countries. It has been found that trade performance is not significantly impacted by the relationship between economic growth and infrastructure development. This underscores the slow pace of economic growth in the region. The Dumitrescu–Hurlin (DH) panel causality tests establish evidence of unidirectional causality from each proxy of infrastructural development to trade performance and not vice versa. The study concludes that the sub-Saharan African government must purposefully invest in infrastructural development as a means to improve trade activity in the region. It is imperative to actively seek effective policies and a favourable macro environment to promote the necessary economic growth in order to fully realise the advantages and incentives of infrastructure investments.

A multidimensional appraisal of domestic investment, external debt and economic development nexus: evidence from SSA

PurposeThis study examines the effect of external debt and domestic capital formation on economic development in Sub-Saharan African (SSA) economies.Design/methodology/approachUsing the Dynamic Common Correlation Effects (DCCE) technique and the Driscoll and Kraay fixed-effect technique, this paper conducts a multidimensional assessment of external debt and domestic investment on economic development across a panel of 35 SSA countries from 1995 to 2018. The data utilized are sourced from the World Development Indicators (2021) and the United Nations Development Program (UNDP) database (2021).FindingsThe results reveal that domestic investment has a positive impact on economic development in SSA countries, consistent across all three dimensions of the human development index (income, education and life expectancy). However, external debt exhibits an adverse effect on economic development, consistently yielding negative outcomes for life expectancy, education and income.Practical implicationsBased on these findings, the authors recommend that SSA economies implement appropriate policies, such as reducing bureaucratic requirements and addressing corruption, to enhance domestic capital investment. Additionally, efforts should be directed toward channeling contracted debt into productive sectors like road construction and electricity provision.Originality/valueThis study is among the first to assess the impact of domestic investment and external debt on the three dimensions of human development outlined by the UNDP. Furthermore, it employs a robust econometric method that considers cross-sectional dependence (CD).

Resilience and Adaptation of Third Sector Organisations (TSOs) During Crisis Situations: Insights from a Sub-Saharan African Economy

Resilience and Adaptation of Third Sector Organisations (TSOs) During Crisis Situations: Insights from a Sub-Saharan African Economy

The Linkage Between Fiscal Policy and Financial Development: Exploring the Moderating Role of Institutional Quality in Emerging Economies

This paper investigates the role of fiscal policy on financial development in Sub-Saharan African economies, drawing on a sample of 23 countries from 2000 to 2021 using the panel ARDL method after evidencing stationarity and co-integration properties among the variables. Our results show that an increase in fiscal policy and institutional quality decreases financial development in the long run. An increase in taxation and expenditure by the government affects the development of finance in SSA countries. Our results also show that an increase in foreign capital and industrial growth increases financial development in the long term. The outcome evidence that the interaction between fiscal policy and institutional quality exhibits a positive effect on financial development. Causality results reveal no directional link between fiscal policy, foreign capital, industrialization, and financial development with institutional quality indicating a single direction. The study suggested that SSA countries should focus on developing policies to track the implementation of adequate fiscal policy systems and structures. Institutional coherence within and between SSA nations is required for efficient fiscal policy development.

Discretionary Accrual Earnings Management in a Sub-Saharan African Economy

This paper investigates the existence of discretionary total accrual earnings management and working capital accrual earnings management in Nigeria which is Sub-Saharan Africa's largest economy. Unlike previous studies that use the Ordinary Least Squares (OLS) technique that does not control for endogeneity that can invalidate results, our empirical methodology implements the maximum likelihood estimation that controls for endogeneity to estimate economically plausible levels of discretionary accrual earnings management. Our results find that discretionary accrual earnings management in Nigeria is characterized by statistically significant, tax-induced income-reducing discretionary accruals. This study contributes to the literature as it is the first emerging market, African and Sub-Saharan African economy study to the best of the researchers’ knowledge that estimates discretionary accrual earnings management for listed non-financial firms using various models based on the maximum likelihood estimation technique to control for endogeneity. The findings inform the political economy of economic development in Sub-Saharan Africa, particularly as it relates to how firms, especially multinationals, are motivated to extract rents from African economies. The results have policy implications for accounting regulatory interventions by policy and standard setting bodies that mitigate and/or eliminate capital flight, tax evasion, aggressive tax avoidance and financial corruption practices in Sub-Saharan African economies.

Formality, innovation and entrepreneurial business performance in francophone Sub-Saharan Africa

PurposeRecent work in the economics of innovation in developing countries increasingly considers the formality of business as a determining factor of economic development. However, current knowledge on how formality determines both innovation and business performance remains mixed. This article examines this relationship by analyzing, on the one hand, the role of formality on innovation and, on the other hand, the moderating effect of formality on the relationship between innovation and the performance of business in francophone Sub-Saharan Africa.Design/methodology/approachBased on a sample of 1,369 Cameroonian and Senegalese small and medium-sized enterprises (SMEs) from the International Development Research Center (IDRC), the Crepon Duguet et Maraise (CDM) technique was used to reduce the endogeneity bias inherent in this type of analysis.FindingsThe results show that formal companies have a better capacity for innovation. In addition, formality positively moderates the relationship between innovation and the performance of businesses in the case of product and commercial innovations. On the other hand, it negatively moderates the relationship between innovation and the performance for process and organizational innovations.Practical implicationsThese results show that the advantages of formalization widely relayed by national public institutions and international organizations can present a risk for business if the expected gains are not accompanied by innovations.Originality/valueThis paper contributes to research by taking into account the heterogeneity of firms because it is one of the first to study formality as a moderator in the relationship between innovation and firm performance in Sub-Saharan African economies.

Business environment and productivity in Africa: macro evidence

PurposeAfrica's business environment (BE) is characteristically unfriendly and poses severe development challenges. This study evaluates the impact of business climate on productivity in sub-Saharan Africa (SSA).Design/methodology/approachMacroeconomic data for 51 sub-Saharan African economies from 1990 to 2018 are employed for the analysis. The seemingly unrelated regression model is used to address inter-sectorial linkages.FindingsThe study uncovers several findings. First, a high start-up cost substantially leads to productivity losses by limiting the funds available for investment in productivity-enhancing labour and technology and limiting the number of businesses that see the light of day. The productivity impacts of start-up costs are most enormous for industry, followed by services and agriculture. Second, economies with favourable financing environments tend to be more productive economy wide and sector wise. Third, high taxes and tax inefficiency lower productivity by reducing the resource envelope of firms, thus lowering investment amounts. Fourth, poor business infrastructure inflicts the most damage on productivity. Lastly, business administration and macroeconomic environments impact sectoral and economy-wide productivity.Practical implicationsSSA economies must strive to lower the cost of starting a business as high start-up costs injure productivity. One way of reducing start-up costs is to create a one-stop shop for registering and formalising a business. Another way is to automate business registration and administrative processes to reduce red tape and corruption.Originality/valueThe authors extend the body of knowledge by analysing sectoral and economy-wide productivity effects of various business climate indicators while accounting for inter-sectoral linkages, cross-sectional dependence and endogeneity.

Corruption and external debt nexus in sub-Saharan Africa: a panel quantile regression approach

PurposeDebt sustainability and the growing level of external debt in sub-Saharan African (SSA) continue to be significant research priorities. This study aims to examine the corruption-external debt nexus in SSA economies and whether different levels of corruption better explain this relationship.Design/methodology/approachThe panel quantile regression approach was applied to account for the heterogeneous effect of the exogenous variables on external debts. The research covers 30 years of panel data from 30 selected SSA economies for the period spanning from 2000 to 2021.FindingsThe empirical findings of the regression analysis demonstrate the heterogeneous influences of the exogenous variables on external debt. While there was a positive impact of foreign direct investment (FDI) inflows on external debts, corruption established a negative relationship with external debt from the 10th to the 80th quantile. The findings showed a positive link between trade openness and external debt, while they also showed a negative relationship between gross fixed capital formation and external debt.Research limitations/implicationsIt is implied that corruption “sands the wheels” of external debts in the selected SSA countries. Therefore, the amount of external debt that flows into SSA is inversely correlated with corruption activity.Originality/valueTo the best of the authors’ knowledge, this study is one of the first to use panel quantile regression to analyze how corruption affects debt dynamics across different levels of debt, allowing for a more nuanced understanding of how corruption affects debt dynamics. Based on the findings of this study, SSA countries should create enabling environments to attract FDI inflows and to continue to drive domestic revenue mobilization and capital so as to be less dependent on external debts.

Foreign direct investment and renewable energy development in sub-saharan Africa: Does governance quality matter?

Existing studies have been separated, considering the foreign direct investment (FDI) and renewable energy development (RE) nexus and the governance quality-renewable energy development relationship. However, the study regarding the moderation of governance quality on the FDI-renewable energy nexus is quite scarce. To fill the gap in the literature, the study therefore examines the moderation of governance quality on the influence of FDI on RE in 37 sub-Saharan African economies over the period 1996–2020. To achieve this goal, the panel corrected standard errors (PCSE) estimation technique has been adopted. The results show that FDI has a positive and significant effect on RE, meaning that an increase in foreign direct investment could lead to a 0.05 increase in RE. Moreover, the results unveil that governance quality is positively and significantly associated with RE. This means that an unit increase in control of corruption, governance effectiveness, rule of law, and voice and accountability leads to a 9.64, 9.10, 10.10 and 9.08 increase unit in the renewable energy sector, respectively. Most importantly, the results indicate that the interaction between FDI and governance quality has a positive and significant effect on RE. Policy implications are discussed based on the findings revealed by this study.

Revisiting the Role of Institutional Structures in the Relationship Between Trade Openness and Poverty Reduction in Sub-Saharan Africa

ABSTRACT The study investigates the conditioning effect of institutions in the relationship between trade openness and poverty reduction in Sub-Saharan African economies. Employing generalized method of moments, it was revealed that institutions influence the relationship between trade openness and poverty reduction in SSA. Thus, to reduce poverty in the region, SSA economies must first start by opening their economies to international trade. This could be achieved by reducing import and export taxes, focusing more on exporting value-added products and providing relevant training and information for importers and exporters. However, such attempts will be more fruitful in the presence of sound institutions.

Synthesizing the role of technological innovation on sustainable development and climate action: Does governance play a role in sub-Saharan Africa?

The present study draws motivation from United Nation Sustainable Development Goals (UN-SDGs) and its impact by 2030. To this end, the current study explored the nexus between energy consumption (SDG-7), climate action (SDG-13), and economic growth (SDG-8) while controlling for role of government apparatus such as like voice of accountability, rule of law, control of corruption and technology innovation in a balanced panel of 46 Sub-Saharan African (SSA) economies from 1996 to 2020. For a robust study, the present study leverages on second-generation estimator such as cross-sectional SUR, two-stage least square (2SLS), 2SLS is referred to as the superior estimators to traditional pool OLS due to its capabilities of including endogenous regressors and efficiency. Empirical findings show that all the coefficients associated with mobile subscription (lnTI) are negative and statistically significant at 1% level of significance (P-value <0.01). This indicates that higher (lower) mobile cellular subscriptions results in the reduction (rise) of renewable energy consumption, implying that technological innovation in terms of the expansion of mobile cellular subscription hinders access to clean energy in SSA. Conclusively, the present study presents interesting outcomes concerning technology innovation, Governance, and SDGs goal 7 (clean energy) and 13 (climate action) in Sub-Saharan African blocs. Policy strategies are outlined in the concluding section.

Financial Inclusion and Economic Growth in Sub-Saharan Africa—A Panel ARDL and Granger Non-Causality Approach

Many earlier development finance studies have attempted to assess the relationship between financial inclusion and economic growth. However, the findings of these studies vary from economy to economy and region to region due to various social and economic factors. We, therefore, deemed it pertinent to examine the relationship between financial inclusion and economic growth while further identifying the direction of causality between the two variables in twenty-six (26) Sub-Saharan African (SSA) economies using annual secondary data over the 2000–2019 period. In our paper, we used the principal component analysis (PCA) technique to develop a single composite index to proxy financial inclusion while adopting panel unit root, system generalised method of moment (GMM), and ARDL cointegration tests to assess the stationarity properties, assess the factors that affect economic growth, and examine the long-run relationships between financial inclusion and economic growth, respectively. In addition, a Granger non-causality test is used to verify the direction and magnitude of causality. Our study revealed that financial inclusion and economic growth share a strong long-run relationship and that there is bi-directional causality, indicating synergy between these two variables. In order to ensure sustainable economic growth, we thus recommend that developing countries develop macroeconomic policies that will promote financial inclusion while enhancing the functioning and regulation of the domestic financial markets to ensure that all citizens are catered for in the available instruments, products, and service offerings. Within the same policy framework, efforts must be made to further support productive sectors of the economy to ensure economic growth.