Showing papers in "Journal of African Economies in 2004"
TL;DR: The authors examines the experience with alternative mechanisms for service delivery, contracting out to the private and NGO sectors, community participation, co-financing by service beneficiaries and shows that this, as well as the experience of more traditional public sector provision, can be interpreted by looking at three principal-agent relationships in the service-delivery chain: between policymakers and providers, between clients and providers; and between clients (as citizens) and policymakers.
Abstract: The weak link between public spending in health and education, and health and education outcomes can be partially explained by the fact that the delivery of services that are critical to human development -- health, education, water and sanitation -- are widely failing poor people. The money is often spent on private goods or on the non-poor; it often fails to reach the frontline service provider; incentives for service delivery by providers are weak; and poor people sometimes fail to demand these services. This paper examines the experience with alternative mechanisms for service delivery -- contracting out to the private and NGO sectors, community participation, co-financing by service beneficiaries -- and shows that this, as well as the experience of more traditional public sector provision, can be interpreted by looking at three principal-agent relationships in the service-delivery chain: between policymakers and providers; between clients and providers; and between clients (as citizens) and policymakers. Weaknesses in one or more of these relationships can lead to service-delivery failure, while attempts to strengthen one may not always work because of deficiencies in other links in the chain. Copyright 2004, Oxford University Press.
1,099 citations
TL;DR: In this article, a methodology to assess household vulnerability using pseudo panel data derived from repeated cross-sections augmented with historical information on shocks is presented, where interventions directed at reducing the incidence of malaria, promoting adult literacy, and improving market accessibility hold most promise to reduce vulnerability.
Abstract: Considerations of risk and vulnerability are key to understanding the dynamics of poverty. This study conceives vulnerability as expected poverty and illustrates a methodology to empirically assess household vulnerability using pseudo panel data derived from repeated cross sections augmented with historical information on shocks. Application of the methodology to data from rural Kenya shows that in 1994 rural households faced on average a 40 percent chance of becoming poor in the future. Households in arid areas that experience large rainfall volatility appear more vulnerable than those in non-arid areas, where malaria emerges as a key risk factor. Idiosyncratic shocks also cause non-negligible consumption volatility. Possession of cattle and sheep/goats appears ineffective in protecting consumption against covariant shocks, though sheep/goat help reduce the effect of idiosyncratic shocks, especially in arid zones. Of the policy instruments simulated, interventions directed at reducing the incidence of malaria, promoting adult literacy, and improving market accessibility hold most promise to reduce vulnerability.
216 citations
TL;DR: In this paper, the impact of regional trade agreements on intra-regional trade in Sub-Saharan Africa has been investigated, and the effect of preferential trade agreements and monetary unions has been compared.
Abstract: The aim of this paper is (i) to assess the impact of regional agreements on members’ trade in SubSaharan Africa (intra-regional trade as well as trade with the rest of the world), controlling for the other traditional determinants, including geography and transport costs and (ii) to compare the respective effect of the preferential trade agreements and the monetary unions. Considering the period 1962-1996, we first assess the average impact of each regional agreement on their implementation period and second we show how these impacts have evolved. An “augmented” gravity model is designed, relying on a transport cost function, in which specific dummies allow trade creation and trade diversion effects to be separated. The model is estimated in panel with bilateral specific effects, to isolate the non-observable characteristics of each pair of countries, and according to the HausmanTaylor (1981) method, which takes into account a possible endogeneity of some explanatory variables. During their implementation, the African regional trade agreements have generated a significant increase in trade between members, although initially often through trade diversion. In the two agreements of the CFA franc zone, the currency unions have largely reinforced the positive effect of the corresponding preferential trade agreements on intra-regional trade, while dampening their trade diversion effect. Actually, currency unions rather had a trade creation effect (all the more important as the international monetary environment has been more unstable), whereas preferential trade agreements resulted in important trade diversion.
162 citations
TL;DR: In this paper, the authors build a data set on financial and human capital flight for 48 countries for the period 1970-98 and analyse capital flight as a portfolio choice, finding that the severe financial capital flight that Africa experienced until the late 1980s has started to be reversed.
Abstract: We build a data set on financial and human capital flight for 48 countries for the period 1970-98 and analyse capital flight as a portfolio choice. Financial capital flight is measured as the stock of capital flight relative to domestically held private net wealth and human capital flight as the proportion of a country's educated population that is living outside the country. Our results suggest that the same economic factors influence human and financial portfolio decisions, namely the relative returns and the relative risks in the competing locations. We focus on the estimated model's implications for Africa, finding that the severe financial capital flight that Africa experienced until the late 1980s has started to be reversed. The factors that have accounted for this repatriation are probably the reduction in the parallel market premium and African indebtedness, the reduction in the incidence of civil war (a phenomenon true only of our sample countries, rather than a general African phenomenon) and the decline in real US interest rates. In contrast, we find that human capital flight is rapidly increasing, as the emigration of the educated is subject to much more powerful momentum effects than financial capital flight. Finally, we find that for both types of capital flight policy changes only affect outcomes with long lags, suggesting that Africa's human capital exodus will be an increasingly important problem.
150 citations
TL;DR: Wage differentials by education of men and women are examined from several recent African household surveys to document empirical regularities in private wage returns to schooling as mentioned in this paper, which suggests that the large public subsidies for post-secondary education in Africa do not appear needed to motivate students to enrol and those who have in the past enrolled in these levels of education are disproportionately from the most educated families.
Abstract: Wage differentials by education of men and women are examined from several recent African household surveys to document empirical regularities in private wage returns to schooling. In contrast to the common description which states that returns are highest at primary school levels and decrease at secondary and post-secondary levels, these surveys imply private returns in six countries are highest at the secondary and post-secondary levels and generally as high for women as they are for men, though women are less likely to enrol at these higher levels of schooling, with the exception of South Africa. Thus, the large public subsidies for post-secondary education in Africa do not appear needed to motivate students to enrol and those who have in the past enrolled in these levels of education are shown to have been drawn disproportionately from the most educated families. More efficient management of higher education in Africa could be encouraged, if the children of well-educated parents were to pay the public costs of their schooling and these tuition revenues were used to expand higher education and finance fellowships for only the children of the poor, who on average face relatively low returns in Africa on their basic education and have the greatest difficulty borrowing to finance their attendance in school. Copyright 2004, Oxford University Press.
121 citations
TL;DR: In this article, the authors used household level data for Uganda for 1999-2000 and 2002-03, before and after the abolition of user fees for public health services, to explore the effect of this policy on different groups' ability to access health services and morbidity outcomes.
Abstract: The authors use household level data for Uganda for 1999-2000 and 2002-03, before and after the abolition of user fees for public health services, to explore the effect of this policy on different groups' ability to access health services and morbidity outcomes. They find that the policy change improved access and reduced the probability of sickness in a way that was particularly beneficial to the poor. Although the challenge of maintaining service quality remains, aggregate benefits are estimated to be significantly larger than the estimated shortfalls from the abolition of user fees.
117 citations
TL;DR: In this article, the extent of integration, causality among spatial locations, and relative importance of spatial locations in price formation are examined for Ugandan maize market performance in the years following agricultural market liberalization in the early 1990's.
Abstract: "Using weekly price data for two sub-periods, this paper analyzes how Ugandan maize market performed in the years following agricultural market liberalization in the early 1990's. For each time period, the extent of integration, causality among spatial locations, and relative importance of spatial locations in price formation are examined. The extent of integration, defined as a set of markets that shares common long-run price information, and the causal relationships among markets have been tested within Johansen's cointegration framework. The relative importance of each market locations is examined by estimating the common trend coefficients with a dynamic vector moving average model. Results indicate that, while there has been an overall improvement in spatial price responsiveness, the northern districts, which have been in a state of insurgency since 1986, continue to lack integration with major consumption markets in the central region. Causality test results show that compared to the 1993-1994-time period, representing the early years of liberalization, interdependence among markets has increased. Estimates of the common integrating trend suggest that public policies, such as price stabilization, can have desired impacts by targeting a small number of locations. These results are consistent with recently conducted household and market surveys in the country." Author's Abstract
117 citations
TL;DR: Estimation results suggest that adequate antenatal care use in Ghana can be promoted effectively by extending the supply of antenatal Care services in the rural area, by general education policies and by specific policies that increase reproductive health knowledge.
Abstract: The paper investigates the determinants of antenatal care use in Ghana. In particular, we study how economic factors affect the demand for antenatal care and the probability that the number of visits falls below the recommended number of four. Estimation results from a nested three-level multinomial logit model (care or no care; doctor or nurse or midwife; sufficient or insufficient visits) show that indeed living standard, cost of consultation and in particular travel distance to the provider have a significant impact on the demand and sufficiency of antenatal care. In addition, pregnant women with more schooling have a higher propensity to seek sufficient antenatal care from all providers, while women of higher parity tend to use less antenatal carefrom less expensive providers. These results suggest that adequate antenatal care use in Ghana can be promoted effectively by extending the supply of antenatal care services in the rural area, by general education policies and by specific policies that increase reproductive health knowledge. Furthermore, contrary to findings elsewhere, our estimates provide little support for a special targeting of antenatal care according to religious background. © Centre for the Study of African Economics 2004; all rights reserved.
115 citations
TL;DR: In this article, the authors argue that rural-based policies in Sub-Saharan Africa have the potential to stimulate overall growth and reduce poverty because poverty is mainly a rural phenomenon and that rural development is likely to have a salutary effect on the whole economy for several reasons.
Abstract: The paper argues that rural-based policies in Sub-Saharan Africa have the potential to stimulate overall growth and reduce poverty because poverty is mainly a rural phenomenon. Further, rural development is likely to have a salutary effect on the whole economy for several reasons. First, rural-based growth is typically accompanied by improvements in income distribution. Secondly, where reduction in income inequality comes from land reform and changes in land tenure, it has a tendency to increase agricultural productivity because of the resultant intensification of labour input on land. Thirdly, rural development inevitably involves increased investment in human capital of the poor, which in addition to expanding their economic opportunities, improves their quality of life directly. Fourthly, by expanding the tax base for the modern sector, rural development can empower governments to reform distortionary taxes, especially on agriculture, and thus increase overall efficiency in the economy. Although African agriculture -- the usual emphasis in povertyreduction strategies -- remains the principal source of employment and incomes for most rural people, its dynamism depends critically on conditions prevailing in rural non-farm sectors. Similarly, growth in non-farm sectors creates opportunities for higher incomes and employment in agriculture. Thus, agriculture and the rural non-farm sector complement each other in the process of rural development. Copyright 2004, Oxford University Press.
101 citations
TL;DR: In this article, the authors evaluate the role various dimensions in determining children's attendance and conclude that policies directed towards increasing a child's attendance need to be focused on the demand for schooling within the context of the household.
Abstract: Policies designed to increase education in low-income settings require an understanding of why children do not attend school. Drawing on longitudinal data of primary-school age children in Tanzania, our analysis evaluates the role various dimensions in determining children’s attendance. Our results indicate that policies directed towards increasing a child’s attendance need to be focused on the demand for schooling within the context of the household. Policies that affect demand for child labour within the household, especially those that promote substitutes for child labour, should be considered. Furthermore, programmes aimed at secondary schools (including improving access) can have an indirect affect on hours of primary-school attendance, particularly for girls.
98 citations
TL;DR: In this paper, the authors used temporal cross-section and pseudo-panel data to assess the plausibility of various factors that may be responsible for the decline in primary school educational enrolment.
Abstract: Since independence in 1963 Kenya has invested substantial resources in the education sector. For almost twenty-five years these investments and other government policies led to impressive gains in educational access at all levels. However since the mid-to late 1980s there appears to have been an erosion in educational participation and a reversal of the gains achieved in previous decades. Motivated by this trend this paper uses temporal cross-section and pseudo-panel data to assess the plausibility of various factors that may be responsible for the decline in primary school educational enrolment. In particular we consider the role of school fees school inputs and curriculum school availability the expected benefits of education and the spread of HIV/AIDS. We also try to identify the most effective policy interventions that may be used to prevent further declines in primary school enrolment rates. (authors)
TL;DR: This paper analyzed the effect of child care costs on households' behavior in Kenya and found that a high cost for child care discourages households from using formal child care facilities and has a negative effect on mothers' participation in market work.
Abstract: About 20,000 early childhood development centers provided day care for and prepared for primary school more than 1 million children aged three to seven (roughly 20 percent of children in that age group) in Kenya in 1995. The number of child care facilities reached 23,690 by the end of 1999. The authors analyze the effect of child care costs on households' behavior in Kenya. For households with children aged three to seven, they model household demand for mothers' participation in paid work, the participation in paid work of other household members, household demand for schooling, and household demand for child care. They find that: A) A high cost for child care discourages households from using formal child care facilities and has a negative effect on mothers' participation in market work. B) The cost of child care and the level of mothers' wages affect older children's school enrollment, but these factors affect boys' and girls' schooling differently. An increase in mothers' wages increases boys' enrollment but depresses girls' enrollment. C) Higher child care costs have no significant effect on boys' schooling but significantly decrease the number of girls in school.
TL;DR: In this paper, an experimental test of individual decision-making behavior under risk was conducted in rural east Uganda, where subjects were paid according to the outcome of one of their choices.
Abstract: We report an experimental test of individual decision-making behaviour under risk conducted in rural east Uganda. The test employs an incentive compatible design where subjects were paid according to the outcome of one of their choices. We find that the risk preferences of east Ugandan farmers exhibit systematic and predictable deviations from expected utility maximisation. These include violations of the independence and transitivity axioms of expected utility theory, and reference-dependent preferences. Not all deviations are the same as those which emerge from tests using (generally) student subjects at First World universities (e.g., we observe an S-shaped rather than an inverse S-shaped probability weighting function). We also find evidence of a substantial stochastic component to behaviour. The implications of our findings in terms of the appropriate characterisation of risk preferences in applied policy analyses are discussed. Copyright 2004, Oxford University Press.
TL;DR: In this article, the authors fit a VECM in output and prices to data from ten countries of the CFA Franc Zone, and used persistence profiles of different kinds, in order to identify the degree of homogeneity in the way in which the countries respond to macroeconomic shocks.
Abstract: In this paper we fit a VECM in output and prices to data from ten countries of the CFA Franc Zone. This model allows for various cross-country interactions in both the short run and the long run. The VECM parameters are used to estimate persistence profiles of different kinds, in order to identify the degree of homogeneity in the way in which the countries respond to macroeconomic shocks. In this way we can shed light on questions about the likely size of the costs incurred from these countries’ membership of a monetary union.
TL;DR: In this paper, the authors used the projection approach of Datt and Walker (2002) along with an extension that is better suited to taking into account distributional changes observed between the two household surveys.
Abstract: Although Tanzania experienced relatively rapid growth in per capita GDP in the 19952001 period, household budget survey (HBS) data show only a modest and statistically insignificant decline in poverty between 1992 and 2001. To assess the likely trajectory of poverty rates over the course of the period, changes in poverty are simulated using unit-record HBS data and national accounts growth rates under varying assumptions for growth rates and inequality changes. To this end the projection approach of Datt and Walker (2002) is used along with an extension that is better suited to taking into account distributional changes observed between the two household surveys. The simulations suggest that following increases in poverty during the economic slowdown of the early 1990s, recent growth in Tanzania has brought a decline in poverty, particularly in urban areas. Unless recent growth is sustained, the country will not meet its 2015 Millennium Development Goal (MDG). Poverty reduction is on track in urban areas, but reaching the MDG target for bringing down poverty in rural areas, where most Tanzanians live, requires sustaining high growth in rural output per capita.
TL;DR: In this article, the authors explore the microeconomic structural and institutional constraints to growth and poverty reduction, focusing on three areas that impede growth and alleviation: human resource development vulnerability, risk management, and fiscal management through decentralization.
Abstract: We begin this paper by taking a look back at the adjustment growth and poverty debate. Our analysis suggests that while the poor do not bear the disproportionae costs of adjustment policies it is also the case that policy reforms have largely failed to contribute to the alleviation of poverty. We therefore explore the microeconomic structural and institutional constraints to growth and poverty reduction. The three areas that we concentrate on in terms of removing the structural and fundamentally microeconomic constraints that impede growth and poverty alleviation are human resource development vulnerability and risk management and fiscal management through decentralization. (authors)
TL;DR: In this paper, the central bank for the West African Economic and Monetary Union (BCEAO) has used interest rate policy in response to domestic economic developments, such as inflation, the output gap, its foreign exchange position and government borrowing.
Abstract: This paper examines to what extent the central bank for the West African Economic and Monetary Union (BCEAO) has used interest rate policy in response to domestic economic developments. We show that while in the long run the BCEAO matches changes in French (Eurozone) interest rates one for one, in the short run it retains freedom to react to domestic economic variables, such as inflation, the output gap, its foreign exchange position and government borrowing.
TL;DR: In this article, the authors show that poverty increased massively in the wake of the 1994 devaluation of the CFA franc, despite a significant recovery of economic growth, mainly on the urban poor.
Abstract: This paper brings out that poverty increased massively in the wake of the 1994 devaluation of the CFA franc, despite a significant recovery of economic growth. Although this increase affected all the social groups, it fell mostly on the urban poor. An analytical model is presented, which explains this puzzle by the stratification of the labour market, assuming that the formal sector workers are at the same time the investors in the informal sector. Then, capital intensity in the latter increases as the former anticipate the cut in formal sector wages that the long-awaited devaluation brings about. Ex post, they run down their assets for consumption-smoothing purposes, thus de-capitalising the informal sector firms, with a negative impact on incomes in the (urban) informal sector.
TL;DR: In this paper, 559 farm households from the Sudan Savanna and Northern Guinea Savanna (NGS) zones were studied to examine the factors affecting production efficiency, and the farms in each zone were divided into four socioeconomic domains using a combination of population density and market access.
Abstract: Agricultural intensification involving greater crop–livestock interactions and integration is emerging as the most promising strategy for improving agricultural production and productivity in much of Sub-Sahara Africa. In West Africa, where this process is at various stages of evolution, 559 farm households from the Sudan Savanna (SS) and Northern Guinea Savanna (NGS) zones were studied to examine the factors affecting production efficiency. The farms in each zone were divided into four socioeconomic domains using a combination of population density and market access as criteria. Estimation of stochastic frontier production function indicated the need to include ecological and socioeconomic variables in both the production function and the accompanying inefficiency equation, failing which such models may suffer from omitted variables bias. The results showed that inefficiency effects of a stochastic nature existed among the sample farms and average efficiency was 76%: 68% in the SS and 86% in the NGS zones. Further, increased resource use associated with agricultural intensification was not always accompanied by an increase in production efficiency; and while agricultural intensification based on high external input strategies yields higher marginal returns in the NGS, a similar strategy is not critical to success in the SS given
TL;DR: In this article, the authors review some of the existing theoretical and empirical work on local accountability, focusing particularly on the question of local accountability in developing economies, and they note that the institutional context (and therefore the structure of incentives and organisation) of developing economies is quite different from those in advanced industrial economies, which necessitates any discussion on the local governance issues in the delivery of public services in the context of development to go beyond the traditional fiscal federalism literature.
Abstract: In this paper we note that the institutional context (and therefore the structure of incentives and organisation) in developing economies is quite different from those in advanced industrial economies, and this necessitates any discussion on the local governance issues in the delivery of public services in the context of development to go beyond the traditional fiscal federalism literature. With this in mind, we review some of the existing theoretical and empirical work, focusing particularly on the question of local accountability. Copyright 2004, Oxford University Press.
TL;DR: In this paper, the authors explored the likely effects of the AIDS pandemic in Africa on the continents ability to produce education and use it effectively for growth and poverty reduction and concluded that among the costs of the epidemic is the likelihood that absent offsetting policies and programmes, the dearth of human capital will get worse.
Abstract: Education is one ofthe great challenges of development. This paper outlines the likely effects of the AIDS pandemic in Africa on the continents ability to produce education and use it effectively for growth and poverty reduction. Four channels are explored. First a supply effect: the deaths of millions of adults will increase the difficulty of finding and retaining enough teachers. Secondly a demand effect: the foreshortening of time horizons will reduce lifetime private returns to education making investments of time and money in schooling appear less attractive. Thirdly a factor productivity effect: in many countries the loss of a large share of the skilled work force may reduce the social returns to skill among educated people who survive reducing the contribution of education to overall growth. And finally a factor complementarity effect: the loss of physical capital assets may reduce the ability of skilled workers to contribute to overall economic production to the extent that physical and human capital are complementary inputs. The channels described add up to the qualitative conclusion that among the costs of the epidemic is the likelihood that absent offsetting policies and programmes. Africas dearth of human capital will get worse. (authors)
TL;DR: In this paper, the authors build on the case of West African banks to propose an analysis of the issues raised by government interference, privatisation to foreign investors and regulation in developing countries.
Abstract: This paper builds on the case of West African banks to propose an analysis of the issues raised by government interference, privatisation to foreign investors and regulation in developing countries. In the late 1980s, there was a severe crisis in the West African banking system, partly due to government interference. The restructuring of the banking system entailed privatisation and foreign share ownership. During the 1990s, both foreign ownership and the proportion of bad loans went down. We offer an interpretation of these stylised facts within the framework of a simple model where non-benevolent governments are prone to political interference, as long as it does not generate too large expected social costs, and learn to refrain from interference after severe crises. Privatisation to foreign investors seeking high return and high risk does not always ensure efficiency of the banking system, while regulation by independent agencies can be more effective. Further confrontation of the theory to the data is provided by panel regressions on profits, bad loans and ownership ran across the seven countries of the West African Economic and Monetary Union from 1990 to 1997. Copyright 2004, Oxford University Press.
TL;DR: In this article, the authors examined the factors contributing to decline in ownership of various types of livestock and availability and quality of grazing lands in the northern Ethiopian highlands since 1991 and examined the changes in utilisation of various feed resources.
Abstract: This paper examines the factors contributing to decline in ownership of various types of livestock and availability and quality of grazing lands in the northern Ethiopian highlands since, 1991. It also examines the factors contributing to changes in utilisation of various feed resources. Increase in the extent of drought and population growth have contributed significantly to decline in ownership of livestock and availability and quality of grazing resources. On the other hand, better access to markets and increase in participation in credit and extension programmes have contributed to increases in ownership of livestock and use of feed resources. The results suggest that improving access to markets and extension programmes can enhance the role of livestock in improving food security and reducing poverty in the mixed crop--livestock farming systems as exist in the Ethiopian highlands. In addition, easing the pressure on agricultural land by providing non-farm opportunities and credit, extension and training in these activities will be important. Copyright 2004, Oxford University Press.
TL;DR: The authors examined international financial integration, economic growth and the linkages between them, focusing on Africa and concluded that there is strong evidence associating FDI inflows with increased growth and that this relationship seems to hold for Africa.
Abstract: This paper examines international financial integration, economic growth and the linkages between them, focusing on Africa. A central theme is the importance of distinguishing between policy based (de jure ) indicators of integration and (de facto ) indicators based on actual capital flows or stocks. The paper reviews trends in both sets of integration indicators and uses growth accounting to summarise key features of Africa's growth experience. The linkage between them is examined through an extensive review of recent literature as well as some new empirical evidence. The review finds little evidence relating de jure integration to growth, but this may reflect relatively uninformative available indicators. In contrast, the paper concludes that there is strong evidence associating FDI inflows with increased growth and that this relationship seems to hold for Africa. Copyright 2004, Oxford University Press.
TL;DR: The West African Economic and Monetary Union (UEMOA) has a history of monetary stability and low inflation, however, there is substantial variation in relative prices within some UEMOA countries, in particular in the price of food relative to other e
Abstract: The West African Economic and Monetary Union (UEMOA) has a history of monetary stability and low inflation. Nevertheless, there is substantial variation in relative prices within some UEMOA countries, in particular in the price of food relative to other e
Journal Article•
TL;DR: In this article, the authors analyse the impact of the creation of a customs union among UEMOA (Western African Economic and Monetary Union) countries, with a special emphasis on the labour market structure.
Abstract: In this study, we analyse the impact of the creation of a customs union among UEMOA (Western African Economic and Monetary Union) countries, with a special emphasis on the labour market structure. The implementation of the customs union reform translated in most of these countries, into a greater openness, even with third party countries. This greater openness raises concerns in these countries as regards its potential impact on welfare, production and employment. In contrast to previous papers, we relax the assumption of a perfect functioning of the labour market. We consider the presence of a dualism in the labour market and the downward rigidity of the wage of formal workers. Using a multi- country CGE model, we find that this rigidity could reduce significantly the gains of the customs union. Our simulation results suggest that the costs of this rigidity may reach 45%, as a proportion of the welfare gain obtained without rigidity. Copyright 2004, Oxford University Press.
TL;DR: In this article, the authors illustrate how conditionality contracts are affected by conflicting donor incentives in the presence of limited commitment power, and show that there may be an inverse relationship between aid and reform across different aid recipients.
Abstract: Donors who seek to impose policy conditionality on countries receiving their aid commonly face conflicting incentives between using aid to induce income-increasing reforms and using it to assist low-income countries: this conflict can lead to a time-consistency problem. This paper illustrates how conditionality contracts are affected by conflicting donor incentives in the presence of limited commitment power. Conditionality is shown to survive in an environment with weak donor commitment power, and it can eliminate the inefficiency associated with the no-conditionality outcome. However, even when conditionality is successfully imposed by donors, there may be an inverse relationship between aid and reform across different aid recipients. Copyright 2004, Oxford University Press.
TL;DR: In this paper, the authors make use of a 1997 computable general equilibrium (CGE) model to analyse three potential strategies that Mozambique can pursue unilaterally with a view to initiating a sustainable development process.
Abstract: This paper makes use of a 1997 computable general equilibrium (CGE) model to analyse three potential strategies that Mozambique can pursue unilaterally with a view to initiating a sustainable development process. They include (i) an agriculture-first strategy, (ii) an agricultural-development led industrialization (ADLI) strategy, and (iii) a primary-sector export-oriented strategy. The ADLI strategy dominates the other development strategies since important synergy effects in aggregate welfare arise from including key agro-industry sectors into the agriculture-first development strategy. Moreover, the ADLI strategy can be designed so it has a relatively strong impact on the welfare of the poorest poverty-stricken households, and still maintain the politically sensitive factorial distribution of income.