Managing Risk in Africa through Institutional Reform

1
Managing Risk in Africa through Institutional
Reform
Phillip LeBel, Ph.D. Professor of
EconomicsSchool of Business Montclair State
UniversityUpper Montclair, New Jersey
07043Lebelp_at_mail.montclair.edu
2
Understanding Africas Weak Economic Performance

• By almost any measure, Africas economic growth
  has been weak over the past twenty-five years
• While mean PPP GDP per capita has increased by
  modest amounts, median PPP GDP per capita has
  hardly increased at all.

3
The Mixed Record of African Development
Indicators
4
Adult Illiteracy Rate
5
Drought Frequency in Africa
6
Cereal Crop Yields
7
Africas Share in World Trade
8
Africas Share in Global Merchandise Trade
9
Reframing African Development Strategies Must
Begin With An Emphasis on Risk Management

• Aggregate country risk, which includes political,
  economic, financial, and environmental factors,
  is inversely related to the level of per capita
  GDP

10
Corruption is a Determinant of Risk

• Corruption is directly related to the level of
  risk.

11
In turn, corruption is a function of several
factors

• Judicial independence is inversely related to the
  level of corruption

12

• Economic Freedom Affects the Level of Per Capita
  GDP

• Economic freedom, an important contributor to
  development, has improved little in Africa over
  the past twenty-five years.

13
International Aid has had a negative impact on
per capita GDP
Rising International Aid In Africa

• International aid, which has often served
  political over economic interests, has largely
  failed to raise per capita income in Africa, even
  when increases have been made.

14
As a result, even rising levels of FDI have had a
lower impact than elsewhere

• As a result, even rising levels of FDI have but a
  limited impact on economic development in Africa.
  In part this is because the level of FDI is so
  small relative to GDP, which in turn reflects the
  overall level of aggregate country risk.

15
Despite political instability, military spending
in Africa has remained relatively low

• Despite political instability, military spending
  in Africa has been lower than in some developed
  countries. At the same time, it has been higher
  than in most parts of Asia, China and North Korea
  being the principal exceptions.

16
The Quality of Institutional Governance is a Key
to Managing Risk

• Property rights in Africa have experienced some
  modest improvements, with some relapses in more
  recent years. The effect has been negative on
  the level of economic freedom, with higher risk
  resulting in lower levels of per capita GDP.

17
Democracy Offers Some Modest Gains in Per Capita
GDP

• Democracy, which in addition to transparent and
  fair elections, consists in the level of civil
  liberties and political rights. Despite some
  gains in Africa, the effects on per capita GDP
  have been weak.

18
Some Stylized Patterns of African Development
19
Determinants of Risk in Africa
20
Panel Nested Regression Equations
21
Basic Model Estimating Equations
22
Basic Model Institutional Valuations

• Estimates are based on parametric changes in
  selected independent variables

23
Regional Variation Valuations
24
Africa Sample Profile
25
Model Descriptive Statistics
26
Model Definitions and Sources
27
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