Application of Quantitative Methods in Natural Resource Management in Africa

Sub-Saharan Africa (SSA)’s natural resource base constitutes the sub-continent’s greatest asset. These Natural Resources (NRs), both renewable and non-renewable, are the backbone of the continent as they play very critical functions in the livelihood strategies of the people. There are a wide range of questions and issues concerning the proper management of these NRs. One of the issues relates to the economics of resource preservation, which includes questions associated with the quantifiable benefits of resource preservation, the environmental costs and benefits of Soil and Water Conservation (SWC) strategies, the economic impact of land use changes, and valuation of ecosystem goods and services. The other issue concerns the ecosystem and economic system interaction. Particular themes of interest are the co-management of natural resources, trans-boundary natural resource management, and the management of resources to reconcile revenue generation, social development, and environmental services of natural resources. This chapter reviews the literature on quantitative approaches that have been undertaken to enhance the understanding of selected Natural Resource Management (NRM) problems on the continent. The review suggests that a wide range of quantitative approaches have been applied in the context of the African resource economics literature, but this review also identifies some specific areas that have received little attention.

The Role of Governance in Teledensity and Economic Growth

The objective of this chapter is to highlight the role played by governance in GDP growth and changes in telephone density in Sub-Saharan African (SSA) countries. The contribution of these two factors to aggregate output and telephone density is examined using the dynamic system GMM estimation that accounts for the endogeneity of GDP and telephone density. GMM estimations reveal that government effectiveness is positively associated with GDP growth, while political stability has a negative effect on telecommunications penetration. In addition, the estimations indicate that changes in telephone density have a positive effect on GDP growth. From a policy standpoint, the empirical model results suggest that telecommunications infrastructure-driven growth can be augmented if telecommunications infrastructure investment can generate a multiplier effect through job creation, both directly related and indirectly related to telecommunication infrastructure.

Explaining International Land Transactions in Africa

Rising global food prices and demand for biofuels have recently heightened global interests in agricultural land resources in Africa, resulting in increased International Land Transactions (ILTs). While opponents of ILTs have dubbed it “land grabbing,” proponents welcome the opening of Africa’s agriculture to foreign direct investment. Limited empirical work exists explaining the motivations of investor and host countries. This chapter attempts to expand the literature by providing an empirical explanation of country land targeting behavior. As the debate on “land grabbing” intensifies, understanding motivations of various actors in the land market becomes relevant.

Demand for Health Care in Kenya

Although studies on health care demand have previously been conducted in Kenya and elsewhere in Africa, it has hitherto not been shown how health seeking behavior conditional on illness is affected by information on health care quality and by quality variation conditional on that information. This study develops and tests the hypothesis that the information available on service quality at a health facility significantly affects demand for health care, and therefore, parameter estimates that ignore information available to patients about service quality might be biased. The authors highlight the need for public provision of such information. They also draw attention to a potential limitation of demand analysis in the design and implementation of health care financing policies.

A New Keynesian Phillips Curve for South Africa

In South Africa, as elsewhere, economists have not reached an agreed upon model for the Phillips curve, despite its importance for understanding the process of inflation and its relevance for policy makers. It has been a particular challenge to identify the role of aggregate economic activity in the inflationary process in the South African literature, since the breakdown of a reasonably traditional Phillips curve, which had existed until the early seventies. A comparatively new model of the Phillips curve, often called the New Keynesian Phillips Curve (NKPC), has recently received considerable interest and support from monetary economists. The South African literature is exceptional in that these models have not yet been applied locally, despite their close association with forward looking and rules-based monetary policy regimes such as the inflation-targeting regime of the South African Reserve Bank. This chapter takes a first step towards introducing the NKPC in the South African debate, by estimating standard, hybrid, and open economy versions of the model and comparing the results with the international literature as well as South African precedents. The authors find encouraging, though tentative, evidence that research along these lines might help to identify the impact of aggregate economic activity in the domestic process of inflation.

Asymmetric Equilibrium Adjustment between Employment and Economic Growth in Côte d’Ivoire

In this chapter, the author investigate the possibility of asymmetry in the relationship between employment in the modern private sector and economic growth as measured by real Gross Domestic Product (GDP). The analysis is based on a threshold cointegration model. The use of a momentum threshold autoregressive model led to the rejection of the hypothesis of no cointegration, implying that the cointegration relationship between employment and real GDP is asymmetric. The error correction model developed thereafter suggests that in the short-run, when employment is above its long-term trend, the disequilibrium is adjusted via a decreasing of real GDP. However, it seems like adjustment does not occur when employment is below its equilibrium value. This indicates that restrictive macroeconomic policies that affect the labor market can lead to a persistent employment crisis in the modern private sector.

Measuring and Explaining Economic Inequality

This chapter proposes a new class of inequality indices based on the Gini coefficient (or index). The properties of the indices are studied and are found to be regular, relative, and to satisfy the Pigou-Dalton transfer principle. A subgroup decomposition is performed, and the method is found to be similar to the one used by Dagum when decomposing the Gini index. The theoretical results are illustrated by case studies, using Cameroonian data.

Population Dynamics, Economic Growth, and Energy Consumption in Kenya

Kenya is a small open economy that depends on energy for growth. Since independence in 1963, it has experienced tremendous urban and rural population growth, placing an increasing strain on energy resources and economic development. Therefore, in this chapter the relationship between urban and rural populations, economic development, and energy use is studied. The empirical analysis uses a vector autoregression framework. The Granger Causality test results suggest unidirectional causality running from urban population to GDP. The vector error decomposition results imply that urban growth will continue to play a major role in energy consumption in Kenya.

Sources of Income Inequality in Nigeria

Income inequality and poverty in Nigeria are closely related. This chapter analyzes the contributions of income sources and socio-economic factors to income inequality, and estimates the contributions of income redistribution and growth to poverty reduction. Household survey data obtained from the National Bureau of Statistics (NBS) are used. Results show that in 2004, income inequality was higher in rural than in urban areas. Wage and non-farm income made the largest contributions to urban income inequality, while agricultural and wage incomes contributed most to rural inequality. Household size, urbanization, and education significantly increased income inequality, while age, paid/salaried jobs, and non-farm enterprises decreased it (p<0.05). Between 1998 and 2004, income redistribution reduced poverty but income growth increased it. The authors therefore recommend that welfare enhancing programs that benefit the poor should be identified and that better economic opportunities should be created for those in rural areas.

Point Density Estimation of Changes in Income Polarization in Tanzania, 1992−2001

Data from two Household Budget Surveys in 1991-1992 and 2000-2001 in Tanzania indicate that there is no change in inequality between the two surveys. In spite of this finding, and impressive macroeconomic gains, there is growing discontent throughout the country because of the belief that the change from socialist to market policies has worsened income inequality. In this chapter, the authors argue that the Gini index fails to capture some inconspicuous trends in the income distribution, particularly the problem of polarization across space. Using polarization measures based on point density estimation of alienation and identification, they analyze changes in the distribution of household income in Tanzania in the 1990s. Unlike analyses that rely on the Gini index, the authors find that polarization increased significantly between 1992 and 2001. They also find evidence of increased spatial variability across regions and lack of spatial convergence of household incomes.