Cape Verde and Mozambique as Development Successes in Sub-Saharan Africa Jorge Braga de Macedo &...
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Transcript of Cape Verde and Mozambique as Development Successes in Sub-Saharan Africa Jorge Braga de Macedo &...
Cape Verde and Mozambique as Cape Verde and Mozambique as Development Successes in Development Successes in
Sub-Saharan AfricaSub-Saharan Africa
Jorge Braga de Macedo & Luís Brites PereiraJorge Braga de Macedo & Luís Brites Pereira
NBER Conference on African Development Successes Cambridge, Massachusetts, December 11-12, 2009
2
OutlineOutline
MotivationMotivationAn Interpretative An Interpretative
Framework: Framework: How How Globalization & Globalization & Governance interact with Governance interact with ConvergenceConvergence
Empirical Analysis: Empirical Analysis: Diversification-Diversification-Convergence: Assessing Convergence: Assessing Success in SSASuccess in SSA
ConclusionsConclusions
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1- Sub-Saharan Africa and the Crisis1- Sub-Saharan Africa and the Crisis
Notwithstanding SSA’s improved economic situation over the last ten years, absolute poverty was still widespread when unprecedented energy and food price volatility brought worldwide expansion to a halt.
Growth enhancing policies need to be assessed against progress on MDGs – through improved multilateral surveillance (IMF and G20).
African Peer Review Mechanism and sub regional cooperation also key.
4
MDGs, Constituencies for Reform and MDGs, Constituencies for Reform and Development Ideologies in SSADevelopment Ideologies in SSA
Reaching the MDGs in 2015 presupposes sustained pro-poor economic growth in addition to better governance and more aid.
There have not been enough constituencies for reform in SSA.
ECOWAS and SADC have been less active in their sub-region than AfDB, ECA, IMF or World Bank.
Alternatives to both the “one size fit all” and “each case is unique” development ideologies are urgently needed.
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International cooperation beyond OECDInternational cooperation beyond OECD
The EU attests to the advantages of regional integration among like-minded countries – especially in the wake of the Lisbon treaty.
Given the slow motion of the EU, regional cooperation may neither produce knowledge of effective policies or institutions nor create conditions for their implementation.
Moreover, outside of the OECD, mutual knowledge (produced from within a cooperative framework) is more limited and the data harder to compare.
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Mutual Knowledge among Community of Mutual Knowledge among Community of Portuguese-speaking Countries (CPLP)Portuguese-speaking Countries (CPLP)
Ten years after creating CPLP in Lisbon, the 2006 summit approved in Bissau a declaration on MDGs emphasizing mutual knowledge: could standards of appropriateness regarding institutional reform be more responsive to historical affinities than to geography?
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EU, PALOP, CPLP cooperationEU, PALOP, CPLP cooperationThe five Portuguese-speaking African countries (CPV, MOZ, Angola, Guinea-Bissau, Sao Tome e Principe) formed a group known as PALOP in 1979. PALOP held ten summits until 1992, when the first Regional Indicative Programme with the EU was signed . A Memorandum of Understanding with the European Commission was signed on the eve of the 2007 Europe-Africa summit in Lisbon, extended to CPLP.
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Why Cape Verde & Mozambique?Why Cape Verde & Mozambique?
Geography - Cape Verde is a small island state with little natural
resources and a difficult climate.
History - Mozambique fought a protracted civil war following its independence from Portugal in the mid 1970s.
Widespread recognition that both countries are actively seeking to overcome adverse developmental conditions due to:
15
PALOP vs SSA – YCAP 1990 GK K$PALOP vs SSA – YCAP 1990 GK K$
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
PALOP
SSA
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ECOWAS, SADC, PALOP, SSA comparisons ECOWAS, SADC, PALOP, SSA comparisons
Macroeconomic Policy and Financial Reputation, building on Macedo et al (2009b) for PALOP (slides from Lopes, 2009);
MDGs and Governance Indicators, based on Macedo et al. (2007b) (slides from World Bank Enterprise Surveys).
Foreign Trade and Economic Growth, dealing with ygap and neq5 interaction in ECOWAS and SADC (own slides and Cabral, 2009 for SSA);
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World Bank Enterprise Surveys World Bank Enterprise Surveys
Cape Verde has more developed financial markets, greater macroeconomic stability, lower corruption and a state where rule of law is more grounded but less export-oriented firms, less technology licensed to foreigners, higher taxes and a heavier regulatory framework.
Mozambique has better infrastructures (water, electricity, internet) and lower corruption but less developed financial markets, a state where rule of law is less grounded, less export-oriented firms and less technology licensed to foreigners.
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2 - An Interpretative Framework2 - An Interpretative Framework A nation’s resource endowments and its productivity determine
its economic well-being and how fast it can grow. Through trade, capital flows or migration, globalization can
influence the level of endowments available in an economy, or even, through international technology transfers, its productivity.
A country’s endowments may also determine how much it trades with the rest of the world in terms if goods, services and assets, taking advantage of Globalization.
Moreover, a country with good Governance may likely increase its endowment and well-endowed countries may afford investing more resources to build well-functioning institutions.
Bonaglia, Macedo, Bussolo (2009) describe G&G interaction.
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How G&G interact with convergenceHow G&G interact with convergence Waves of globalization in16th, 19th and 20th-21st
centuries interacted with different forms of governance responses: G&G interaction is context-specific, as defined by space (geography) and time (history).
The two-way interaction between democracy and globalization found over the entire 1870-2000 period turns out to be sensitive to regional context and convergence.
Macedo et al. (2007a) add the gap in per capita income relative to the frontier to Bonaglia et al. (2009) G&G interaction and test a three-way interaction model on the Eichengreen and Leblang (2006) data for 1970-2004 measuring democracy by the political and economic freedom it allows citizens.
32
Globalization, Freedoms and Convergence: Globalization, Freedoms and Convergence: a summary of three way interactionsa summary of three way interactions
Legend: Strong link Weaker link
Convergence
Globalization Freedoms
(PRCL)
Source: Macedo, Oliveira-Martins, Pereira (2007a)
How do we assess success?How do we assess success?
Study the bi-directional relationship between Study the bi-directional relationship between diversification and convergence, given the diversification and convergence, given the insights of our interpretative framework;insights of our interpretative framework;
1) Seek to identify policy and institutional 1) Seek to identify policy and institutional determinants of successful export diversification-determinants of successful export diversification-economic convergence combinations for economic convergence combinations for ECOWAS and SADC, and ECOWAS and SADC, and
2) Seek to assess to what extent these apply to 2) Seek to assess to what extent these apply to Cape Verde and Mozambique; Cape Verde and Mozambique;
3 - Empirical Analysis3 - Empirical Analysis
Model:Model: Meaningful characterization of each Meaningful characterization of each country’s diversification-convergence, which is country’s diversification-convergence, which is affected by policy and institutional variables, given affected by policy and institutional variables, given control variables;control variables;
Economic convergence:Economic convergence: use Income gap, given by use Income gap, given by ygapygapitit = 1 – ( = 1 – (ypcypcitit / ypc / ypcUSA,tUSA,t), so that gap narrows as ), so that gap narrows as ypcypcitit increases. increases.
Export diversification:Export diversification: use the number equivalent use the number equivalent index (index (neq5itneq5it), which is calculated as the inverse of ), which is calculated as the inverse of the Herfindahl Index (5-digits, SITC rev.2);the Herfindahl Index (5-digits, SITC rev.2);
ECOWAS: Relation between Income ECOWAS: Relation between Income Gap & Number EquivalentGap & Number Equivalent
36
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Lowess smoothing, bandwidth = 0.8
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37
ECOWAS country means: Income Gap & ECOWAS country means: Income Gap & Number EquivalentNumber Equivalent
NERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNER
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INCOME GAP vs NUMBER EQUIVALENT - COUNTRY MEANSECOWAS
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38
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39
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MOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZ ZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWE
NAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAMNAM
MDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDG
ZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAFZAF
.7.8
.91
ygap m
ean
0 5 10 15 20neq5 mean
Lowess smoothing, bandwidth = 0.9
INCOME GAP vs NUMBER EQUIVALENT - COUNTRY MEANSSADC
ECOWAS, Cape Verde: Income Gap & ECOWAS, Cape Verde: Income Gap & Government Deficit – Country MeansGovernment Deficit – Country Means
40
GNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBGNBCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPVCPV
SLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLESLE
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SENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSENSEN
MLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLIMLI
NERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNERNER
BENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBENBEN
GINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGIN
CIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIVCIV
BFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFABFA
GHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHAGHA
NGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGANGA
GMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMBGMB
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.92
.94
.96
.98
ygap m
ean
-20 -15 -10 -5 0 5govdef mean
Lowess smoothing, bandwidth = 0.8
INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANSECOWAS
ECOWAS Income Gap & Government ECOWAS Income Gap & Government Deficit – Time MeansDeficit – Time Means
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F AC P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
C P VB E NG M BG H AG N BG INC IVL B RML IN E RN G AS E NS L ET G OB F A
.93
.94
.95
.96
.97
ygap m
ean
-10 -8 -6 -4 -2govdef mean
Lowess smoothing, bandwidth = 0.8
INCOME GAP vs GOVERNMENT DEFICIT - TIME MEANSECOWAS
SADC, Mozambique: Income Gap & SADC, Mozambique: Income Gap & Government Deficit – Country MeansGovernment Deficit – Country Means
42
LSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSO
MWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWIMWI
MOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZMOZ
TZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZATZA
ZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMBZMB MDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGMDGZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWEZWE
ZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZARZAR
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SWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZSWZ
BWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWABWA
MUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUSMUS
.7.8
.91
ygap m
ean
-25 -20 -15 -10 -5 0govdef mean
Lowess smoothing, bandwidth = 0.8
INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANSSADC
SADC: Income Gap & Government Deficit SADC: Income Gap & Government Deficit – Time Means– Time Means
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Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
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Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
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Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
Z A FA G OB W AZ A RL S OM D GM W IM U SM O ZZ W EN A MS W ZT Z AZ M B
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.88
.89
.9.9
1.9
2
ygap m
ean
-15 -10 -5 0govdef mean
Lowess smoothing, bandwidth = 0.8
INCOME GAP vs GOVERNMENT DEFICIT - TIME MEANSSADC
ECOWAS, Cape Verde: FreedomsECOWAS, Cape Verde: Freedoms
44
GINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGINGIN
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3.5
44.5
55.5
ef
mean
2 2.5 3 3.5 4 4.5prcl mean
Lowess smoothing, bandwidth = 0.8
ECONOMIC vs POLITICAL FREEDOM - COUNTRY MEANSECOWAS
SADC, Mozambique: Freedoms SADC, Mozambique: Freedoms
45
AGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGOAGO
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LSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSOLSO
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23
45
6ef
mean
1 2 3 4 5 6prcl mean
Lowess smoothing, bandwidth = 0.8
ECONOMIC vs POLITICAL FREEDOM - COUNTRY MEANSSADC
Modelling Strategy
A system equation approach is better suited to model interdependence between variables.
To address the problem of endogeneity due to simultaneity bias we use Three-Stage Least Squares (3SLS).
We also estimate the diversification-convergence relation using alternative techniques (OLS, 2SLS) and obtain broadly consistent results (appendix 2).
ModelModel
(1) ygapit = α1.neq5it + δ1.(Policyit)+ β1.(Institutionsit) +γ1.Z1it + ε1.it
(2) neq5it = α2. ygapit + δ2.(Policyit)+ β2.(Institutionsit) + γ2.Z2it + ε2.it
Sample:Sample: Panel data Panel data t = 1960-2004t = 1960-2004 and and i = 1,…, Ni = 1,…, N
countries;countries; Explanatory Explanatory variables:variables: policy ( policy (inflation, government inflation, government deficit and degree of opennessdeficit and degree of openness) and institutional () and institutional (political political and economic freedom, age of constitution, age of and economic freedom, age of constitution, age of democracy, number of prior transitions to dictatorshipdemocracy, number of prior transitions to dictatorship). ). {{ZiZi} is a set of control variables.} is a set of control variables.
ECOWAS vs SADC ECOWAS vs SADC –– High Regime High RegimeECOWAS SADC
ygap ↓ → neq5 ↑neq5 ↑ → ygap ↓
ygap ↓ → neq5 ↑neq5 ↑ → ygap ↓
open ↑ → ygap ↓
govdef ↑ → neq5 ↓ open ↑ → neq5 ↓
govdef ↑ → neq5 ↑
prcl ↑ → neq5 ↑ ef ↑ → neq5 ↑
prcl ↑ → ygap ↓ ef ↑ → ygap ↓
prcl ↑ → neq5 ↓ ef ↑ → neq5 ↓
legaleng → ygap ↓
ECOWAS, Cape Verde: Income Gap & ECOWAS, Cape Verde: Income Gap & Gvt. Deficit – Regimes, Country MeansGvt. Deficit – Regimes, Country Means
58
.9.9
2.9
4.9
6.9
8
ygap
-20 -10 0 10govdef
LOW FULL
HIGH
INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANSECOWAS
ECOWAS, Cape Verde: Income Gap & ECOWAS, Cape Verde: Income Gap & Inflation – Regimes, Country MeansInflation – Regimes, Country Means
59
.9.9
2.9
4.9
6.9
8
ygap
0 10 20 30 40 50inflation1
LOW FULLHIGH
INCOME GAP vs INFLATION - COUNTRY MEANSECOWAS
ECOWAS: Income Gap & Openness – ECOWAS: Income Gap & Openness – Regimes, Country MeansRegimes, Country Means
60
.9.9
2.9
4.9
6.9
8
ygap
20 40 60 80 100 120open1
LOW FULL
HIGH
INCOME GAP vs OPENNESS - COUNTRY MEANSECOWAS
ECOWAS Economic vs Political Freedom ECOWAS Economic vs Political Freedom across Regimesacross Regimes
44.5
55.5
6
ef
2 4 6prcl
LOW FULL
HIGH
Lowess smoothing, bandwidth = 0.8
ECONOMIC vs POLITICAL FREEDOMECOWAS
SADC Economic vs Political Freedom SADC Economic vs Political Freedom across regimesacross regimes
34
56
7
ef
2 3 4 5 6prcl
LOW FULLHIGH
ECONOMIC vs POLITICAL FREEDOMSADC
Freedoms: 2SLS ResultsFreedoms: 2SLS Results
63
ECOWAS SADC
ygap neq5 ygap neq5
Between Effects
EFPRCL
EF
Fixed Effects
EF EFPRCL
EF EF
Cape Verde, Mozambique ResultsCape Verde, Mozambique Results
64
ygap neq5
Cape Verde -0.299***(-3.267)
0.438**(2.346)
Senegal -0.370***(-6.040)
0.504**(4.982)
Mauritius -0.833***(-5.429)
Mozambique -0.728***(-4.403)
-1.313***(-4.507)
Full sample: t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1
65
Cape Verde vs ECOWAS: Income GapCape Verde vs ECOWAS: Income Gap.9
2.9
4.9
6.9
8
1960 1970 1980 1990 2000year
ECOWAS CPV
INCOME GAP TO FRONTIERCAPE VERDE vs. ECOWAS
66
Cape Verde vs ECOWAS: NEQCape Verde vs ECOWAS: NEQ2
46
810
12
1960 1970 1980 1990 2000year
ECOWAS CPV
NUMBER EQUIVALENTCAPE VERDE vs. ECOWAS
68
Mozambique vs SADC: Income GapMozambique vs SADC: Income Gap.8
8.9
.92
.94
.96
1960 1970 1980 1990 2000year
SADC MOZ
INCOME GAPMOZAMBIQUE vs. SADC
69
Mozambique vs SADC: NEQMozambique vs SADC: NEQ0
510
15
1960 1970 1980 1990 2000year
SADC MOZ
NUMBER EQUIVALENTMOZAMBIQUE vs. SADC
4 - Conclusions ECOWAS HIGH-regime countries are becoming more diversified
whilst those of SADC are becoming less diversified. Opening up to trade is also an important driver of both convergence
and diversification for ECOWAS, especially in the range of 45-75% of GDP, but not for SADC.
In SADC HIGH-regime countries, economic and political freedom drive convergence, suggesting effective institutional arrangements.
The commonalities present in the HIGH-regimes are: 1) the expected 2-way relationship; 2) convergence entails macroeconomic stability (inflation < 9%,
budget deficits < 7% of GDP); 3) political and economic freedoms are greater; 4) freedoms affect diversification policy as do government deficits,
albeit in different directions across both sub regions.
Conclusions Increasing deficits counteract prevailing diversification stance in
both sub regions, a sign of regime credibility. The comparison across sub regions serves to highlight the
importance of institutions irrespective of the sample chosen: economic freedom always affects diversification in ECOWAS while both freedoms affect it in SADC, where they affect convergence too.
The estimated impact that Cape Verde and Mozambique have on the coefficients for ECOWAS and SADC reinforces the perception from the comparative indicators.
These two case studies of positive G&G interaction reflect on the potential for cooperative governance and peer-review mechanisms outside of its usual domain among OECD and EU member countries, especially in PALOP and SSA .