African Finance Journal - Volume 14, Issue 1, 2012
Volumes & issues
Volume 14, Issue 1, 2012
Author Richard Ebil OttooSource: African Finance Journal 14, pp 1 –36 (2012)More Less
We apply a contingent-claims technique and demonstrate how to value an emerging market hydro electric power investment under uncertainty. The investment project depends on reliable weather conditions and the capacity of a river to drive the water turbines. Uganda's Bujagali dam project located at the source of the Nile River is the focus of our study. We identify four mutually-exclusive real options and incorporate the correlation of returns on rainfall and cash flows as well as a premium for lack of transparency in the estimation of project risk. We document a leverage effect and a volatility effect on project value.
The balance of payments constraint growth model and the effect of trade liberalization on the trade balance and income growth in GhanaAuthor Alexander Bilson DarkuSource: African Finance Journal 14, pp 37 –66 (2012)More Less
This paper uses the balance of payment constraint (BPC) growth model and the autoregressive distributed lag approach to cointegration to examine the major determinants of income growth in Ghana, emphasizing the importance of exports, capital inflows and relative prices. The paper also uses the model to identify the effect of trade liberalization on the trade balance and income growth in Ghana. The main empirical results suggest that increases in the growth rates of exports, capital inflows and relative prices lead to an increase in growth of income. However, the liberalization of the external sector has not improved the income growth performance in Ghana. The results from this study questions the idea that trade liberalization leads to improvement in economic welfare of countries by raising the sustainable growth rate.
Does FDI contribute to the integration into the global economy? Time-series evidence for ten African countriesAuthor Yaya KehoSource: African Finance Journal 14, pp 67 –86 (2012)More Less
This study investigates the relationship between FDI and exports in a sample of ten African countries. Using annual data from 1970 to 2007, we find that FDI causes exports in Burkina Faso and South Africa supporting the FDI-led exports point of view, while exports cause FDI in Cameroon, Cote d'Ivoire and Kenya, supporting the hypothesis that outward oriented economies attract more FDI. We find bidirectional causality in Ghana, Nigeria and Zambia, implying a virtuous circle of FDI and exports. We do not find causality for Congo and Gabon.
Source: African Finance Journal 14, pp 87 –101 (2012)More Less
Since 1978, Taiwan has implemented a series of financial liberalization-related policies, including exchange rate liberalization, interest rate liberalization, and financial and foreign exchange market liberalization. The question of whether there exists a causal relationship between financial development and economic growth has always been an important research topic for economists. Using quarterly data from 1978 to 2006, we employ the augmented Dickey-Fuller unit root test, the co-integration test, and the causality test of the vector error correction model to explore this relationship. Our study shows that economic growth and financial development/export/saving seem to have a mutual feedback influence in the long run.
Source: African Finance Journal 14, pp 102 –114 (2012)More Less
A number of developing countries have implemented financial reforms as a mechanism towards improving the process of financial intermediation and ultimately economic growth. Lesotho has also implemented a series of reforms in the financial sector including interest rate liberalization and introduction of indirect instruments of monetary policy. The paper investigated the validity of McKinnon-Shaw complementarity hypothesis in Lesotho using the quarterly data covering 1990-2006. The hypothesis argues that there is a positive relationship between real money and physical capital. Using granger causality and error correction models (ECM), the study found empirical support for the complementarity hypothesis in Lesotho. Thus the ongoing financial reforms play an important role in enhancing fixed capital formation and economic growth.