Economic Transformation for Poverty Reduction in Africa

A Multidimensional Approach

Almas Heshmati

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9781000007015
• Edition: 1
• Topic: Economics
• Subtopic: Business General
• Index: Economics

This book is an edited volume which contains empirical studies on determinants of poverty and its reduction in Africa. It looks at multidimensional measures of poverty, production and productivity-related factors, policies influencing poverty and random, hazardous but preventive factors influencing poverty levels and their reduction.

The book argues that we need to account for different dimensions of poverty, when it is measured and classified, and for identifying the determinants of poverty and factors reducing poverty.

The studies in the volume provide readers with a comprehensive picture of the state of poverty, its measurement, causal factors and efficient policies and practices in poverty reduction on the African continent as a whole and also in selected countries.

1
Introduction to economic transformation for poverty reduction in Africa

Almas Heshmati

1. Background and motivation

The major policy challenges facing Africa are how to sustain a high rate of economic growth that reduces multidimensional poverty and is both socially inclusive and environmentally sustainable at the same time. Population ageing and growth, rapid urbanization, increasing need for provision of services, the need to reverse economic growth which declined after the 2008 global financial crisis, corruption and inefficiency and responding to climate change are among the other challenges facing Africa. Against this background, the Jönköping International Business School (JIBS) and the University of Rwanda organize a conference on economic development in the region every year. This volume is a collection of selected empirical studies on determinants of poverty and its reduction in Africa. The papers were selected from a set of more than 90 papers presented at the conference on ‘Recent Trends in Economic Development, Finance and Management Research in Eastern Africa’, Kigali, Rwanda, on 20–22 June 2016. Following the review process and revisions, 13 papers were accepted for publication in this edited volume.

The studies are grouped into domains that influence the level and development of poverty in Africa. The core argument for using a multidimensional perspective on poverty is the need to account for different dimensions of poverty when it is measured and classified and for identifying the determinants of poverty and the factors that reduce it. The studies in the volume provide a comprehensive picture of the state of poverty, its measurement and causal factors. They investigate heterogeneity by household characteristics and efficient policies and practices in poverty reduction on the African continent as a whole and also in selected countries in Eastern Africa. In these countries poverty rates are high and multifaceted, which pose major challenges for governments and organizations whose aim is alleviating poverty.

The volume contains a collection of empirical studies on the levels, variations and determinants of poverty and its reduction in Africa. The first chapter is an introduction/summary written by the volume’s editor. The remaining 13 inter-related studies are grouped into four domains which influence the levels, variations and development of poverty on the African continent as a whole and also in individual countries. The objectives are to account for different dimensions of poverty in its measurement and to identify the determinants and factors reducing its levels. The studies provide a comprehensive picture of the state of poverty, its measurement, causal factors and efficient policies and practices for reducing poverty in Africa. The results can have strong implications for poverty reduction policies.

2. Brief summary of individual studies

The 13 chapters are grouped into 4 research areas: multidimensional measures of poverty and its incidence, gap and severity (5 chapters); production and productivity-related factors (3 chapters); policies influencing poverty (3 chapters); and random and hazardous but preventive factors influencing poverty levels and their reduction (2 chapters). A brief summary of individual chapters is now provided.

Part I: Climate, energy and food security

Part I of the edited volume contains four chapters on climate, energy and food security issues and their relationship with poverty and its determinants.

Oumer Berisso Metaksa in Chapter 2, ‘Impact of weather variations on cereal productivity and the influence of agro-ecological differences in Ethiopian cereal production’, investigates the impacts of weather and agro-ecological variations on cereal productivity in Ethiopia. This study confirms the importance and strong influence of rainfall and temperatures on cereal production. There is evidence that agro-ecological differences and crop productivity regress over time. Increases in crop productivity are not uniform in the different agro-ecological zones. It suggests some policy options for the government in planning climate change adaptation strategies and agricultural policies to reduce poverty.

Richard Kerongo Mose’s study in Chapter 3, ‘Vulnerability and impact assessment of climate change on East African wildlife tourism: a study of Maasai Mara ecosystem’, assesses the vulnerability and impact of climate change on wildlife-based tourism in Maasai Mara in Kenya. The area is a unique biodiversity hotspot where wildebeest migration forms the cornerstone of tourism flows. Their results show that changing climate is exacerbating conflicts affecting the migration patterns of wildlife, damaging infrastructure and increasing overhead costs for tourism businesses. The chapter concludes that there is a need to have place-specific climate change vulnerability indicators so as to counter the impact of climate change on wildlife tourism and poverty in Kenya.

The second study by Mekonnen Bersisa in Chapter 4, ‘Multidimensional measure of household energy poverty and its determinants in Ethiopia’, uses a multidimensional measure of household energy poverty and its determinants. It investigates the importance of access to and affordability of energy for the well-being of society. The objective of the paper is analyzing the extent and determinants of energy poverty. The paper shows that the extent of energy poverty in rural and small towns in Ethiopia is very severe. A larger family size, living in a rural area and having a male head increase the probability of a household being multi-dimensionally energy poor. It recommends that interventions for reducing energy poverty should be coupled with poverty reduction policies.

The third study by Sunyoung Lee in Chapter 5, ‘Household food security and school enrollment: evidence from Malawi’, explores the association between subjective household food consumption levels as a proxy of subsistence income levels and school enrollments in Malawi. The results suggest that having ‘enough food’ plays a key role in lowering school dropout rates. However, complicated dynamics exist around the level of perceived subsistence levels. In general, parents need two conditions to be fulfilled for sending their children to school: sufficient resources for basic needs and higher utility from educating their children for their futures. The results point to measurement errors in capturing household financial resources in poor rural areas. The chapter suggests policy measures for promoting school enrollments and lowering dropout rates.

Masoomeh Rashidghalam in Chapter 6, ‘Analysis of poverty and its determinants in Rwanda’, provides an understanding of the socioeconomic characteristics that influence households’ poverty status in different provinces and districts in Rwanda. It identifies the poverty line at the province and district levels and then computes the incidence, intensity and severity of poverty at individual household levels. It also estimates the effects of different household characteristics on poverty and its variations. The estimation results show that living in a rural area, distance to the market, family size, marital status and age of household head, female-headed household, high population density and population growth increase the probability of being poor and its depth, while literate household heads and ownership of property and assets reduce the incidence and intensity of poverty.

Part II: Taxes, trade openness and capital

The chapters in Part II discuss the association between tax reforms, trade openness and capital flight with poverty.

Etienne Ndemezo and Francis Menjo-Baye in Chapter 7, ‘Assessing the revenue implications of indirect tax reforms in Rwanda’, discuss the revenue implications of the value added tax rate reform in Rwanda. They estimate the elasticity of the taxable base with respect to the tax rate. Their analysis leads to two main outcomes: the tax reform slightly raised household consumption expenditures and the increase in tax revenue was significant. The behavioral component was lower and mainly borne by the poorest households. They find consumption spending by poor households to be relatively insensitive to changes in relative prices after the tax reform.

Chapter 8, ‘Differential impact of trade liberalization and rural–urban income inequalities on poverty in African countries’, by Kahsay Berhane investigates the differential impact of trade liberalization and rural–urban income inequalities on poverty reduction in 42 Africa economies. It uses low household consumption expenditure per capita as a proxy for poverty. The differential impacts are captured through the country heterogeneity effect. Both the trade openness and rural–urban income inequality variables have a higher significant negative impact on poverty. Moreover, their impact on poverty is not uniform for all African countries.

The research by Alemayehu Geda and Addis Yimer in Chapter 9, ‘Effects of capital flight on growth and poverty Reduction in Ethiopia: evidence from a simulation-based analysis’, estimates the volume and negative effects of capital flight on growth and poverty reduction in Ethiopia. It finds the average growth lost owing to capital flight to be about 2.2 per cent per annum. Using elasticity of poverty with respect to income and inequalities the paper also finds the effect of capital flight on total poverty. Growth in Ethiopia was accompanied by rising inequalities that wiped out the positive effect of growth on poverty reduction. A simulation exercise for the elasticity of poverty with respect to income and inequality shows that poverty would have reduced in the absence of capital flight.

Part III: Employment, gender wage differentials and start-ups

Part III analyzes the relationship between employment, gender wage differentials and business start-ups.

Martha Kibru Melese’s study presented in Chapter 10, ‘Employment and incidence of poverty in urban Ethiopia’, employs two different techniques to explore poverty in urban Ethiopia to explain the probability of being poor. The results from the analysis show that a household head and other members’ characteristics matter to the household’s poverty position. The results from logistic and quintile regressions are used to explain expenditure per capita, which specifically show that occupation characteristics are important determinants of poverty status in urban Ethiopia. The study finds that households with more own-account workers and unpaid family workers are more prone to poverty. This result confirms the important role of employment in poverty reduction.

Pierre M. Nguetse-Tegoum and Justin Bem in Chapter 11, ‘Impact of gender wage differentials on poverty and inequalities in Cameroon’, analyze the distributional impacts of gender wage differentials on poverty and income inequalities in Cameroon. Their results show that females’ returns to education off-set the gap. The impact of the gender wage gap on poverty shows that the eradication of gender segregation in the formal sector will help improve living conditions and reduce the incidence of poverty but increase income inequalities. The impact of the gender wage gap on poverty shows that the eradication of gender segregation in the formal sector will help improve the living conditions of people from households in which at least one woman is working in the formal sector. At the national level, it will also reduce the incidence of poverty.

The study by Joseph Ndagijimana, Tharcisse Nzasingizimana and Almas Heshmati in Chapter 12, ‘Econometric analysis of business start-ups in Rwanda’, investigates the effects of interest rate spread, inflation, exchange rate and taxation on business start-ups in Rwanda. Their econometric analysis reveals how starting a business in Rwanda is affected by these determinant factors and their relationship with banks’ market operations. The chapter also provides policy recommendations on how to promote business start-ups, thereby reducing poverty at different levels and locations.

Part IV: Diversity, conflicts and hazardous factors

Part IV covers the prevalence of diversity, various forms of conflicts and hazardous factors affecting poverty.

Chapter 13, ‘A within-country study of conflict and poverty in Nigeria’, by Chinasa I. Ikelu is a within-country study of conflict and poverty in Nigeria. It conducts an econometric analysis of the economic and relative development factors that contribute to an increase in conflicts and terrorism in Nigeria. The poorer areas, particularly those with higher rates of illiteracy and mortality, are more exposed and prone to conflicts. The results show strong evidence that ethnic, linguistic and religious diversity in Nigeria is correlated with the intensity of conflict and poverty. This evidence implies that poverty causes conflict. The chapter proposes suitable policy measures aimed at reducing poverty.

The last study in Chapter 14, ‘The cost of commercial motorcycle accidents in Uganda’, by Richard Sebaggala, Fred Matovu, Dan Ayebale, Vincent Kisenyi and Messarck Katusiimeh explores the private and social costs of motorcycle accidents in Uganda. It enhances our understanding of the direct and indirect costs of road traffic accidents. In addition to the human capital cost estimation approach, this study also applies the willingness-to-pay approach to estimate the amount that riders will have to pay for reducing risks of loss of life based on a contingent valuation method. Their estimates show that motorcycle accidents are associated with huge economic and non-economic burdens borne by the poor victims and society as a whole which aggravate the state of poverty.

3. Final words

The primary audience for this edited book includes undergraduate and graduate students, lecturers, researchers, public and private institutions, NGOs, international aid agencies and decision makers. The book can serve as complementary reading to texts on economic development, welfare and poverty in Africa. The organizers of the annual conference on economic development in East Africa will market the book in their annual East Africa conferences. There are many books on poverty in Africa but they rarely discuss multidimensional measures of poverty, a subject which has been at the forefront of poverty and well-being research in recent years.

This edited book is authored by African experts in the field who employ diverse up-to-date data and methods to provide robust empirical results based on representative household surveys, covering individuals or multiple countries on the continent. It contains a wealth of empirical evidence, deep analyses and sound recommendations for policymakers and researchers to design and implement effective social policies and strategies to prevent and to reduce poverty and its negative effects on poor households. As such the book is a useful resource for policymakers and researchers involved in fighting poverty. It will also appeal to a broader audience interested in economic development, resources, policies, economic welfare and inclusive growth.

The editor is grateful to a host of dedicated authors and rigorous referees who helped in assessing the submitted papers. Many were presenters at the 2016 conference at the University of Rwanda. Special thanks go to Bideri Ishuheri Nyamulinda, Rama Rao and Lars Hartvigson and the remaining members of the Organization Committee for their efforts in organizing the conference. The editor would also like to thank Yong Ling LAM for guidance and for assessing assess this manuscript for publication by Routledge. Financial support by the ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• List of contributors
• List of abbreviations
• 1 Introduction to economic transformation for poverty reduction in Africa
• PART I Climate, energy and food security
• PART II Taxes, trade openness and capital
• PART III Employment, gender wage differentials and start-ups
• PART IV Diversity, conflicts and hazardous factors
• Index of authors
• Index of subjects