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Themba G. Chirwa and Nicholas M. Odhiambo

Abstract

The paper conducts a qualitative narrative appraisal of the existing empirical literature on the key macroeconomic determinants of economic growth in developing and developed countries. Much as other empirical studies have investigated the determinants of economic growth using various econometric methods, the majority of these studies have not distinguished what drives or hinders economic growth in developing or developed countries. The study finds that the determinants of economic growth are different when this distinction is used. It reveals that in developing countries the key macroeconomic determinants of economic growth include foreign aid, foreign direct investment, fiscal policy, investment, trade, human capital development, demographics, monetary policy, natural resources, reforms and geographic, regional, political and financial factors. In developed countries, the study reveals that the key macroeconomic determinants that are associated with economic growth include physical capital, fiscal policy, human capital, trade, demographics, monetary policy and financial and technological factors.

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Brian Muyambiri and Nicholas M. Odhiambo

Abstract

This article reviews the theoretical and empirical literature on the causal relationship between financial development and investment. Based on the literature considered, it can be concluded that there is little consensus to date on the direction of causality between financial development and investment. The study concludes that most of the research done on the causal relationship between financial development and investment is highly skewed towards assessing the causal relationship between the bank-based side of financial development, as compared to the market-based side of financial development. Given the number of studies assessed, the causal relationship between financial development and investment appears to be inconclusive, at best. Moreover, the study shows that the relationship between these two macroeconomic variables seems to differ from country to country; it is dependent on the proxies used to measure the level of financial development, as well as the methodology employed.

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Sheilla Nyasha and Nicholas M. Odhiambo

Abstract

This paper examines the impact of both bank-based and market-based financial development on economic growth in Brazil during the period from 1980 to 2012. To incorporate all of the aspects of financial development into the regression analysis, the study employs a method of means-removed average to construct both bank-based and market-based financial development indices. Based on the ARDL approach, the empirical results show that there is a positive relationship between market-based financial development and economic growth in Brazil in the long run, but not in the short run. The results also show that bank-based financial development in Brazil does not have a positive effect on economic growth. This applies irrespective of whether the regression analysis is conducted in the short run, or in the long run. The study, therefore, concludes that it is the stock market, rather than banking sector development, that drives long-run economic growth in Brazil.

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Edmore Mahembe and Nicholas M. Odhiambo

Abstract

This paper aims to analyses the trends and dynamics of extreme poverty in developing countries. The study attempts to answer one critical question: has the world achieved its number one Millennium Development Goal (MDG) target of reducing extreme poverty by half by 2015? The methodology used in this study mainly involves a descriptive data analysis during the period 1981-2015. The study used the World Bank’s US$1.90 a day line (popularly known as $1 a day line) in 2011 prices to measure the level of absolute poverty. In order to analyze the dynamics of poverty across different regions, the study grouped countries into five regions: i) sub-Saharan Africa; ii) East Asia and the Pacific; iii) South Asia; iv) Europe and Central Asia; and v) Latin America and the Caribbean. The study found that in 1990, there were around 1.9 billion people living below US$1.90 a day (constituting 36.9 percent of the world population) and this number is estimated to have reduced to around 700 million people in 2015, with an estimated global poverty rate of 9.6 percent. The world met the MDG target in 2010, which is five years ahead of schedule. However, extreme poverty is becoming increasingly concentrated in sub-Saharan Africa (SSA) and South Asia (SA), where its depth and breadth remain a challenge. SSA remains the poorest region, with more than 35 percent of its citizens living on less than US$1.90 a day. Half of the world’s extremely poor people now live in SSA, and it is the only region which has not met its MDG target.

Open access

Enock Nyorekwa Twinoburyo and Nicholas M. Odhiambo

Abstract

This paper aims to survey the existing literature, both theoretical and empirical, on the relationship between monetary policy and economic growth. While there has been a wide range of studies on the existing relationship between monetary policy and economic growth, the nexus between the two remains inconclusive. This paper takes a comprehensive view of the theoretical evolution of the relationship and the respective recent empirical findings. Overall, this paper shows that the majority of findings support the relevancy of monetary policy in supporting economic growth, mainly in financially developed economies with fairly independent central banks. The relationship tends to be weaker in developing economies with structural weaknesses and underdeveloped financial markets that are weakly integrated into global markets. This paper concludes that monetary policy matters for growth both in the short-run and long-run despite the prevailing ambiguous relationship. The paper recommends intensive financial development measure for developing countries as well as structural reforms to address to supply side deficiencies.

Open access

Talknice Saungweme and Nicholas M. Odhiambo

Abstract

The main goal of this paper is to discuss the dynamics of public debt servicing – both domestic and foreign – in Zambia, tracing the trends, reforms and challenges over the period from 1964 to 2015. The paper shows that the exceptional rise in public debt servicing obligations in Zambia over the period under review has been principally due to high domestic and foreign interest rates, frequent debt rescheduling at commercial rates, and capitalisation of non-liquidated service obligations at commercial rates. Also revealed in the paper is the fact that prior to 2005, Zambia experienced severe public debt servicing problems which eased after 2006 owing to debt relief initiatives and an economic rebound. Among the government debt service reforms discussed in the paper are structural adjustments in foreign exchange management, fiscal and monetary reforms, and aggressive engagement of traditional creditors. Primary among the identified challenges of public debt servicing in Zambia was the insistent economic crises that dogged the country during the study period. Notwithstanding the current public debt service sustainability and remarkable economic performance that characterise the country today, the paper found that the recent contraction of nonconcessional loans by the state poses a threat to debt service sustainability in future. Hence, the paper recommends, among other things, for aligning of public sector infrastructure spending with revenues to ensure budget sustainability, and to continue diversifying the economy to minimise the impact of external commodity price shocks on the economy.

Open access

Sheilla Nyasha and Nicholas M. Odhiambo

Abstract

This paper investigates the dynamic causal relationship between bank-based financial development and economic growth, and between market-based financial development and economic growth in six countries during the period from 1980 to 2012. The causal relationship was found to vary largely across countries and over time. In general, bank-based financial development seems to Granger-cause economic growth in the UK and only in the long run in Australia. However, there is a feedback loop in Brazil and Australia, but only in the short run for the latter. In Kenya, South Africa and USA, the results support the neutrality hypothesis. The study results further indicate short-run unidirectional causality from market-based financial development to economic growth in the USA. Evidence of the feedback loop was found in Kenya, while the demand-following hypothesis found support only in South Africa and Brazil. However, the neutrality view was supported in Australia and the UK.

Open access

Foluso A. Akinsola and Nicholas M. Odhiambo

Abstract

This paper surveys the existing literature on the relationship between inflation and economic growth in developed and developing countries, highlighting the theoretical and empirical indications. The study finds that the impact of inflation on economic growth varies from country to country and over time. The study also finds that the results from these studies depend on country‑specific characteristics, the data set used, and the methodology employed. On balance, the study finds overwhelming support in favour of a negative relationship between inflation and growth, especially in developed economies. However, there is still much controversy about the specific threshold level of inflation that is appropriate for growth. Most previous studies on this subject just assume a unidirectional causal relationship between inflation and economic growth. To our knowledge, this may be the first review of its kind to survey, in detail, the existing research on the relationship between inflation and economic growth in developed and developing countries.

Open access

Talknice Saungweme and Nicholas M. Odhiambo

Abstract

This paper provides a conceptual analysis of government debt servicing in Zimbabwe from 1980 to 2015. The mounting debt burden arising largely from nonconcessionary foreign loans since the 1980s, and the economic hardships that characterise the country beginning the late 1990s, caused dreadful public debt servicing challenges. Thus, the paper discusses the public debt service reforms and policies; trends; and problems in Zimbabwe over the review period. In the paper, it was identified that between 1983 and 1997, the government’s debt servicing costs were growing exponentially, resulting in liquidity challenges. However, between 1998 and 2015, the country had plunged into public debt service overhang, with public debt servicing liabilities exceeding the country’s foreign exchange earnings. Notwithstanding the various public debt servicing reforms to boost domestic revenues, Zimbabwe, as many other developing countries, still faces a number of debt servicing problems. Among others, these include: high government debt, low industrial and export competitiveness, narrow revenue base and subdued investor confidence. The paper recommends the government of Zimbabwe to undertake the following measures, among others, aimed at either boosting or expanding the revenue base: (i) improving tax enforcements; (ii) mobilising the informal sector; and (iii) expanding the productive capacity of public entities.

Open access

Mercy. T. Magombeyi and Nicholas M. Odhiambo

Abstract

This paper provides a detailed survey of the literature on the impact of foreign direct investment (FDI) on poverty reduction, outlining the theoretical and empirical relationship between these variables. Although a number of studies have been done on the impact of FDI on poverty reduction, the majority of these studies have focused on the indirect impact of FDI on poverty reduction. The bulk of the literature reviewed supports the positive effects of foreign direct investment on poverty reduction, although a few studies have also found foreign direct investment to have an adverse or insignificant effect on poverty reduction. This study differs fundamentally from previous studies in that it focuses on the direct impact of FDI on poverty reduction, giving a detailed review of the nature of this relationship.