Browsing by Author "Nikolaidou, Efi"

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    Open Access
    An application of the augmented Solow model to measure the impact of military spending on economic growth in Uganda for the period 1962-2018.
    (2021) Abura, Elijah; Nikolaidou, Efi
    This paper provides a case study of the impact of military spending on economic growth in Uganda using an exogenous dynamic growth model and time-series data over the period 1962-2018. This is achieved by estimating and appraising a sample inclusive of periods not covered in previous studies that resulted in structural changes to the Ugandan economy such as conflict and currency devaluations. The results indicate that there is a significant negative effect of a military burden on growth in the long run and short-run when aid is not included as an explanatory variable. Foreign aid increases the magnitude of the regression coefficients however there is no evidence that aid increases the military burden. Overall, the ARDL approach to cointegration supports the data and is effective at providing empirical proof to seemingly axiomatic statements on the military spending and growth relationship.
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    Financial development and economic growth – the role of mobile money: empirical evidence from Sub-Saharan Africa and a comparative study of Kenya and Uganda
    (2025) Tinyinondi, Grace Ainomugisha; Nikolaidou, Efi; Mpofu, Trust
    The relationship between financial development and economic growth is well established in the finance-growth literature, which is predicated on the existence of a well-functioning financial system that underscores the complementarity between financial institutions and financial markets. Financial inclusion, defined as the participation of individuals in the formal financial system, is a critical component of financial development and, by extension, the finance-growth nexus. In many developing countries, financial exclusion remains a significant challenge, with a substantial proportion of the population lacking access to formal financial services. However, the advent of mobile money, which achieved notable success in Kenya following its introduction in 2007, has provided a considerable boost to financial inclusion across the Sub-Saharan African (SSA) region, home to the largest concentration of low-income countries globally. Empirical evidence indicates that mobile money has enhanced financial inclusion by expanding access to financial services, thereby contributing to financial development through improved resource mobilization, increased savings, and broader participation in the financial sector. Notably, SSA continues to lead globally in mobile money adoption and usage. This thesis examines the role of mobile money, an important driver of financial inclusion, in shaping the finance-growth nexus in Sub-Saharan Africa (SSA). It employs a broad measure of financial development that incorporates mobile money, financial institutions, and financial markets. The study contributes to the literature by providing empirical evidence from 17 SSA countries, selected based on data availability, covering the period from 2015 to 2022, a timeframe during which mobile money was widely adopted across the region. To gain deeper insights into the impact of enhanced financial inclusion on the finance-growth relationship in developing economies, Kenya and Uganda, two of the leading adopters of mobile money, are analyzed as case studies. While financial inclusion has gained increasing recognition, existing research on the finance-growth nexus in Kenya and Uganda often relies on a single proxy of financial development, typically bank credit to the private sector, thereby overlooking the broader dynamics of a more inclusive financial system. The study constructs a broad-based financial development index encompassing mobile money services, financial institutions, and financial markets, measured across the dimensions of depth, access, and efficiency, to offer new evidence on the finance-growth nexus in Sub-Saharan Africa (SSA), with a particular focus on Kenya and Uganda. As a robustness check, the study employs Svirydzenka's (2016) multidimensional financial development index, which has been widely adopted in recent empirical literature. The Kenyan case study utilizes annual data spanning the period 1980 to 2022, while the Ugandan analysis covers the years 1982 to 2022. To investigate the relationship between financial development and economic growth, the study applies Granger causality tests and a formal growth model. The direction of causality is examined through Granger causality tests based on a Vector Autoregressive (VAR) framework. Furthermore, the analysis incorporates the system Generalized Method of Moments (GMM) panel estimator, along with the Johansen and Juselius (1990) cointegration approach and the Vector Error Correction Model (VECM), to address potential endogeneity concerns inherent in the finance-growth relationship. The Granger causality test results for Sub-Saharan Africa (SSA) and Uganda reveal aunidirectional causality running from real GDP per capita to financial development. This finding lends empirical support to Patrick's (1966) supply-leading hypothesis, which posits that economic growth can be stimulated by the deliberate development of financial institutions and markets. In contrast, the results for Kenya are consistent with the demand-following hypothesis, also proposed by Patrick (1966), which argues that financial development occurs as a response to increasing demand generated by economic growth. These divergent patterns suggest that policy prescriptions should be context-specific: in the case of Uganda, strategies aimed at enhancing financial development may serve as a catalyst for economic growth, whereas in Kenya, promoting economic expansion may be a more effective means of fostering financial sector development. The findings based on the growth model, utilizing an overall Mobile Money Index, constructed from six mobile money indicators (i.e., the value of mobile money transactions as a percentage of GDP; number of mobile money transactions per 1,000 adults; number of registered mobile money agent outlets per 100,000 adults; number of agent outlets per 1,000 km²; mobile cellular subscriptions per 100 people; and number of registered mobile money accounts per 1,000 adults), indicate that financial inclusion positively influences the finance-growth nexus in Kenya and Uganda. However, when the analysis is disaggregated by individual mobile money indicators, the results for Sub-Saharan Africa (SSA), Kenya, and Uganda also reveal negative effects of mobile money on economic growth. This apparent contradiction suggests that, despite notable improvements, financial inclusion remains relatively low in these regions. These results are consistent with prior studies which have shown that financial development may exert a negative effect on economic growth at early stages of financial inclusion. Moreover, the findings highlight several challenges and potential risks associated with mobile money, as identified in existing literature. These include issues related to integrity, privacy, and security; limitations in infrastructure and resources; insufficient alignment of stakeholder incentives; low levels of financial literacy; and the entry of unsophisticated borrowers into the financial system. Thus, this study underscores an important policy implication: while mobile money is a critical tool for advancing financial inclusion, it does not inherently lead to positive economic outcomes. Its benefits can only be fully realized when accompanied by appropriate institutional frameworks, regulatory safeguards, and targeted policy interventions that address its associated risks.
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    Financial development, remittances, and economic growth: Evidence from Ghana, 1979-2020
    (2023) Acheampong, Kristen; Nikolaidou, Efi
    Over the last 40 – 50 years, there has been growing research interest in the role of remittances on developing countries' economic growth. Remittances, a source of foreign capital inflow, have grown tremendously given the rise in globalisation and the increase in international migration, mainly out of African countries. In Ghana, the value of remittances has been growing and is emerging as an important source of capital. Additionally, Ghana has the second highest magnitude of remittance inflows in Sub-Saharan Africa; however, the effects of this on economic growth are still contested in the literature and need to be further understood. At the same time, Ghana has experienced developments in its financial system, resulting in increased financial inclusion and potentially improved economic performance. However, there is no clarity on the relationship between financial development and economic growth in Ghana. As globalisation and technology lead to advances in the financial system, and as remittances into Ghana through the financial system continue to increase, it is important to examine the effect that remittances which pass through the financial system have on economic growth in Ghana. This study therefore examines the relationship between financial development, remittances, and economic growth in Ghana over the period 1979 – 2020 using four financial development proxies, namely, domestic credit to the private sector by banks and M2 money supply as the banking sector proxies, gross domestic savings as the financial market proxy, and a composite financial development index by Svirydzenka (2016) to give an overall view of the Ghanaian economy. The study employs various specifications of an augmented Solow (1957) model and estimates them by employing the ARDL Approach to Cointegration method (Pesaran et al., 2001). The study finds that financial development does not significantly impact economic growth and that remittances alone negatively affect economic growth. However, the combined effect of financial development and remittances on economic growth in Ghana is positive when remittances pass through the banking sector but negative when remittances pass through the financial market. Therefore, this study suggests that policymakers should ensure that the banking sector increases efficiencies and access to services and encourage remittance inflows through the formal banking sector to amplify its benefits to economic performance.
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    Public debt in sub-Saharan African countries: determinants and economic effects
    (2022) Okwoche, Princewill U; Nikolaidou, Efi; Makanza, Christine
    One of the key macroeconomic policy issues that emerged in the wake of the global financial crisis is the persistent increase in public deficits and debt across the globe. Among researchers and policy makers, this has been the subject of an intense and ongoing debate that mainly seeks to address two issues, namely, the determinants of the growing debt and the economic effects thereof. While most of the debate centres on the advanced and emerging market economies, only a limited number of studies have looked at the case of Sub-Saharan Africa (SSA) countries. This is despite the fact that many countries in the sub-region have been through debt crises in previous decades and are currently facing the imminence of another crisis. This thesis extends the public debt literature by examining the drivers and growth effects of public debt with a focus on SSA countries. The aim is to carry out a more comprehensive analysis of public debt that accounts for the nuances of the sub-region. The thesis is composed of three distinct but interrelated studies. The first study examines the drivers of public debt while the second study focuses on the growth effects of debt. Both studies employ panel econometric techniques using data for SSA countries. The third study is motivated by recent empirical evidence which shows that the drivers and growth effects of public debt do vary substantially across countries due to unique country-specific factors which may not be accounted for in a panel data framework. The study therefore aims to compare country-specific evidence with the evidence obtained from the studies that employ panel data on SSA countries. It focuses on the country case of Nigeria and examines both the determinants and growth effects of public debt. The focus on Nigeria is important due to its position as SSA's most populous and largest economy. Moreover, the country's public debt history is similar to that of most SSA countries. Hence, this study is likely to provide results comparable to studies that utilize panel data for SSA countries. The first study on the determinants of public debt in SSA contributes to the existing literature in two important ways. First, whereas much of the recent discussions around the topic employ descriptive methods, this study employs formal econometric methods namely, the pooled OLS, fixed effects, and the GMM-type methods of Arellano-Bond and Arellano-Bover/BlundellBond. While the fixed effects method helps to deal with unobserved country and time-specific fixed effects, the GMM methods go beyond to account for both the dynamic panel bias and the potential endogeneity in the debt-growth relationship. Overall, the aim of employing a variety of panel estimation techniques is to ensure robustness and facilitate the comparison of the results. Second and more important, instead of focusing only on the macroeconomic factors as previous studies have done, this study also accounts for the influence of armed conflict, governance quality, and regime-type, which are uniquely important to SSA countries. Empirical analyses are aided by data on 40 SSA countries spanning 1996-2017. The findings confirm the role of economic, socio-political and institutional variables in explaining the growth of public debt in SSA. Specifically, the study provides compelling evidence supporting the debt-reducing roles of economic growth and governance quality, and the debt-inducing role of conflict. Regarding the policy relevance of these findings, we note that there have been some uncertainties around the growth prospects of SSA countries in recent years. Additionally, the incidence of violent conflict has recently increased (Barrett, 2018), coupled with the low quality of governance and institutions prevalent in many SSA countries. The findings therefore, have relevant policy implications that can contribute to the efforts towards debt sustainability in SSA countries. The second study examines the growth effects of public debt in SSA using an augmented growth model that includes public debt and its squared term to account for the possible presence of a nonlinear effect. Most studies on the effects of debt on growth, particularly following the global financial crisis, have focused mainly on the advanced and emerging countries. Also, most previous studies have assumed that the debt-growth nexus is homogeneous across groups, and that countries are cross-section dependent. This study addresses these issues while focusing on SSA countries. The focus on SSA provides the opportunity to account for the factors that are unique to the sub-region, namely, the quality of institutions and policies, conflict, and adverse terms of trade shocks. The study employs the fixed effects and system GMM methods under the assumption of homogeneity, and the mean group estimators when assuming that the debt-growth nexus is heterogeneous across countries. It employs a dataset comprising 24 SSA countries spanning 1980-2015. This time period is determined by the data on government gross debt to SSA countries in the Historical Public Debt Database as compiled by Abbas et al. (2011). Mainly, the results strongly affirm the non-linear relationship between public debt and growth, and show that the Debt Laffer curve applies to SSA countries. Furthermore, the results confirm the generally low debt-carrying capacity of SSA countries. A key policy implication of the study is the need for SSA countries to acknowledge their limited capacity to sustain large amounts of debt. Additionally, a comparative analysis of short-term and long-term debt highlights the importance of having a balanced debt structure to aid the management of public debt. The third study examines the determinants of public debt and its non-linear effects on economic growth in Nigeria. It contributes to the existing literature in three distinct ways. First, in addition to the macroeconomic factors underlying the evolution of public debt in Nigeria, the study accounts for the influence of socio-political factors, including armed conflict and governance quality. To the best of the researcher's knowledge, this would be the first study to take this approach to the debate in the literature focusing on Nigeria. Second, whereas previous studies on Nigeria have mainly employed the external debt component, this study employs the total public debt, as well as the individual components, internal and external debt, for a more comprehensive analysis of Nigeria's public debt. Third, it focuses on the non-linear aspect of the debt-growth nexus which has also been largely ignored in the literature on Nigeria. The study relies on annual time series data sourced from the Central Bank of Nigeria and World Development Indicators spanning 1970-2017. Empirical analyses are carried out using the auto-regressive distributed lag (ARDL) approach to cointegration. The analyses of the determinants of public debt produced results largely in line with those obtained from the study on SSA countries. Economic variables tend to have a strong influence across the regressions. In particular, government's fiscal position, oil price, the real interest rate, and the real exchange rate, are consistently significant across the regressions. Although armed conflict is significant in the external debt model, it turns out that socio-political variables do not play a significant role in the model for Nigeria. Turning to the question of the debt-growth nexus, this study presents compelling evidence of a nonlinear relationship between public debt and growth for the case of Nigeria, similar to the evidence obtained from the panel of SSA countries. There is, albeit, a difference in the nature of the nonlinear relationship. Whereas the panel study presents several threshold estimates that do not reflect the debt-carrying capacity of SSA countries, this study presents a threshold estimate of 56% for total public debt, which does not differ much from the IMF's sustainable threshold of 45% for Nigeria and other lower-middle income countries. Based on these findings, it is important for the government to exercise restraint on spending by ensuring that deficits are created mainly for profitable investments that can yield future streams of income.
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    The determinants of military expenditure in Rwanda
    (2025) Dlamini, Nakiwe; Nikolaidou, Efi
    Military expenditure is a critical component of every nation's central government budget. Despite its important role, very few studies attempt to investigate the determinants of military expenditure for individual countries in the third world. Most studies have focused on cross country and panel studies largely for developed economies. This study addresses these issues by investigating the determinants of military expenditure in Rwanda, a country that has experienced conflict and civil unrest. No studies for Rwanda had been published, regardless of the growing military expenditure. A range of factors such as economic, political, or strategic conditions can drive the demand for defence expenditure. This paper employs a general model of demand for military expenditure and estimates it using the Autoregressive Distributed Lag (ARDL) approach, over the period 1973 to 2022. The results provide strong evidence that trade openness, foreign direct investment (FDI), democracy, genocide and real GDP per capita play a crucial role in determining military expenditure in Rwanda. According to the conclusions drawn from the study, government initiatives should prioritize trade openness to result in less government spending on the defence sector, which in turn frees up funds for other government projects. Additionally, efforts to attract FDI should be intensified, as FDI inflows can lower the intensity of global conflict, promote cooperation and result to a reduced level of military spending.
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    The Economic Consequences of Population Growth in Malawi
    (2023) Mulipa, Anita; Nikolaidou, Efi
    There is a vast amount of theoretical and empirical literature attempting to establish the impact of population growth on economic growth. Despite the immense amount of research on the topic, there is still no consensus. Malawi presents an interesting case to investigate this issue as it is a small, low-income economy that is experiencing significant population growth. Furthermore, there is no previous economic analysis on the economic impact of population growth in Malawi. This paper, using the ARDL approach to cointegration with World Bank and International Monetary Fund data over the period 1960 to 2021 explores whether the increasing population is beneficial or detrimental to Malawi's economic development. The impacts of investment and total factor productivity on output are also assessed. The results show that increases in population are associated with decreases in GDP per capita in the short run. However, no statistically significant relationship between population and GDP per capita was established in the long run. Furthermore, results indicate that increases in investment are growth endorsing in the short run, while increases in total factor productivity promote growth in both the long run and short run.