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					    NBER Conference on African Development Successes
      Cambridge, Massachusetts, December 11-12, 2009




Cape Verde and Mozambique as
  Development Successes in
     Sub-Saharan Africa

   Jorge Braga de Macedo & Luís Brites Pereira
Outline

 Motivation
 An Interpretative

  Framework: How
  Globalization &
  Governance interact with
  Convergence
 Empirical Analysis:
  Diversification-
  Convergence: Assessing
  Success in SSA
 Conclusions



                             2
    1- 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.

                                                3
    MDGs, Constituencies for Reform and
    Development 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.
                                                     4
    International 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.
                                                  5
Mutual Knowledge among Community of
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?




                                                           7
   EU, PALOP, CPLP cooperation
The 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.

                                 8
Why Cape Verde & Mozambique?
Widespread recognition that both countries are actively seeking
to overcome adverse developmental conditions due to:

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.


                                                                  9
Cape Verde and ECOWAS - YCAP 1990GK$




                                       11
Mozambique and SADC– YCAP 1990 GK$




                                     12
     19




             0.8
                   0.9
                         1.0
                               1.1
                                     1.2
                                             1.3
                                                         1.4
                                                               1.5
                                                                     1.6
                                                                           1.7
                                                                                 1.8
        50
     19
        53
     19
        56
     19
        59
     19
        62
     19
        65
     19
        68
     19
        71
     19
        74
     19
        77
     19
        80
     19
        83
     19
        86
     19
        89
     19
        92
     19
        95
     19
        98
     20
        01
     20
        04
                                                                                       PALOP vs SSA – YCAP 1990 GK K$




                                           SSA
                                                 PALOP




15
    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);

                                               16
    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.
                                                       24
    2 - 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.


                                                                  30
    How 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.
                                                          31
Globalization, Freedoms and Convergence:
a summary of three way interactions

                                     Convergence




                                                     Freedoms
      Globalization                                    (PRCL)


  Legend:
            Strong link
            Weaker link




 Source: Macedo, Oliveira-Martins, Pereira (2007a)
                                                                32
How do we assess success?
   Study the bi-directional relationship between
    diversification and convergence, given the
    insights of our interpretative framework;
   1) Seek to identify policy and institutional
    determinants of successful export diversification-
    economic convergence combinations for
    ECOWAS and SADC, and
   2) Seek to assess to what extent these apply to
    Cape Verde and Mozambique;
3 - Empirical Analysis
   Model: Meaningful characterization of each
    country’s diversification-convergence, which is
    affected by policy and institutional variables, given
    control variables;
   Economic convergence: use Income gap, given by
    ygapit = 1 – (ypcit / ypcUSA,t), so that gap narrows as
    ypcit increases.
   Export diversification: use the number equivalent
    index (neq5it), which is calculated as the inverse of
    the Herfindahl Index (5-digits, SITC rev.2);
  ECOWAS: Relation between Income
  Gap & Number Equivalent
                                           ECOWAS
INCOME GAP TO FRONTIER vs. NUMBER EQUIVALENT MEASUR
             1



                           NER NER
                          NER LBR SLE
                          NER SLE
                          GNB NER SLE
                          LBR                     SLESLE TGO
                                        GNB         TGO
                                                     TGO
                         NERSLE
                              NER
                        NERNER GIN GNB
                            NER
                             SLE
                         NER GIN
                        GINNER
                            MLI
                       NERMLI GIN GMB
                           GIN
                         GINMLI
                            GIN
                           GIN GIN GNB
                          GIN SLEGIN GMB
                        GIN GINGIN GNB TGO                    TGO
                                                            TGO
                         NERGIN GIN BFA
                           GIN LBR GIN
                           NER
                           GIN
                         GIN GIN
                         GIN
                        NER GIN MLI GIN BFA TGO
                           GIN
                          GIN GNBBFA
                         GIN GINMLI CIV CPV
                       NERGIN
                       GINGIN             TGO TGO TGO       GMB                    GNB
                        NER
                        GINGIN MLI GIN
                       NERMLILBRBFA BFA TGO
                         GIN MLI MLI
                        GINCPV BFA
                        NER MLI GIN GIN
                       NERMLIGMBMLI
                          MLIMLIGMB    GIN
                                     MLI
                                     CIVTGO
                            MLIBFA BFA BFA
                               GINLBR BFA GMB
                             MLI MLILBR
                           LBR BFAMLI
                           GMB MLIBFA
                               MLI
                           GNBLBRCPV GMB
                        NGAGMBBFA BEN GNB
                          GMB SLETGO
                           MLI BFABFA GNB
                               BFA BFA
                                  BFACIV
                         GNB BFABFA BFA
                         GMBBFATGO BEN
                          MLIGIN TGO
                                  MLI TGO
                         GNB MLI BFA
                        NGA MLIGHABFA GIN
                          GNB GNBGNB TGO
                               BFASLE
                        NGA LBRGHA BEN  LBR            GNB
                               MLI BFA
                               MLI BFA
                               GMBGNB
                                SLE BFA
                        LBR GMB GMBTGO
                               BFA SLE
                             LBRGMBLBR LBR
                                      MLI
                       NER GMB SLE GHA MLI
                                 MLI GMB
                            GMBMLILBRGNB GNB SEN SEN
                                 GMB LBR TGO
                                        GMB              SEN GNB            GNB
                              MLIMLIGNBLBR
                                       TGO
                         NER MLI MLI CIV
                                  BFAGNB
                       NERNER MLINERSLE GHA CPV
                                        TGOMLI
                       NGANER GMB MLI CPV NGA
                        NGA BFA CPV SLE LBR
                        NGA MLI
                        NER BFA BENTGO GHAGNB LBR
                            NER
                         NER MLI           CIV LBR GHA
                                CPVBENBFA CPV GHA CPV
                        NGA BFA BENGHA LBR GHA
                                           SLE GHA
       .95




                                        SLE CPV GHA CPV
                       GNB NERGHA GNBCPV SENBEN SEN SEN
                                    MLI BEN
                                          SLE
                       GNB MLIBFA CIVCPV SLE CPV
                       NGA       BEN GNB
                               BEN CIV GHA BEN
                                    GHA NGA
                                 BEN BFA CIV
                       NGA     GHA TGO CPV GHA
                                BFA GHA CIV GHA
                       NGA GHA GHA CIVCIV CPV
                        NGA       GMB GNB
                                  BENBEN
                                    BFA GHA
                                    CPV
                       NGA GMB CPVBFA GHA CPV
                                        BEN                  SEN SEN
                       NGA GMB GNB CPV SLE
                       NGA
                       GNB
                       NGA      GNB GNBCPV CPV
                                 GHA LBR CPVBEN
                               BFA GHA GNB BEN
                                       BEN CIV
                                    TGO BEN
                                      SLE LBR CPV
                                      NGA SLE
                                        SLE BEN
                                     GNB BEN SLE
                                      GMB BEN CPV
                       NGAGMB BFA BENSLECIV
                                                               SEN
                                                              SEN SEN
                                                                     SEN
                                                                           CPV
                             TGO TGO CPVNGA LBR
                             GMBGMB TGO
                                   NER
                                    GHA
                                     BFA BEN CIV
                                       BEN
                            GMB GMB BEN BEN
                                      TGO SLE SLE           SEN
                                                           SEN
                                                             SEN
                           TGOGMB
                          GMB GMB BEN
                            GMB
                       NGATGO GNB SLE LBR
                           TGOGMBTGO
                             GMB GHA
                                GMB
                       NGA TGO GHA
                        NER TGO GNB
                         NER GHA GNB  SLE
                                                SLE
                                                 BEN
                                                       LBRSEN BEN
                                                SEN BEN SEN SEN
                                                       BEN CIV     SEN
                                                                 SEN
                            TGO GHA SLE NGA
                        NER TGO
                                NER
                           GMB SLE LBR SEN
                        NGAGMBTGO
                              TGO                       BEN
                                                  LBR SEN
                                                   BENNGA
                                                       NGA
                                                        SEN
                                                       NGA
                       NGA TGO
ygap




                           TGO
                           GMB
                       NGA TGO             BEN
                                           SLE       CIVNGA
                        NER NGA
                           TGO
                            GMB
                        NGASLE
                             BEN
                         NGASLE SLE
                              BEN
                              BEN
                          NGA SLE
                         NER SEN SLE
                                 GHA
                                        BEN
                                        SLE
                                        SLE
                                         LBR      CIV
                                                      SEN
                                                      SEN
                       NGA SEN SEN              LBR
                         SLE
                       NGA
                         NER BEN
                         SLE
                         NER SEN GHA          CIV CIV
                                              CIV
                         SLE
                        NER SEN
                                     GHA
                        NER SENGHA
                            LBR GHA CIV
                                 GHA
                                    CIV CIV
                                GHA SEN LBR
                                    SEN CIV
                                  GHA CIV   CIV
         .9




                                 GHA
                                  GHA               CIV
                                  CIV LBRLBR LBR
                                 SENCIV
                                   LBR LBR LBR LBR
                                                   LBR
                                GHA CIV        LBR
                                               CIVCIV
                               SEN LBR
                                 SEN
                              SEN CIV
                               GHA CIV LBR
                                  CIV       CIV CIV
                                             CIV
                              LBR CIV CIVCIV CIV
                                             CIV
                              GHA
                             GHA SEN
                             GHA SEN
                              SEN SEN
                              SEN
       .85




                 0                     5                    10                    15
                                                neq5
                 Lowess smoothing, bandwidth = 0.8




                                                                                       36
            ECOWAS country means: Income Gap &
            Number Equivalent
                                           ECOWAS
            INCOME GAP vs NUMBER EQUIVALENT - COUNTRY MEANS
            .98




                             GIN


                                    MLI
            .96




                                             BFA
ygap mean




                   NER                                      GNB
                                                                              CPV
                                                        TGO
                                    GMB
                                                      SLE
                                                                  BEN
            .94




                           NGA

                                                            LBR
                                                      GHA

                                                                                        SEN
            .92




                                                                        CIV

                      2             3           4                   5               6
                                            neq5 mean
                  Lowess smoothing, bandwidth = 0.8




                                                                                         37
   SADC: Relation between Income Gap
   & Number Equivalent
                                        SADC
                  INCOME GAP vs. NUMBER EQUIVALENT
        1



                   ZAR
                  ZARZAR
                   ZAR
                    ZAR
                   ZAR ZAR
                    ZARZAR TZA
                       ZAR TZA
                AGOZARZARTZA TZA
                     ZAR TZA
                AGOTZAZAR TZA TZA
                    ZMB MDG
                      ZMBMDG
                AGOMWIZAR
                     ZMBZAR
                     MWI TZA
                     MWI MDG
                      ZMB ZAR
                   TZAMDGMDG
                                     TZA
                       MWI TZA
                    MWITZA ZWE
                       ZMBTZA
                   ZMBMWIZAR MDG
                    MWI MWITZA
                     ZMB MDG
                        ZMB
                     MWI TZA
                AGO MWIMWI ZWEZWE
                        TZA
                AGOMWIMWI
                    MWIMWI MWI
                        MWI
                AGOTZAMOZ
                  MWIMWIMWI
                    MWIMWI TZA MDG
                  ZMBTZAZAR
                         MDG
                      TZA MDG
                        MDG
                         MWI
                           MWI
                     MWIMWI MOZ ZWE
                    MWITZA MWI
                        MDG ZAR
                 ZMB ZARZAR
                 ZMB LSOZAR
                AGO TZAZAR
                ZMBMOZTZA
                     TZA
                   LSO ZAR MWI
                  ZMBLSO MWI
                          TZA
                           ZAR
                         MWI TZA
                     MWI TZA
                      TZAMOZ
                 ZMB MOZ MOZMWI
                        MWI TZA
                           TZA         MDG
                                        MDG
                                       MDG
                                      MDG
                   TZA MOZ
                 ZMB TZA
                LSOMOZ TZA
                 AGO TZA MOZ ZWE
                    BWA
                  TZA
                    LSO
                AGOMOZ
                LSOMOZLSO
                  AGO ZAR
                   LSO
                ZMB LSO LSO
                    AGO ZAR
                 MOZ MOZ LSO ZWE
                MOZ ZARZAR ZWE ZWE
                 MOZ LSO
                   BWA ZAR            ZWE
                                       MDG
                  LSO ZAR ZWE MDG
                 ZMB LSO MDG ZWE
                 AGO LSO MOZ ZWE
                  LSO LSO MDG ZWE
                    LSO
                     LSO MOZ ZWE MDG
                ZMBLSO LSO MDG ZWE
                ZMB ZAR LSO ZWE LSO
                 ZMBLSO
                    LSO
                 LSO
                 LSO
                      MOZ
                    LSO
                  AGO
                 LSO LSO ZAR
                     MOZ
                    LSO ZAR
                      LSO
                 MOZ LSO ZARMDG
                    BWA
                  ZWE ZWE ZWE
                  ZWE ZWEZWEZWE
                ZMBZMBZWE ZARMDG
                ZMB MDG MOZZWEMOZ
                   ZWE MDG
                    BWA     MOZ MOZ
                          ZWE SWZ
                  ZMB ZMBSWZ
                ZMB ZWE ZAR ZWE
                  ZWE ZWE ZAR
                 BWA
                 ZWEBWAZMB SWZ MDG
                    BWAZWE ZWE MDG
                      BWA ZWEMDG MDG
                          MDGZWE
                    BWAZWE ZWE MDG
                     ZMB
                    ZWE
                    ZWEZMB ZWE MDG
                  BWA BWA MOZMDG MOZ
                                 MOZ
                    ZWE
                   ZWE          MDG
                    SWZMOZ MDG
                        SWZMOZ
                    SWZ AGOMOZ
       .9




                     BWA
                     AGO     MOZMDG
                                MDG
                                MOZ
                         AGOMOZ
                     BWA MOZ MOZ
                    SWZ AGO MOZ
                    SWZ MOZ MOZ
                 BWA AGO NAMAGO AGO
                     SWZ NAM
                 BWA NAM AGO
                        AGO
                      SWZ MOZ   AGO AGO AGO         ZAF
                                                   ZAF ZAF
                     SWZ
                     BWA
                BWAAGO
                BWABWA
                     SWZ
                     SWZ
                   SWZ  MOZ
                      BWA
                      SWZ      AGO
                      SWZ NAM
                 BWA NAM
                      SWZ NAM
                    SWZSWZ
                        BWA
                  BWABWA
                  BWASWZNAM
                   SWZBWA
                    BWA
                    SWZ
                     BWA
                       SWZ
                       BWA
                     SWZ NAM
                      BWA NAM
                      BWA
                       SWZ                               ZAF
                                                        ZAF ZAF
                   SWZ
                   SWZ
                   NAM
                 SWZ  BWA
                    SWZ
                  SWZ
                   SWZ ZAF
                   SWZ
                  NAM          NAM
                             ZAF      NAM NAM
                                     NAM ZAF
                                     ZAF ZAF
                                         ZAF
                                           NAM
                                                NAM      ZAF
                                    ZAF    ZAF
                                             ZAF
                       ZAF                                 ZAF ZAF
ygap




                MUS MUS
                   MUS                                       ZAF
       .8




                MUS
                MUS
                  MUS                                         ZAF
                                                                ZAF
                 MUS                                                    ZAF
                MUSMUS
                 MUS
                 MUSMUS
                      MUS                                     ZAF ZAF
                                                            ZAF ZAF
                                                             ZAF
                    MUS
                 MUSMUS MUS
                    MUS
                   MUS                           ZAF ZAF
                                               ZAF
                                                              ZAF
                MUS
                MUS          MUS       ZAF ZAF ZAF
                                     ZAF ZAF           ZAFZAF
                   MUSMUS MUSMUS ZAF ZAF
                                   ZAF
                                    ZAF
       .7




                          MUS      ZAF
                           MUS
                         MUSMUS
                     MUS
                     MUS
                      MUS
                      MUS
                       MUS
                      MUS
                       MUS
                        MUS
                         MUS
                        MUS
       .6




                        MUS

            0              10              20              30                 40
                                          neq5
            Lowess smoothing, bandwidth = 0.8




                                                                                   38
            SADC country means: Income Gap &
            Number Equivalent
                                               SADC
             INCOME GAP vs NUMBER EQUIVALENT - COUNTRY MEANS
               1



                                 MWI TZA
                                   ZAR
                           ZMB LSO           MDG
                              AGO
                                         ZWE
                                     MOZ
                             BWA
              .9




                                SWZ
ygap mean




                                                 NAM
              .8




                                                                   ZAF




                                 MUS
              .7




                   0               5            10       15   20
                                             neq5 mean
                   Lowess smoothing, bandwidth = 0.9




                                                                     39
ECOWAS, Cape Verde: Income Gap &
Government Deficit – Country Means
                               ECOWAS
INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANS
.98




                                                GIN


                                            MLI
.96




                                                      BFA
             GNB                                NER
             CPV
                                          TGO
                                                              GMB
                                      SLE
                                                BEN
.94




                                                            NGA

                                                                    LBR
                                                            GHA

                                            SEN
.92




                                                  CIV

      -20          -15         -10       -5                  0      5
                                govdef mean
      Lowess smoothing, bandwidth = 0.8




                                                                        40
ECOWAS Income Gap & Government
Deficit – Time Means
                                                                                     ECOWAS
                 INCOME GAP vs GOVERNMENT DEFICIT - TIME MEANS
.97




                                                                             TG
                                                                             S V
                                                                             NI
                                                                             MN O
                                                                             LB N
                                                                             GHB
                                                                             B MA
                                                                             CL IB
                                                                              E
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                                                                              P
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                                                                              FA




                                                                                             TG
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                                                                                                                                                             TG
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                                                                                                                                                              LE
                                                                                                                                                              FA
.96




                                                                                                     TG
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                                        TG
                                        S V
                                        NL
                                        MI O
                                        LB I B
                                        GNN
                                        B HB
                                        C MA
                                         LE
                                         G
                                         E
                                         IR
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                                         FA




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                                                                     TG
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                                                                      LE
                                                                      FA




                                                                                                                                             TG
                                                                                                                                             S V
                                                                                                                                             NI
                                                                                                                                             MN O
                                                                                                                                             LB N
                                                                                                                                             GHB
                                                                                                                                             B MA
                                                                                                                                             CL IB
                                                                                                                                              E
                                                                                                                                              IR
                                                                                                                                              P
                                                                                                                                              G
                                                                                                                                              LE
                                                                                                                                              FA




                                                                                                                                                     TG
                                                                                                                                                     S V
                                                                                                                                                     NI
                                                                                                                                                     MN O
                                                                                                                                                     LB N
                                                                                                                                                     GHB
                                                                                                                                                     B MA
                                                                                                                                                     CL IB
                                                                                                                                                      E
                                                                                                                                                      IR
                                                                                                                                                      P
                                                                                                                                                      G
                                                                                                                                                      LE
                                                                                                                                                      FA




                                                                                                                                     TG
                                                                                                                                     S V
                                                                                                                                     NI
                                                                                                                                     MN O
                                                                                                                                     LB N
                                                                                                                                     GHB
                                                                                                                                     B MA
                                                                                                                                     CL IB
                                                                                                                                      E
                                                                                                                                      IR
                                                                                                                                      P
                                                                                                                                      G
                                                                                                                                      LE
                                                                                                                                      FA




                                                                                                                                                             TG
                                                                                                                                                             S V
                                                                                                                                                             NI
                                                                                                                                                             MN O
                                                                                                                                                             LB N
                                                                                                                                                             GHB
                                                                                                                                                             B MA
                                                                                                                                                             CL IB
                                                                                                                                                              E
                                                                                                                                                              IR
                                                                                                                                                              P
                                                                                                                                                              G
                                                                                                                                                              LE
                                                                                                                                                              FA
.95




                                                    TG
                                                    S V
                                                    NL
                                                    MI O
                                                    LB I B
                                                    GNN
                                                    B HB
                                                    C MA
                                                     LE
                                                     G
                                                     E
                                                     IR
                                                     P
                                                     FA




                               TG
                               S V
                               NL
                               MI O
                               LB I B
                               GNN
                               B HB
                               C MA
                                LE
                                G
                                E
                                IR
                                P
                                FA




        TG
        S V
        NL
        MI O
        LB I B
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        B HB
        C MA
         LE
         G
         E
         IR
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         FA
                     TG
                     S V
                     NL
                     MI O
                     LB I B
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                     B HB
                     C MA
                      LE
                      G
                      E
                      IR
                      P
                      FA


                                                 TG
                                                 S V
                                                 NL
                                                 MI O
                                                 LB I B
                                                 GNN
                                                 B HB
                                                 C MA
                                                  LE
                                                  G
                                                  E
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                                                  FA



                                                                                                                             TG
                                                                                                                             S V
                                                                                                                             NI
                                                                                                                             MN O
                                                                                                                             LB N
                                                                                                                             GHB
                                                                                                                             B MA
                                                                                                                             CL IB
                                                                                                                              E
                                                                                                                              IR
                                                                                                                              P
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                                                                                                                              LE
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.94




                                                                                                     TG
                                                                                                     S V
                                                                                                     NI
                                                                                                     MN O
                                                                                                     LB N
                                                                                                     GHB
                                                                                                     B MA
                                                                                                     CL IB
                                                                                                      E
                                                                                                      IR
                                                                                                      P
                                                                                                      G
                                                                                                      LE
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                                                                                                             TG
                                                                                                             S V
                                                                                                             NI
                                                                                                             MN O
                                                                                                             LB N
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                                                                                                             CL IB
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                                                                                                              P
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                                                                                                                                                                                   TG
                                                                                                                                                                                   S V
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                                                                                                                                                                     TG
                                                                                                                                                                     S V
                                                                                                                                                                     NI
                                                                                                                                                                     MN O
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                                                                                                                                                                      E
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                                                                                                                                                                                                                        TG
                                                                                                                                                                                                                        S V
                                                                                                                                                                                                                        NL
                                                                                                                                                                                                                        MI O
                                                                                                                                                                                                                        LB I B
                                                                                                                                                                                                                        GNB
                                                                                                                                                                                                                        B HA
                                                                                                                                                                                                                        C MN
                                                                                                                                                                                                                         LE
                                                                                                                                                                                                                         FA
                                                                                                                                                                                                                         E
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                                                                                                                                                                                                                         P
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                                                                                                                                                                                                               TG
                                                                                                                                                                                                               S V
                                                                                                                                                                                                               NL
                                                                                                                                                                                                               MI O
                                                                                                                                                                                                               LB I B
                                                                                                                                                                                                               GNB
                                                                                                                                                                                                               B HA
                                                                                                                                                                                                               C MN
                                                                                                                                                                                                                LE
                                                                                                                                                                                                                FA
                                                                                                                                                                                                                E
                                                                                                                                                                                                                IR
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.93




                                                                                                                                                                                            TG
                                                                                                                                                                                            S V
                                                                                                                                                                                            NL
                                                                                                                                                                                            MI O
                                                                                                                                                                                            LB I B
                                                                                                                                                                                            GNB
                                                                                                                                                                                            B HA
                                                                                                                                                                                            C MN
                                                                                                                                                                                             LE
                                                                                                                                                                                             FA
                                                                                                                                                                                             E
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                                                                                                                                                                                             P
                                                                                                                                                                                             G



                                                                                                                                                                                                     TG
                                                                                                                                                                                                     S V
                                                                                                                                                                                                     NL
                                                                                                                                                                                                     MI O
                                                                                                                                                                                                     LB I B
                                                                                                                                                                                                     GNB
                                                                                                                                                                                                     B HA
                                                                                                                                                                                                     C MN
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                                                                                                                                                                                                      FA
                                                                                                                                                                                                      E
                                                                                                                                                                                                      IR
                                                                                                                                                                                                      P
                                                                                                                                                                                                      G




      -10                     -8                                                        -6                                                                                    -4                              -2
                                                                                     govdef mean
      Lowess smoothing, bandwidth = 0.8
            SADC, Mozambique: Income Gap &
            Government Deficit – Country Means
                                               SADC
             INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANS
               1



                                                       MWI
                                                        TZA          ZAR
                          LSO                                 ZMB   MDG
                                                                     ZWE
                                                       MOZ
                                                                                 BWA
              .9




                                                                                 SWZ
ygap mean



              .8




                                                                           ZAF




                                                                                     MUS
              .7




                   -25          -20        -15       -10             -5          0
                                            govdef mean
                   Lowess smoothing, bandwidth = 0.8




                                                                                           42
SADC: Income Gap & Government Deficit
– Time Means
                                                                                                SADC
      INCOME GAP vs GOVERNMENT DEFICIT - TIME MEANS
.92




                                                                                                                                        T F I
                                                                                                                                        SS
                                                                                                                                        NA
                                                                                                                                        MG O
                                                                                                                                        LM Z
                                                                                                                                        BZ A
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                                                                                                                                        ZA E
                                                                                                                                          A
                                                                                                                                          M
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                                                                                                                                          US
                                                                                                                                          W
                                                                                                                                          DG
                                                                                                                                          R Z




                                                                                                                 T F Z
                                                                                                                 SM I
                                                                                                                 NA
                                                                                                                 MZ O
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                                                                                                                 BW Z
                                                                                                                 AG E
                                                                                                                 ZA A
                                                                                                                   M
                                                                                                                   US
                                                                                                                   W
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                                                                                                                   O
                                                                                                                   R
                                                                                                                   A




                                                               T F I
                                                               SS
                                                               NA
                                                               MM B
                                                               LZ Z
                                                               BW E
                                                               AG A
                                                               ZA O
                                                                 M
                                                                 US
                                                                 W
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                                                                 R Z
                                                                 A




                                                                       T F I
                                                                       SS
                                                                       NA
                                                                       MM B
                                                                       LZ Z
                                                                       BW E
                                                                       AG A
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                                                                         A
                                                                         R Z
                                                                         US
                                                                         W
                                                                         DG
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                                                                         M                                                     T F I
                                                                                                                               SS
                                                                                                                               NA
                                                                                                                               MG O
                                                                                                                               LM Z
                                                                                                                               BZ A
                                                                                                                               AW B
                                                                                                                               ZA E
                                                                                                                                 A
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                                                                                                                                 O
                                                                                                                                 US
                                                                                                                                 W
                                                                                                                                 DG
                                                                                                                                 R Z
                                                                                                                                                                                           T F Z
                                                                                                                                                                                           SM I
                                                                                                                                                                                           NA
                                                                                                                                                                                           MZ O
                                                                                                                                                                                           LS B
                                                                                                                                                                                           BW Z
                                                                                                                                                                                           AG E
                                                                                                                                                                                           ZA A
                                                                                                                                                                                             M
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                                                                                                                                                                                             R
                                                                                                                                                                                             A

                                                                                                                             T F I
                                                                                                                             SS
                                                                                                                             NA
                                                                                                                             MG O
                                                                                                                             LM Z
                                                                                                                             BZ A
                                                                                                                             AW B
                                                                                                                             ZA E
                                                                                                                               M
                                                                                                                               O
                                                                                                                               US
                                                                                                                               W
                                                                                                                               DG
                                                                                                                               R Z
                                                                                                                               A

                                                                                                                                                                                                                            T F I
                                                                                                                                                                                                                            SS
                                                                                                                                                                                                                            NA
                                                                                                                                                                                                                            MG O
                                                                                                                                                                                                                            LM B
                                                                                                                                                                                                                            BZ Z
                                                                                                                                                                                                                            AW E
                                                                                                                                                                                                                            ZA A
                                                                                                                                                                                                                              M
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                                                                                                                                                                                                                              R Z
                                                                                                                                                                                                                              A
                                                                                                                                                                   T F I
                                                                                                                                                                   SS
                                                                                                                                                                   NA
                                                                                                                                                                   MG O
                                                                                                                                                                   LM Z
                                                                                                                                                                   BZ A
                                                                                                                                                                   AW B
                                                                                                                                                                   ZA E
                                                                                                                                                                     A
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                                                                                                                                                                     US
                                                                                                                                                                     W
                                                                                                                                                                     DG
                                                                                                                                                                     R Z
                                                                                                                                                                                                   SM I
                                                                                                                                                                                                   NA
                                                                                                                                                                                                   MZ O
                                                                                                                                                                                                   LS Z
                                                                                                                                                                                                   BW A
                                                                                                                                                                                                   AG B
                                                                                                                                                                                                   ZA E
                                                                                                                                                                                                   T F Z
                                                                                                                                                                                                     A
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                                                                                                                                                                                                     O
                                                                                                                                                                                                     US
                                                                                                                                                                                                     W
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                                                                                                                                                                                                     R
                                                                               T F Z
                                                                               SM I
                                                                               NA
                                                                               MZ B
                                                                               LS Z
                                                                               BW E
                                                                               AG A
                                                                               ZA O
                                                                                 R
                                                                                 A
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                                                                                 W
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                                                                                 O
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                                                                                                                                                           T F I
                                                                                                                                                           SS
                                                                                                                                                           NA
                                                                                                                                                           MG O
                                                                                                                                                           LM Z
                                                                                                                                                           BZ A
                                                                                                                                                           AW B
                                                                                                                                                           ZA E
                                                                                                                                                             M
                                                                                                                                                             O
                                                                                                                                                             US
                                                                                                                                                             W
                                                                                                                                                             DG
                                                                                                                                                             R Z
                                                                                                                                                             A
                                                                                                                                                   T F I
                                                                                                                                                   SS
                                                                                                                                                   NA
                                                                                                                                                   MG O
                                                                                                                                                   LM Z
                                                                                                                                                   BZ A
                                                                                                                                                   AW B
                                                                                                                                                   ZA E
                                                                                                                                                     A
                                                                                                                                                     M
                                                                                                                                                     O
                                                                                                                                                     US
                                                                                                                                                     W
                                                                                                                                                     DG
                                                                                                                                                     R Z



                                                       T F Z
                                                       SM I
                                                       NA
                                                       MZ B
                                                       LS Z
                                                       BW E
                                                       AG A
                                                       ZA O
                                                         R
                                                         A
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                                                         W
                                                         DG
                                                         O
                                                         M
.91




                                                                                                                                T F I
                                                                                                                                SS
                                                                                                                                NA
                                                                                                                                MG O
                                                                                                                                LM Z
                                                                                                                                BZ A
                                                                                                                                AW B
                                                                                                                                ZA E
                                                                                                                                  M
                                                                                                                                  O
                                                                                                                                  US
                                                                                                                                  W
                                                                                                                                  DG
                                                                                                                                  R Z
                                                                                                                                  A




                                                                                        T F Z
                                                                                        SM I
                                                                                        NA
                                                                                        MZ B
                                                                                        LS Z
                                                                                        BW E
                                                                                        AG A
                                                                                        ZA O
                                                                                          R
                                                                                          A
                                                                                          US
                                                                                          W
                                                                                          DG
                                                                                          O
                                                                                          M




                                                                                                 T F I
                                                                                                 SS
                                                                                                 NA
                                                                                                 MM B
                                                                                                 LZ Z
                                                                                                 BW E
                                                                                                 AG A
                                                                                                 ZA O
                                                                                                   A
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                                                                                                   US
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                                                                                                   O
                                                                                                   R Z




                                       SM I
                                       NA
                                       MZ B
                                       LS Z
                                       BW E
                                       AG A
                                       ZA O
                                       T F Z
                                         A
                                         M
                                         US
                                         W
                                         DG
                                         O
                                         R




                               T F I
                               SS
                               NA
                               MM B
                               LZ Z
                               BW E
                               AG A
                               ZA O
                                 R Z
                                 A
                                 US
                                 W
                                 DG
                                 O
                                 M
                       T F I
                       SS
                       NA
                       MM B
                       LZ Z
                       BW E
                       AG A
                       ZA O
                         R Z
                         A
                         US
                         W
                         DG
                         O
                         M
  .9




                       T F I
                       SS
                       NA
                       MM B
                       LZ Z
                       BW E
                       AG A
                       ZA O
                         R Z
                         A
                         US
                         W
                         DG
                         O
                         M




                                               T F Z
                                               SM I
                                               NA
                                               MZ B
                                               LS Z
                                               BW E
                                               AG A
                                               ZA O
                                                 A
                                                 M
                                                 US
                                                 W
                                                 DG
                                                 O
                                                 R




                                                                                                         T F Z
                                                                                                         SM I
                                                                                                         NA
                                                                                                         MZ B
                                                                                                         LS Z
                                                                                                         BW E
                                                                                                         AG A
                                                                                                         ZA O
                                                                                                           R
                                                                                                           A
                                                                                                           M
                                                                                                           US
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                                                                                                                                                                                                            T F I
                                                                                                                                                                                                            SS
                                                                                                                                                                                                            NA
                                                                                                                                                                                                            MG B
                                                                                                                                                                                                            LM Z
                                                                                                                                                                                                            BZ E
                                                                                                                                                                                                            AW A
                                                                                                                                                                                                            ZA O
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                                                                                                                                                                                                              R Z
                                                                                                                                                                                                              A



                                                                                                                                                                                                                                    T F I
                                                                                                                                                                                                                                    SS
                                                                                                                                                                                                                                    NA
                                                                                                                                                                                                                                    MG O
                                                                                                                                                                                                                                    LM B
                                                                                                                                                                                                                                    BZ Z
                                                                                                                                                                                                                                    AW E
                                                                                                                                                                                                                                    ZA A
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                                                                                                                                                                                                                                      US
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                                                                                                                                                                                                                                      O
                                                                                                                                                                                                                                      R Z
                                                                                                                                                                                                                                      A




                                                                                                                     T F I
                                                                                                                     SS
                                                                                                                     NA
                                                                                                                     MG O
                                                                                                                     LM Z
                                                                                                                     BZ A
                                                                                                                     AW B
                                                                                                                     ZA E
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                                                                                                                       US
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                                                                                                                       R Z
                                                                                                                       A




                                                                                                 T F I
                                                                                                 SS
                                                                                                 NA
                                                                                                 MM B
                                                                                                 LZ Z
                                                                                                 BW E
                                                                                                 AG A
                                                                                                 ZA O
                                                                                                   A
                                                                                                   R Z
                                                                                                   US
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                                                                                                   O
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                                                                                                                                                                                                    T F Z
                                                                                                                                                                                                    SM I
                                                                                                                                                                                                    NA
                                                                                                                                                                                                    MZ O
                                                                                                                                                                                                    LS B
                                                                                                                                                                                                    BW Z
                                                                                                                                                                                                    AG E
                                                                                                                                                                                                    ZA A
                                                                                                                                                                                                      A
                                                                                                                                                                                                      M
                                                                                                                                                                                                      US
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                                                                                                                                                                                                      O
                                                                                                                                                                                                      R
                                                                                                                                                                                                                    T F I
                                                                                                                                                                                                                    SS
                                                                                                                                                                                                                    NA
                                                                                                                                                                                                                    MG Z
                                                                                                                                                                                                                    LM A
                                                                                                                                                                                                                    BZ O
                                                                                                                                                                                                                    AW B
                                                                                                                                                                                                                    ZA E
                                                                                                                                                                                                                      M
                                                                                                                                                                                                                      O
                                                                                                                                                                                                                      US
                                                                                                                                                                                                                      W
                                                                                                                                                                                                                      DG
                                                                                                                                                                                                                      R Z
                                                                                                                                                                                                                      A




                                                                                                                                                                                                                                              T F I
                                                                                                                                                                                                                                              SS
                                                                                                                                                                                                                                              NA
                                                                                                                                                                                                                                              MG O
                                                                                                                                                                                                                                              LM B
                                                                                                                                                                                                                                              BZ Z
                                                                                                                                                                                                                                              AW E
                                                                                                                                                                                                                                              ZA A
                                                                                                                                                                                                                                                M
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                                                                                                                                                                                                                                                O
                                                                                                                                                                                                                                                R Z
                                                                                                                                                                                                                                                A
.89




                                                                                                                                           T F I
                                                                                                                                           SS
                                                                                                                                           NA
                                                                                                                                           MG O
                                                                                                                                           LM Z
                                                                                                                                           BZ A
                                                                                                                                           AW B
                                                                                                                                           ZA E
                                                                                                                                             M
                                                                                                                                             O
                                                                                                                                             US
                                                                                                                                             W
                                                                                                                                             DG
                                                                                                                                             R Z
                                                                                                                                             A                             T F I
                                                                                                                                                                           SS
                                                                                                                                                                           NA
                                                                                                                                                                           MG O
                                                                                                                                                                           LM Z
                                                                                                                                                                           BZ A
                                                                                                                                                                           AW B
                                                                                                                                                                           ZA E
                                                                                                                                                                             A
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                                                                                                                                                                             US
                                                                                                                                                                             W
                                                                                                                                                                             DG
                                                                                                                                                                             R Z                                                              SS
                                                                                                                                                                                                                                              NA
                                                                                                                                                                                                                                              MG O
                                                                                                                                                                                                                                              LM B
                                                                                                                                                                                                                                              BZ Z
                                                                                                                                                                                                                                              AW E
                                                                                                                                                                                                                                              ZA A
                                                                                                                                                                                                                                              T F I
                                                                                                                                                                                                                                                A
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                                                                                                                                                                                                                                                O
                                                                                                                                                                                                                                                R Z




                                                                                                                                                                                                                                      T F I
                                                                                                                                                                                                                                      SS
                                                                                                                                                                                                                                      NA
                                                                                                                                                                                                                                      MG O
                                                                                                                                                                                                                                      LM Z
                                                                                                                                                                                                                                      BZ A
                                                                                                                                                                                                                                      AW B
                                                                                                                                                                                                                                      ZA E
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                                                                                                                                                                                                                                        R Z
                                                                                                                                                                                                                                        A




                                                                                                                                                                                                                                                              T F I
                                                                                                                                                                                                                                                              SS
                                                                                                                                                                                                                                                              NA
                                                                                                                                                                                                                                                              MG O
                                                                                                                                                                                                                                                              LM Z
                                                                                                                                                                                                                                                              BZ A
                                                                                                                                                                                                                                                              AW B
                                                                                                                                                                                                                                                              ZA E
                                                                                                                                                                                                                                                                M
                                                                                                                                                                                                                                                                O
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                                                                                                                                                                                                                                                                W
                                                                                                                                                                                                                                                                DG
                                                                                                                                                                                                                                                                R Z
                                                                                                                                                                                                                                                                A



                                                                                                                                                                                   T F I
                                                                                                                                                                                   SS
                                                                                                                                                                                   NA
                                                                                                                                                                                   MG O
                                                                                                                                                                                   LM Z
                                                                                                                                                                                   BZ A
                                                                                                                                                                                   AW B
                                                                                                                                                                                   ZA E
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                                                                                                                                                                                     W
                                                                                                                                                                                     DG
                                                                                                                                                                                     R Z
                                                                                                                                                                                     A




                                                                                                                                                                                                                                              T F I
                                                                                                                                                                                                                                              SS
                                                                                                                                                                                                                                              NA
                                                                                                                                                                                                                                              MG O
                                                                                                                                                                                                                                              LM Z
                                                                                                                                                                                                                                              BZ A
                                                                                                                                                                                                                                              AW B
                                                                                                                                                                                                                                              ZA E
                                                                                                                                                                                                                                                A
                                                                                                                                                                                                                                                M
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                                                                                                                                                                                                                                                US
                                                                                                                                                                                                                                                W
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                                                                                                                                                                                                                                                R Z



                                                                                                                                                                                                                                              T F I
                                                                                                                                                                                                                                              SS
                                                                                                                                                                                                                                              NA
                                                                                                                                                                                                                                              MG O
                                                                                                                                                                                                                                              LM Z
                                                                                                                                                                                                                                              BZ A
                                                                                                                                                                                                                                              AW B
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                                                                                                                                                                                                                                                      NA
                                                                                                                                                                                                                                                      MZ Z
                                                                                                                                                                                                                                                      LS A
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.88




       -15                                             -10                                                                                                                 -5                                                                                                 0
                                                                                       govdef mean
        Lowess smoothing, bandwidth = 0.8
          ECOWAS, Cape Verde: Freedoms
                                                        ECOWAS
                         ECONOMIC vs POLITICAL FREEDOM - COUNTRY MEANS
                      GIN
          5.5




                                               CIV
                                                               BFA                          GMB
                                                                 BEN             SEN CPV
                                                              MLI
                                         NER
                5




                                TGO

                                                        SLE
ef mean


          4.5




                                                                 NGA
                4




                                                                  GHA


                                                 GNB
          3.5




                            2            2.5            3              3.5   4             4.5
                                                        prcl mean
                    Lowess smoothing, bandwidth = 0.8




                                                                                                 44
          SADC, Mozambique: Freedoms
                                                       SADC
                    ECONOMIC vs POLITICAL FREEDOM - COUNTRY MEANS
                                              SW Z                               NAM
           6




                                                                       ZAF             BW A MUS
           5




                                             MOZ
                                                            LSO
                                             MWI
                                                ZWE       ZMB MDG
                                            TZA
ef mean



           4




                            ZAR
           3




                          AGO
           2




               1                  2                3               4         5          6
                                                       prcl mean
               Lowess smoothing, bandwidth = 0.8




                                                                                            45
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).
Model
(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: Panel data t = 1960-2004 and i = 1,…, N
countries;
 Explanatory variables: policy (inflation, government
deficit and degree of openness) and institutional (political
and economic freedom, age of constitution, age of
democracy, number of prior transitions to dictatorship).
{Zi} is a set of control variables.
ECOWAS vs SADC – High Regime
        ECOWAS               SADC
    ygap ↓ → neq5 ↑     ygap ↓ → neq5 ↑
    neq5 ↑ → ygap ↓     neq5 ↑ → ygap ↓
    open ↑   → ygap ↓

    govdef ↑ → neq5 ↓   govdef ↑ → neq5 ↑
     open ↑ → neq5 ↓


                         prcl ↑ → ygap ↓
                          ef ↑ → ygap ↓

     prcl ↑ → neq5 ↑     prcl ↑ → neq5 ↓
      ef ↑ → neq5 ↑       ef ↑ → neq5 ↓
    legaleng → ygap ↓
       ECOWAS, Cape Verde: Income Gap &
       Gvt. Deficit – Regimes, Country Means
                             ECOWAS
       INCOME GAP vs GOVERNMENT DEFICIT - COUNTRY MEANS
       .98
       .96
ygap
       .94
       .92
         .9




              -20      -10             0         10
                              govdef

                             LOW       FULL
                             HIGH




                                                  58
  ECOWAS, Cape Verde: Income Gap &
  Inflation – Regimes, Country Means
                            ECOWAS
              INCOME GAP vs INFLATION - COUNTRY MEANS
       .98
       .96
ygap
       .94
       .92
         .9




              0      10     20           30          40   50
                              inflation1

                             LOW              FULL
                             HIGH




                                                           59
ECOWAS: Income Gap & Openness –
Regimes, Country Means
                       ECOWAS
         INCOME GAP vs OPENNESS - COUNTRY MEANS
  .98
  .96
ygap
 .94
  .92
    .9




          20     40     60        80          100   120
                          open1

                        LOW            FULL
                        HIGH




                                                          60
ECOWAS Economic vs Political Freedom
across Regimes
                               ECOWAS
                ECONOMIC vs POLITICAL FREEDOM
  6
5.5
ef
5
4.5
  4




            2                         4            6
                                     prcl

                                 LOW        FULL
                                 HIGH
      Lowess smoothing, bandwidth = 0.8
SADC Economic vs Political Freedom
across regimes
                     SADC
          ECONOMIC vs POLITICAL FREEDOM
 7
 6
ef
54
 3




      2         3        4       5        6
                       prcl

                    LOW       FULL
                    HIGH
Freedoms: 2SLS Results

              ECOWAS            SADC

            ygap   neq5   ygap     neq5

 Between                   EF          EF
  Effects                 PRCL


   Fixed    EF      EF     EF          EF
  Effects          PRCL




                                            63
Cape Verde, Mozambique Results
                               ygap                       neq5
  Cape Verde                -0.299***                    0.438**
                             (-3.267)                    (2.346)
       Senegal              -0.370***                    0.504**
                             (-6.040)                    (4.982)
     Mauritius              -0.833***
                             (-5.429)
 Mozambique                 -0.728***                   -1.313***
                             (-4.403)                    (-4.507)

 Full sample: t-statistics in parentheses *** p<0.01, ** p<0.05, * p<0.1



                                                                           64
  Cape Verde vs ECOWAS: Income Gap
             CAPE VERDE vs. ECOWAS
              INCOME GAP TO FRONTIER
.98
.96
.94
.92




      1960   1970    1980     1990     2000
                       year

                    ECOWAS      CPV




                                              65
Cape Verde vs ECOWAS: NEQ
            CAPE VERDE vs. ECOWAS
               NUMBER EQUIVALENT
12
10
 8
 6
 4
 2




     1960   1970    1980     1990    2000
                      year

                   ECOWAS      CPV




                                            66
Mozambique vs SADC: Income Gap
              MOZAMBIQUE vs. SADC
                     INCOME GAP
.96
.94
.92
  .9
.88




       1960   1970    1980        1990   2000
                        year

                      SADC        MOZ




                                                68
Mozambique vs SADC: NEQ
            MOZAMBIQUE vs. SADC
               NUMBER EQUIVALENT
15
10
 5
 0




     1960   1970    1980     1990   2000
                      year

                    SADC     MOZ




                                           69
    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 .
Thank you for your attention.




                                73

				
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