This land is my land: the Ethio-Sudan boundary and the need to rectify arbitrary colonial boundaries

Ethiopia and Sudan share a common boundary of over 1600 km which was drawn through a series of treaties between Ethiopia and the colonial powers of Britain and Italy. To date, this boundary has not been clearly demarcated. In 2007, the Ethiopian People's Revolutionary Democratic Front, the current ruling government, entered into a secret agreement with the Sudan to make adjustments on the border. This paper identifies the major factors that have frustrated efforts to address the Ethio-Sudan boundary problem and also proposes solutions on how Ethiopia and Sudan could resolve their differences. The analysis reveals that political, social and cultural factors; the decision to adopt the western concept of the boundary; and the failure to recognise the historic and cultural constructs have contributed to the frustration of negotiations on the border. The paper proposes that Ethiopia and Sudan embrace the African Union Border Program, which encourages mutual cooperation, regional integration and the building of communities with strong economic and cultural ties.     

Real interest rate persistence in South Africa: evidence and implications

The real interest rate is a very important variable in the transmission of monetary policy. It features in vast majority of financial and macroeconomic models. Though the theoretical importance of the real interest rate has generated a sizable literature that examines its long-run properties, surprisingly, there does not exist any study that delves into this issue for South Africa. Given this, using quarterly data (1960:Q2-2010:Q4) for South Africa, our paper endeavors to analyze the long-run properties of the ex post real rate by using tests of unit root, cointegration, fractional integration and structural breaks. In addition, we also analyze whether monetary shocks contribute to fluctuations in the real interest rate based on test of structural breaks of the rate of inflation, as well as, Bayesian change point analysis. Based on the tests conducted, we conclude that the South African EPPR can be best viewed as a very persistent but ultimately mean-reverting process. Also, the persistence in the real interest rate can be tentatively considered as a monetary phenomenon.     

Is SADC an optimal currency area? Evidence from the generalized purchasing power parity test

In this paper we investigate the likelihood of a proposed monetary union in the Southern African Development Community (SADC) from the view point of the generalized purchasing power parity (GPPP) hypothesis and optimum currency area theory. We apply Johansen’s multivariate co-integration technique. The findings from this study confirm that GPPP holds among SADC member countries included in this study on account of cointegration and stationarity in real exchange rate series. South African rand normalized long run beta coefficients of all the real exchange rates are below one except in the case of the Mauritian rupee and all bear negative signs except in the case of the Angolan New Kwanza and Mauritian rupee. This is evidence that supports monetary union in the region except for Angola and Mauritius. Moreover, the panel cointegration tests also confirm the cointegration among real exchange rate series of SADC countries. However, the absolute magnitudes of the short run adjustment coefficients of SADC countries’ real exchange rates are low and bear positive signs in some cases. This finding implies that the observed slow speed of adjustment for (log) real exchange rate of SADC member states might constrain the effectiveness of stabilization policies in the wake of external shocks, rendering SADC countries vulnerable to macroeconomic instability in the region. This result has important policy implications for the proposed monetary union in SADC.