How instability lowers African growth

Abstract

This paper aims to assess the role of instabilities on Africa low rates of growth during the seventies and eighties, using cross-section econometric estimates, on a sample of African and non African countries and two pooled decades. Africa exhibits higher "primary" instabilities (climatic, terms of trade and political instabilities), i.e. instabilities which are structural rather than the result of policy. These "primary" instabilities influence Africa growth, through a lower growth residual more than a lower average rate of investment. They do so by their impact on economic policy, which is evidenced by their influence on two "intermediate" instabilities, the instabilities of the rate of investment and of the real exchange rate, which significantly lower the rate of growth. RésuméCet article vise à apprécier le rôle des "instabilités" dans le faible taux de croissance que les pays africains ont connu au cours des années 70 et 80. Les hypothèses sont testées sur un échantillon de pays africains et non africains, en utilisant un pooling des deux décennies. L'Afrique a connu de plus fortes instabilités "primaires" (instabilités climatiques, de termes de l'échange et sociaux politiques), lesquelles sont structurelles plutôt que le résultat de la politique économique. Ces instabilités primaires influencent la croissance africaine, en abaissant le résidu de croissance plutôt que le taux moyen d'investissement. Elles ont cet effet en raison de leur impact sur la politique économique, ce que fait apparaître leur influence sur deux instabilités "intermédiaires", celle du taux d'investissement et celle du taux de change effectif réel. Ces deux instabilités intermédiaires, elles-mêmes aussi plus élevées en Afrique, diminuent significativement le taux de croissance.

An Economic Vulnerability Index: Its Design and Use for International Development Policy

“…In an earlier study, we estimate the influence of several primary instabilities, mainly exogenous, on the rate of growth, and argue that these instabilities, significantly higher in Sub-Saharan Africa than in other developing countries, may have been a major factor in the region's slow growth rate during the 1970s and 1980s: these instabilities are the instability of the terms of trade, weighted by the average export-to-GDP ratio, or that of the real value of exports, similarly weighted, the instability of the agricultural value added (weighted by the average share of agricultural value added in GDP) and political instability. The first and the third factors appear to have a significant effect on growth, but not that of the agricultural value added (Guillaumont et al 1999). However, in another study, instability of both real value of exports and agricultural value added (unweighted here) appears to be significant (Guillaumont and Chauvet 2001).…”

Aid and growth in Sub‐Saharan Africa: accounting for transmission mechanisms

“…Relative to other regions, SSA is especially susceptible to climatic and agricultural risk and especially vulnerable to terms of trade shocks, famines, political conflict, droughts and, more recently, floods. Guillaumont, Guillaumont-Jeanney and Brun (1999) find that SSA has higher levels of primary instabilities (political, climatic and terms of trade) than other developing-country regions. Such vulnerability is a source of 'economic uncertainty' that may reduce growth rates and help to explain aid ineffectiveness.…”

“…Gyimah-Brempong and Traynor (1999) find that political instability has a direct negative effect on growth and also an indirect effect via discouraging investment. Guillaumont, Guillaumont-Jeanney and Brun (1999) find that primary instabilities in SSA reduce growth by distorting economic policy; the rate of investment is volatile, hence the growth rate is lowered. As discussed in the next section, by including policy indicators (notably inflation), a political variable and investment in our specification we hope to pick up some of these effects.…”

Terms of Trade Instability, Economic Vulnerability and Economic Growth: The Role of Institutions in Sub-Saharan Africa

“…Easterly and al [1993], who analyzed the differences in long-term growth in a panel of countries, found that the impact of terms of trade instability play an important role in explaining the variance of the growth. Guillaumont and Brun [1999] tested the effect of volatile terms of trade on economic growth. Their results show that the effects of shocks of terms of trade on economic growth are more important and significant in the countries of subSaharan Africa than in other developing countries.…”