Threshold Effect of Raw Material Prices on Economic Growth of African Countries

Abstract

We study the nonlinear effects of raw material prices measured by that of cotton product on the economic growth of a sample of African countries for the period of 1991–2019. Using the procedure for determining endogenous thresholds (Hansen, 1999) [Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93, 345–368], the study revealed that raw material prices positively affect economic growth when the prices reach a threshold above 96.1. These results indicate that to be effective, any economic policy measure aimed at accelerating the economic growth of these commodity-dependent countries must take into account the level of raw material price indices, the quality of governance and the level of financial development.

Monetary Policy and Governance, Commodity Price Volatility and Tax Revenues in Sub-Saharan Africa

“…Indeed, the positive impacts of institutional quality on revenue mobilization have been well documented in the economic literature (Estrada, Mutascu and Tiwari 2014;Torgler 2005). Equally, there is a growing literature highlighting the mediating role of institutional quality in the achievement of economic outcomes such as economic growth (Duodu andBaidoo 2022 andHoungbedji andAntonakakis et al 2017) and fiscal policy (Kaya and Kaya 2020). Therefore, new evidence on the role of monetary policy and governance in the relationship between CPV and fiscal performance in the Sub-Saharan African region is needed.…”

“…Indeed, the mediating role of governance and institutional quality in the achievement of economic outcomes such as economic growth and tax revenues has been highlighted (Houngbedji and Bassongui 2021;Duodu and Baidoo 2022;Antonakakis et al 2017). Third and methodologically, we relax the hypothesis of linearity by assuming that the effect of CPV on tax revenues depends on the degree of volatility (Oluseun Olayungbo 2021;Houngbedji 2021). Lastly, we compute a CPV indicator, namely semivariance that holds only the negative extreme values in the distribution of commodity prices (Hong Vo 2021).…”

“…In addition, there has been a decrease in tax mobilization (1.8% from the average) over the past two decades in Sub-Saharan Africa (World Bank 2020). Jacquemot and Raffinot (2019) attribute these decreases to the liberalization of trade and the fiscal transition in several economic and monetary zones in Africa such as the West African Economic and Monetary Union (WAEMU), the Central African Economic and Monetary Community (CEMAC), and the African Continental Free Trade Area (AfCFTA), leading to a drop in customs tax revenues. While facing high commodity price fluctuations, this decline in fiscal performance could also be linked to the heavy dependence on commodity exports in the majority of Sub-Saharan African countries.…”