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Article
The Sources of Economic Growth in Sub-Saharan African IDB Member Countries
Author(s)
Nosratollah Nafar
Full-Text PDF
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DOI:10.17265/2328-2185/2017.01.002
Affiliation(s)
Nosratollah Nafar, Ph.D., lead economist, Economic Research and Policy Department, Islamic Development Bank, Jeddah Saudi Arabia.
ABSTRACT
The economic growth in Sub-Sahara African (SSA) IDB member countries has been encouraging over the last decade; however, it is still not high enough to enable these countries to overcome the persistent poverty. There is thus a need to raise substantially real GDP growth rates on a sustained basis, both through the productivity channel and factor accumulation such as labor and capital. This study focuses on “the source of economic growth in SSA IDB member countries” with the objective of identifying the main driving factors of economic growth in the region using the growth accounting framework and extending the existing analysis both by country and time coverage. The paper is expected to be useful for the policymakers in the region to have a clear picture on the main sources of growth, and thus help them in identifying strategic reform areas of intervention in line with the most binding factors of growth. The data used in this study cover 20 Sub-Sahara African countries covering the period 1990-2012. The data set includes real GDP, labor force, and capital stock. The source of data is the various version of the World Economic Outlook, IMF. Capital stock is estimated using perpetual inventory method and the base year is 1970. In estimating growth accounting model, a translog production function is applied using panel data and random effects model. Empirical results show that the capital accumulation is the most important individual factor in GDP growth (52%) followed by workforce accumulation (39%) while total factor productivity (TFP) accounts for meagre 8%. This suggests that, on average, real GDP growth in Sub-Sahara African countries was driven primarily by factor accumulation with a low level of TFP. In addition, the elasticity of labor was lower than that of capital indicating that the labor played very little role in GDP growth most likely due to unskilled labor force or mismatch of labor skills with the production process. Furthermore, this also adversely affects both the TFP growth and the share of capital growth to the GDP growth. The results indicate that the critical constraint to the economic growth appears to be poor labor skills that lead to both low labor productivity and under-utilization of capital stock.
KEYWORDS
sustainable economic growth, total factor productivity, factor accumulation, translog production function, perpetual inventory method, random effects model
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