The Comparative Economics of Catch-Up in Output per worker, total factor productivity and technological gain in Sub-Saharan Africa

After investigating the effect of external financial flows on total factor productivity and technological gain, we use the beta catch-up and sigma convergence to compare dispersions in output per worker, total factor productivity and technological gain in Sub-Saharan Africa (SSA) for the years 1980-2010. The comparative evidence is articulated with income levels, years of schooling, and health factors. We find; first, a positive association between foreign direct investment, trade openness, foreign aid, remittances and total factor productivity. However, when foreign direct investment is interacted with schooling, it is direct effect becomes negative on total factor productivity. Second, beta catch-up is between19.22% and 19.70% per annum with corresponding time to full catch-up of 25.38 years and 26.01 years respectively. Third, we find sigma-convergence among low-income nations and upper-middle income nations separately, but not for the entire sample together. Fourth, schooling in SSA is not yet a significant source of technology, but it can make external financial inflows more effective. Policies to induce external financial flows are not enough for development if absorptive capacity is low. More policy implications are discussed

Convergence in Sub-Saharan Africa: a nonstationary panel data approach

Given the development of time series econometrics and nonstationary data analysis, St. Aubyn (Empirical Economics, 24, 23–44, 1999) demonstrates a new paradigm for testing income convergence, or better defined, income stability, namely testing the stationarity of pair-wise income differentials. In this paper, a panel data set of Sub-Saharan African countries is constructed and panel cointegration and unit root tests are used to investigate the convergence properties of incomes and standards of living within Africa. Overall, little evidence is found to substantiate claims of convergence across Africa, although in some cases, smaller convergence clubs within Africa may be found. In addition the use of nonstationary panel data techniques is proposed for the testing and establishing of coherent convergence clubs.

Testing for Panel Cointegration with Multiple Structural Breaks

This paper proposes a Lagrange multiplier (LM) test for the null hypothesis of cointegration that allows for the possibility of multiple structural breaks in both the level and trend of a cointegrated panel regression. The test is general enough to allow for endogenous regressors, serial correlation and an unknown number of breaks that may be located at different dates for different individuals. We derive the limiting distribution of the test and conduct a small Monte Carlo study to investigate its finite sample properties. In our empirical application to the solvency of the current account, we find evidence of cointegration between saving and investment once a level break is accommodated. Copyright 2006 Blackwell Publishing Ltd.

ESTIMATING EXCHANGE RATE AND BILATERAL TRADE BALANCE RELATIONSHIPS: THE EXPERIENCE OF SUB-SAHARAN AFRICAN COUNTRIES

This paper examines the effects of exchange rate changes on the bilateral trade balance of ten African countries vis-à-vis the US using annual data over period 1977-2002. Both the Johansen and panel cointegration tests find cointegration among the series. The country FMOLS results show that real exchange rate depreciation improves the trade balance in six of ten countries in contrast to Tanzania in which it worsens the trade balance, with no effect found in Ghana, Morocco and Senegal. Foreign real income improves the trade balance in two countries but worsens it in another three. Finally, domestic real income negatively affects the trade balance in four countries but improves it in another three. The three-panel coefficients are correctly signed and significant at the 1% level. Copyright (c) 2007 The Authors. Journal compilation (c) 2007 Economic Society of South Africa.