Terms of Trade and Growth of Resource Economies: A Tale of Two Countries

The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade (TOT), employing as case studies the following two African countries: Botswana and Nigeria. Using distributed-lag analysis, the paper finds that the effect of TOT on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria but not for Botswana. I further argue that the superior institutional quality (IQ) in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on IQ, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.African resource economies; terms of trade; growth

Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa

This study explores the extent to which inequality affects the impact of income growth on the rates of poverty changes in sub-Saharan Africa (SSA) comparatively with non-SSA, based on a global sample of 1977?2004 unbalanced panel data. For both regions and all three measures of poverty?headcount, gap, and squared gap?the paper finds the impact of GDP growth on poverty reduction as a decreasing function of initial inequality. The impacts are similar in direction for SSA and non-SSA, so that within both regions there are considerable disparities in the responsiveness of poverty to income growth, depending on inequality. Nevertheless, the income?growth elasticity is substantially less for SSA, implying relatively small poverty-reduction sensitiveness to growth compared with the rest of the developing world. Furthermore, the paper finds a considerable variation in the predicted values of the income?growth elasticity across a large number of SSA countries, implying the need for understanding country-specific inequality attributes for effective poverty-reduction strategies.inequality, income growth, poverty, sub-Saharan Africa

Africa's Economic Future: Learning from the Past

Wirtschaftswachstum; Wirtschaftspolitik; Wirkungsanalyse; Governance-Ansatz; Afrika

The External Debt-Servicing Constraint and Public Expenditure Composition: Evidence from African Economies

The paper explores the impact of a binding external debt-servicing constraint on the sectoral composition of government expenditures in the economies of Africa, where this constraint has traditionally been most prevalent. Applying seemingly unrelated regression (SUR) to 1975-94 five-year panel data for 35 countries, the paper finds that the implied debt service burden adversely affects the share of public spending in the social sector, with similar impacts on education and health. Despite evidence that such a burden might also negatively influence public investment, the deleterious implications of debt servicing appear to be primarily a social-sector phenomenon. The partial elasticity on the sector's expenditure share is estimated at 1.5, which is by far the highest among all the explanatory variables considered, including external aid, whose estimated effect on the social sector is positive but with an elasticity of only 0.2. Aid also positively affects public investment with a similar elasticity of 0.2. Constraint on the executive exercises significant positive and negative impacts, respectively, on ...external debt servicing, public expenditure composition, seemingly unrelated regression, African economies

The International Dimension of African Economic Growth

The paper sheds light on the importance of the international dimension for African economic growth. While existing evidence points to a positive impact of openness on growth, the appropriate dynamics of the implications are yet to be captured. The beneficial effects of exports are confirmed for African economies, though available evidence suggests that it is the manufacturing component that seems to really matter for growth. International shocks in the form of terms of trade declines; economic instabilities of capital (investment) and imports; world interest rates; real exchange rate misalignment; and external debt all appear to exercise adverse implications for growth in Africa.International, Africa, Growth

Terms of Trade and Growth of Resource Economies: A Tale of Two Countries

The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade, employing as case studies the two African countries, Botswana and Nigeria.Using distributed-lag analysis, the paper finds that the effect of terms of trade on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria, but not for Botswana.I further argue that the superior institutional quality in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on institutional quality, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.resource economies, terms of trade, growth

Policy Responses to the Economic Crisis in Africa

Africa is the developing region most at risk from the global economic crisis. Its recent strong growth has been interrupted. Already home to the largest number of low-income countries in the world, the region is now likely to experience higher unemployment and poverty; increases in infant mortality; and difficulty coping with longer-lasting effects such as higher school drop-out rates, reductions in health care, environmental degradation and a rise in conflict. Africa therefore needs to recover as quickly as possible. In this policy brief we draw on a number of recent UNU-WIDER studies to discuss the policy options for recovery.financial crisis, developing countries, development finance, financia

Growth, Inequality, and Poverty Reduction in Developing Countries: Recent Global Evidence

The study presents recent global evidence on the transformation of economic growth to poverty reduction in developing countries, with emphasis on the role of income inequality. The focus is on the period since the early-mid-1990s when growth in these countries as a group has been relatively strong, surpassing that of the advanced economies. Both regional and country-specific data are analyzed for the $1.25 and$2.50-level poverty headcount ratios using the most recent World Bank data. The study finds that on average income growth has been the major driving force behind both the declines and increases in poverty. The study, however, documents substantial regional and country differences that are masked by this ‘average’ dominant-growth story. While in the majority of countries, growth was the major factor behind falling or increasing poverty, inequality, nevertheless, played the crucial role in poverty behavior in a large number of countries. And, even in those countries where growth has been the main driver of poverty-reduction, further progress could have occurred under relatively favorable income distribution. For more efficient policymaking, therefore, idiosyncratic attributes of countries should be emphasized. In general, high initial levels of inequality limit the effectiveness of growth in reducing poverty while growing inequality reduces poverty directly for a given level of growth. It would seem judicious, therefore, to accord special attention to reducing inequality in certain countries where income distribution is especially unfavorable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.Growth; inequality; poverty; developing countries.

The Global Economic Crisis: Towards Syndrome-Free Recovery for Africa

This paper outlines the impact of the global economic crisis on Africa. Recovery requires coordinated and consistent efforts to assist individual countries in mitigating (reducing) the risk, coping with the impact, and reducing risk over the longer term. Care should be exercised to maintain and improve good governance, which is essential for African countries to avoid introducing various .anti-growth policy syndromes. into their economies. These could arise if responses to the crisis result in (i) further boom-bust cycles and flaming the historically high volatility of African growth, including inflation, (ii) another debt crisis, (iii) household engaging in adverse coping strategies with lasting impacts; (iv) reversal of gains made in opening up African economies and re-introducing crippling state controls; and (v) entrenchment of inequities and inefficiencies in the global financial and aid architecture.Africa, least developed countries, global economic crisis, financial crisis, governance

Gains from Trade: Implications for Labour Market Adjustment and Poverty Reduction in Africa

This paper reassesses the gains from trade for sub-Saharan Africa, and draws their implications for labour market adjustment and poverty reduction. It reviews previous studies on multilateral liberalization, focusing on the findings from computable general equilibrium (CGE) models with relevance to African economies. The implications of these findings for poverty reduction are discussed. Our own CGE exercise supports the hypothesis that African countries cannot expect substantial gains from further multilateral liberalization. Moreover, given the sharp contraction of import-competing sectors in response to trade liberalization in many African economies, coupled with insufficient compensation through labour market adjustments in other sectors, this study suggests that the ultimate impact on poverty reduction is likely to be small or even negative.trade, openness, liberalization, poverty reduction