Abstract
The extreme volatile behavior of Africa’s output and consumption is strongly related to the extent of exposure to external shocks in its trade earnings. The volatility of export earnings inherent in African economies depicts trade and export structure not diversified, and the need for development managers in easing the over-arching dependence on commodity exports earnings as a major source of budget financing. This study investigates the effect of commodity price volatility on real GDP using a longitudinal data covering fifty-three African commodity-dependent countries for the period 1970–2017. The theoretical framework is premised on the neoclassical growth model, and the system generalized method of moments (SGMM) estimation technique was adopted. The results from the estimation procedure indicate a negative contemporaneous relationship between commodity price volatility and growth. However, the intervention of policy instruments such as contrasting openness degree signals short-run relief for commodity export-dependent economies, as trade policy mitigates the adverse effect of commodity price volatility on growth.
Highlights
Price and earnings fluctuations associated with commodity exports placed severe impediments on the foreign earnings stability of developing African economies (Van der Ploeg & Poelhekke, 2009; McGregor, 2017)
This study investigates the effect of commodity price volatility on real GDP using a longitudinal data covering fifty-three African commodity-dependent countries for the period 1970–2017
Of all the sixty-five economies in the world receiving over 65 percent from primary commodity exports, forty-six nations are from developing Africa, representing about 71 percent (Ogundipe, 2016; UNCTAD, 2018)
Summary
Price and earnings fluctuations associated with commodity exports placed severe impediments on the foreign earnings stability of developing African economies (Van der Ploeg & Poelhekke, 2009; McGregor, 2017). Given the position of African economies, concerning the negative effects of food price volatility on food security and economic welfare, there is a need to build a dynamic economy in addressing the widening threat of unemployment This can be achieved via urgent attention by the policymakers in launching several initiatives to affect timely and coordinated responses to the volatility menace in the short run since structural transformation takes a longer period. A prominent short-run policy option and actions to mitigate the adverse effect of price volatility, reinforce domestic food sufficiency and strengthen the growth potential of the economy will be an import restriction via several measures including outright restriction, imposition of tariffs and quotas to reduce foreign dominance of food and consumer products. In line with industrialization policies, this will enable African economies to mitigate the adverse effect of primary commodity dependence in the short to medium term and drastically reduce dependence in the long run due to diversification and expansion of the export base
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