Does Current Account Balance Affect Economic Growth? Evidence from Sub-Saharan Africa

Abstract

This study aimed to provide an econometric analysis of the impact of current account balances on economic growth in various subregions of Africa. It utilized the cross-sectional autoregressive distributive lags (CS-ARDL) technique and analyzed data from 1994 to 2022. The result showed that inflation has had an adverse effect on the Gross Domestic Product (GDP) in three specific regions. While the short-run influence of inflation on GDP may not be statistically significant, its long-term impact is notably negative. Foreign Direct Investment (FDI) has a negative effect on GDP in the short run; however, this effect is not statistically significant across the different economies. Over time, Foreign Direct Investment (FDI) has a negligible effect on the GDP in North Africa, but it has a negative and statistically significant influence in Central Africa. These findings emphasize the different regional dynamics in Africa and illustrate the intricate interplay between current account balances and economic growth. In conclusion this study affirmed the necessity for targeted economic strategies to combat inflation and utilize FDI for long-term growth.