Export Instability and Economic Growth in Sub-Saharan Africa

Abstract

Empirical research on the relationship between export instability and economic growth in less developed countries (LDCs) has yielded mixed results. While some researchers find a negative relationship between export instability and economic growth, others find a positive relationship. A third group of researchers finds no significant relationship between export instability and economic growth in LDCs.1 Those who find a negative relationship between export instability and economic growth in LDCs stress the negative effect export instability has on the supply of output through the generation of uncertainty in long-term planning as well as due to shortages of inputs at critical times during the production process. Those who find a positive relationship between export instability and economic growth argue that LDCs respond to export instability by reducing consumption. This process, if repeated over a period of time, increases savings and hence the rate of investment. Those who find no significant relationship between export instability and economic growth argue that LDCs are able to anticipate the fluctuations in export earnings and plan for such fluctuations; hence instability in export earnings has no appreciable effect on economic growth. C. Moran investigates the relationships between domestic savings rate and economic growth rate on the one hand and export instability on the other, in a sample of LDCs.2 He finds that export instability has no significant long-run impact on either domestic savings rate or economic growth rate. However, over relatively short periods of time, export instability has a negative and significant effect on both savings and economic growth rate. The negative effect occurs when the negative effects of price and of quantity fluctuations reinforce each other. On the other hand, when the negative effect of price fluctuations is counterbalanced by the effects of quantity fluctuations, export instabil-