The augmented Solow model and the African growth debate*

Abstract

Using panel data the question whether Africa's growth performance can be accounted for is analysed in the framework of the augmented Solow model. OLS levels results suggest that the model cannot fully account for Africa's low growth performance. However, these OLS estimates are likely to suffer from inconsistency and endogeneity problems. As our preferred estimation method we suggest the use of recently developed system generalized method of moments (GMM) estimator. Our system GMM results indicate that the augmented Solow model can account for Africa's low growth performance, provided that we allow for unobserved country specific effects and the endogeneity of investment in estimating the parameters of the model. Hence, rather than concentrating research efforts on the analysis of a spurious Africa dummy, it may be more worthwhile to focus on the continent's low investment ratios and high population growth rates, which we found to be sufficient to explain Africa's low growth rates.