Understand growth episodes in Sub-Saharan Africa: Do exogenous shocks matters?

Abstract

ABSTRACT This paper analyzes the effects of exogenous shocks on long-term growth. Additionally, it analyzes episodes of growth acceleration and reversal in 33 sub-Saharan Africa countries over the period 1980–2016. Fixed effects and the generalized method of moments are used to assess the effects of exogenous shocks on long-term growth. The results show that the terms of trade, remittances, and world demand improve long-term growth, while aid reduces it. Growth acceleration and reversal episodes are identified using an improved variant of the filter developed by Hausmann et al. (2005. “Growth Accelerations.” Journal of Economic Growth 10: 303–329). We further used a probit model to evaluate how exogenous shocks affect both growth episodes. Our results show that a favorable shock on the terms of trade, foreign aid and world demand increases the probability of acceleration, while an unfavorable shock on the terms of trade, remittances and world demand increases the probability of a growth reversal. Moreover, we find that economic and political reforms precede growth accelerations. Finally, the results show that growth reversals are associated with higher inflation, lower domestic credit, and civil wars.