Academic journal article Journal of Economics and Economic Education Research

Modeling Africa's Economic Growth

Academic journal article Journal of Economics and Economic Education Research

Modeling Africa's Economic Growth

Article excerpt

INTRODUCTION

Over the last decades, economic growth and its determinants have been of great importance in both theoretical and applied studies. This is due to much importance of economic growth itself. The first steps towards developing the theories of economic growth were taken in the 1930's and early 1940's. All these theories have been directed to the two central questions: why growth rates across countries are different and what factors cause this difference? This difference manifests itself in different standards of living and quality of life in all over the world. In some economies, the level of investment and the productivity is low; the workers face little change in their standards of living and the growth rate and level of development are low; whereas in some other countries, these indices are high enough.

Africa's poor economic performance has been widely studied. Within the empirical growth literature, considerable attention has been paid to slow growth performance in Africa. In average term, the growth rate in Africa hardly surpassed 2% while East and the Pacific countries had over 5% and Latin America experienced growth rate above 2%n (Easterly and Levine, 1997). Large body of studies points to a diverse set of potential causes of Africa's growth tragedy, ranging from bad policies, to poor education, political instability and inadequate infrastructure, but prominent among the cause is low factor productivity growth (see Ndulu and O'Connell, 1999; Ndulu and O'Connell, 2009, Berthelemy and Soderling, 2001; Hoeffler, 2002 and Fosu, 2002). This literature has improved our understanding of African growth tragedy. However, it fails to guide us directly to the factors behind the low productivity growth observed in Africa.

This study did not directly approach the issue of determinants of productivity growth in Africa; rather, it provided quantitative estimates of the extent to which observed productivity growth accounted for the growth performance of the continent. In so doing, it specified a growth model derived from economic theory but somewhat departed from the approach common to the literature. The rest of the paper is organized as follows. In section II, an overview of growth theory is presented succeeding in a following subsection, a review of the empirical growth literature as applied to Africa. Section III specified the empirical model employed in the study while, section IV dealt with the results and their interpretations. The final section provided some concluding remarks.

THE GROWTH LITERATURE

Overview

Classical economists, such as Smith (1991), Malthus (1798), Richardo and Eck (1817) and much later Ramsey (1928),Young (1928), Schumpeter (1934) and Knight (1944) provided many of the basic ingredients that appear in modern theories of economic growth. The main studies begin on these basic ingredients and focuses on the contributions in the neoclassical tradition since the late 1950s. From a chronological viewpoint, the starting point for modern theory growth theory is the classic article of Ramsey (1928). Ramsey's treatment of household optimization over time goes far beyond its application to growth theory. Between Ramsey and late 1950s, Harrod (1939) and Domar (1946) attempted to integrate Keynesian analysis with elements of economic growth. They used production function with little substitutability among the inputs to argue that the capitalist system is inherently unstable.

The next and more important contributions of modern growth theory have been the works of Solow (1956) and Swan (1956). The fundamental features of the Solow-Swan neoclassical production function are the assumptions of constant returns to scale, diminishing returns to each input and some positive and smooth elasticity of substitution between the inputs. The SolowSwan production function is applied along with a constant saving rate rule in order to generate a simple general equilibrium model of the economy. …

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