africa

Africa at a Fork in the Road: Taking Off or Disappointment Once Again?
We use the inflation rate as a proxy for economic instability to assess the role of
economic governance in mitigating growth reversals in Africa. It is expected that
price stability is strongly associated with growth stability. Steady and low inflation
rates are also associated with better macroeconomic policy management, which is
instrumental in achieving sustainability of growth and does not depend on a country’s
system of government. A country with an autocratic system could have a very
stable macroeconomic environment that is conducive for growth.
The results show that in Africa, economic instability in itself does not affect growth
reversals, but that among developing countries in general, economic instability
reduces growth reversals in democratic countries.
29.6.4 Other predictors of growth reversals in Africa
We also examine the role of other factors in predicting growth reversals in Africa.
These factors are the size of the economy, the level of skill development, openness
to trade, economic diversification, the age dependency ratio, external shocks, and
geopolitical changes in Africa.
The results show that a rise in GDP per capita, as a measure of the size of the
economy, increases the incidence of growth reversals in Africa. This is the case
for countries whose exports are composed mainly of non-fuel primary products, as
well as for exporters of oil, but not for countries that have autocratic regimes. From
these results we infer that an increase in economic size comes with an increased
integration of the domestic economy into international markets, which raises its vulnerability
to the external environment. Cameron (1978) finds that externally induced
volatility in aggregate demand becomes an increasingly serious issue for domestic
economic stability as an economy grows—a finding supported by Rodrik (1997).
Increased economic size may generate popular agitation for a better welfare system,
including wage and pension increments that may be difficult to maintain if shocks hit
the economy. This conclusion may be relevant for countries such as Ghana, which
faced increased pressure for wage increments after becoming a middle-income
country; after the government increased public sector wages by about 20 percent,
the huge wage bill pushed the fiscal deficit to GDP ratio to 11.5 percent in 2012.
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