Terms of Trade and Economic Growth in Sub-Saharan Africa
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Date
2005-07
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A.A.U
Abstract
This paper attempts to analyze the impact oj terms oj trade volatility and trends 0 11 economic
growth in Sub-Saharan Africa. III this regard, a cross country growth equation, which defines
fhe CDP growth rate as a jimction oj growth rate oj investmellt, growth rate oj labor jorce,
terms oj trade trends and volatility, is derived. This growth equation is analyzed jor 30 SubSaharan
Aji'icall countries over the period 1970-2002 using panel coill tegralioll tech nique.
Both the long-run alld the short-run parameters are estimated by applying a panel vector
error correction model (PVECM). Accordingly, the results oj the estimation show that both
terms oj trade volatility and trends have adverse effects ta the growth rate while the volatility
is jound to have a more powerful negative impact than the trends. 011 the other halld, the
control variables: growth rate of labor force alld investments are jound to have positive
impacts on growth rate oj the countries. Hence, the possible advice to these countries, to
reduce the adverse impact of terms of trade volatility and deterioration, is to move the export
sector to labor-intensive manufacturillg instead of primCllJ' sector exports. Further study is
also advised 0 11 the determinants of terms of trade deterioratioll and volatility, which
adversely affect the growth oj the region; to tackle the problems ji-om the root.
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Keywords
Terms of trade volatility, terms of trade trends, pallel cointegratioll, panel vector error correction model (PVECM), and CDP growth rate VI