Sub-Saharan Growth Dynamics, Panel Estimation, and Human Capital

Abstract

The existing empirical literature has either not sufficiently examined growth dynamics or relied on events-studies of turning points that fail to explain growth (or do it adequately). We study growth relative to a frontier country, take explanatory variables also as ratios, and examine determinants of growth separately for periods of relative convergence (r-convergence) versus divergence. Sub-Saharan African countries are eminently suitable for examination because they experience both copiously, have quite granular data, and the number of periods for the two experiences is almost the same. We use the neo-classical growth model and panel estimation; including the “between” estimator. The main difference of the divergence panels from the r-convergence panels is on the role of human capital. When human capital is contributing to growth in a statistically significant way, countries are catching-up in relative income; when it is not, they are falling behind both relatively and absolutely. Comparing this paper to the literature, we study growth dynamics independent of events-study, have a stream-lined study of dynamics, take long periods averaging 20-30 years, find TFP to be less important than human capital for both income growth and income levels, and the excess-effect of human capital over TFP is about 2.5 times for growth than for income levels.

Keywords: Growth or lack of it; r-convergence and divergence; fixed effects and the 'between' estimators; growth accounting; factors for income growth versus for income levels

JEL Classification: C23, C33, I25, O47