A test of exports-led growth hypothesis in Sub-Saharan African countries: Evidence from panel data analysis

Nicholas Odhiambo

No 27170, Working Papers from University of South Africa, Department of Economics

Abstract: This study examines the dynamic causal relationship between exports and economic growth in sub-Saharan African (SSA) countries during the period 1980-2017. The study also examines whether the causality between these two macroeconomic variables depends on the countries? level of income. For this purpose, the full sample of SSA countries is disaggregated into two subsets ? one comprising of low-income countries and the other consisting of middle-income countries. In order to address the omission-of-variable bias, which has been reported in some of the previous studies, the study uses a multivariate panel Granger causality model to examine this linkage. Specifically, the study incorporates external debt as an intermittent variable in a bivariate setting between exports and economic growth, thereby creating a dynamic multivariate Granger-causality model. Although the study found the existence of a long-run relationship between exports and economic growth, the study failed to find any export-led growth response in both low-income and middle-income countries. Instead, the study found evidence of a bi-directional causality and a neutrality response in middle-income and low-income countries, respectively. The study concludes that the argument that exports always lead to economic growth may have been oversold to many SSA countries. The study, therefore, cautions low-income SSA countries against over-relying on an export-led growth strategy to achieve a sustained growth path. Instead, they should consider pursuing domestic demand-led growth strategies alongside their export promotion strategies to expand the real sector of their economies.

Date: 2021-01
New Economics Papers: this item is included in nep-int
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