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Price Distortions and Economic Growth in Sub-Saharan Africa

Kym Anderson () and Markus Brückner ()

No 8530, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: To what extent has Sub-Saharan Africa’s slow economic growth over the past five decades been due to price and trade policies that have discouraged production of agricultural relative to non-agricultural tradables? This paper uses a new set of estimates of policy distortions to relative prices to address this question econometrically. We first test if these policy distortions respond to economic growth, using rainfall and international commodity price shocks as instrumental variables. We find that on impact there is no significant response of relative price distortions to changes in real GDP per capita. We then test the reverse proposition and find a statistically significant and sizable negative effect of relative price distortions on the growth rate of Sub-Saharan African countries. Our fixed effects estimates suggest that, during 1960-2005, a one standard deviation increase in distortions to relative prices reduced the region’s real GDP per capita growth rate by about half a percentage point per annum.

Keywords: Agricultural incentives; Economic growth; Trade restrictions (search for similar items in EconPapers)
JEL-codes: F14 F43 N17 O13 O55 Q18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-agr, nep-dev and nep-opm
Date: 2011-08
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