The natural rate of growth and the relevance of aggregate demand in low income countries: the case of Sub-Saharan Africa

Shanaz Sumra

No 14447, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: The research contributes towards understanding the relevance of aggregate demand for developing economies using a post-Keynesian and political economy approach. We test the endogeneity hypothesis for the natural rate of growth, i.e. its dependence on demand, for 31 sub-Saharan African countries using time series and panel data for the 1991 to 2012 period. We find robust evidence for the endogeneity hypothesis across different estimation techniques. This is of significance for, if the natural rate of growth is endogenous to demand, then changes in demand might matter for economic growth and development in the long run as well as the short run. The paper further contributes to understanding the responsiveness of the natural rate of growth to domestic and foreign demand for developing countries by distinguishing between low income, lower middle income and upper middle income economies. We find that the responsiveness of the natural rate of growth to demand is L shaped for developing countries as it decreases at an increasing rate with the level of economic development.

Keywords: economic growth; the relevance of aggregate demand; endogeneity of the natural rate of growth; low income economies; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: O11 O43 O55 P16 R11 (search for similar items in EconPapers)
Date: 2016-01
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Persistent link: https://EconPapers.repec.org/RePEc:gpe:wpaper:14447

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