Terms of Trade Instability, Economic Vulnerability and Economic Growth: The Role Of Institutions in Sub-Saharan Africa

Zaouali, Amira (2014): Terms of Trade Instability, Economic Vulnerability and Economic Growth: The Role Of Institutions in Sub-Saharan Africa. Forthcoming in:

Abstract

Economists have a long argue that institutions and implementation of good governance are important for economic growth. The main objective of this research is to demonstrate that one of positive institutions effects is its ability to mitigate the negative effect of economic vulnerability linked to terms of trade fluctuations on economic growth. The impact of the economic vulnerability and implementation of good governance are estimated for a panel of 15 Sub-Saharan-Africa countries over the period 1996-2011. The results show that good institutional quality helps to undermine the negative effects of economic vulnerability on economic growth. It is also clear from this analysis that the interaction terms between trade openness and institutions can reduce the negative effects of economic vulnerability and that trade openness has a positive effect on economic growth only until a certain level of institutional quality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic vulnerability, instability of terms of trade, economic growth, institutions.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Acemoglu, D, S. Johnson, J.Robinson and Y. Thaicharoen (2003). “Institutional causes, macroeconomic symptoms: volatility, crises and growth ” Journal of Monetary Economics 50, 49–123.

Acemoglu, D. (2008). Interactions between Governance and Growth: what World Bank Economists Need to Know? World Bank: « Governance, Growth and Development Decision Making».

Arellano, M. and O. Bover (1995). Another Look at the Instrumental Variable Estimation of Error- Components Models. Journal of Econometrics, 68(1): 29-52.

Baliamoune, L. and L. Ndikumana (2007), “The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries”. MPRA Paper 6189, University Library of Munich, Germany.

Baliamoune, L.(2009), “Institutions, trade and social cohesion in fragile states : Implications and aid allocation” . Journal of policy modeling vol. (31)2009 P877-890.

Baliamoune, L. (2011), “Trust based social capital, institutions and development”. Journal of socio Economics, vol. 40(4), p 335-346.

Becker, T. and P. Mauro, (2006) Output Drops and the Shocks that Matter. IMF Working Paper 06/172 (Washington: International Monetary Fund).

Bleaney, M. and D. Greenaway (2001). The Impact of Terms of Trade and Real Exchange Rate Volatility on Investment and Growth in Sub-Saharan Africa. Journal of Development Economics, 65(2): 491-500.

Bond ,S. A. Hoeffler and J. Temple (2001), “GMM Estimation of empirical Growth Models”. In “Economics Papers”, 2001- W21.

Broda, C. (2004), “Terms of trade and exchange rate regimes in developing countries”. Journal of International Economics, 63 (2004) 31–58.

Chinn, M.D. and H. Ito (2006), “What matters for financial development? Capital controls, institutions and interactions”. Journal of development Economics, 81 (2006) 163-192.

Collier, P. and J. Gunning (1999), Trade Shocks in Developing Countries. Oxford Univ. Press, Oxford.

Deaton, A. and R. Miller (1996). International commodity prices, macroeconomic performance and politics in sub-Saharan Africa. Journal of African Economics 5, AERC Supplement, 99–191.

Dollar, D. and A. Kraay (2003), “Institutions, Trade, and Growth”. Journal of Monetary Economics, 50 (1), 133-162.

Grilli, E.R. and M.C. Yang (1988). Primary commodity prices, manufactured goods prices, and the terms of trade of developing countries: what the long run shows. World Bank Economic Review 2, 1–48.

Guillaumont, P, J. Guillaumontand and J.F. Brun (1999), “How Instability Lowers African Growth”. Journal of African Economies, 8 (1): 87-107.

Guillomont, P. (2001), “Ouverture, vulnérabilité et développement ». CERDI, Etudes et documents, E2001.03.

Guillaumont, P. (2006), “La vulnérabilité, défi persistant à la croissance Africaine”. CERDI, Etudes et documents, E2006.41.

Klomp, J. and J. Haan (2009), “ Political institutions and economic volatility”. European Journal of political Economy, 25 (2009) 311-326.

Mendoza, E. (1997). Terms of trade uncertainty and Economic Growth. Journal of Development Economics, 54: 323-356.

North, D. C. (1991). Institutions. The journal of Economic Perspectives, 5(1): 97-112.

Rey S. (2010), “La vulnérabilité des pays Méditerranéens aux chocs des prix des matières premières“. Centre d’analyse théorique et de traitement des données économiques. WP N°2.

Rodrik, D. (1999). Where Did All the Growth Go? External Shocks, Social Conflict and Growth Collapses. Journal of Economic Growth, 4: 385-412.

Rodrik D. (2002), “Institutions for high-quality Growth: What they are and how to acquire them“. NBER WP, N° 7540.

Rodrik, D. and A. Subramanian (2003). The Primacy of Institutions, Finance and Development, 40(2): 31-34.

Rodrik, D, A. Subramanian and F. Trebbi (2004), “Institutions Rule: The Primacy of institutions over Geography and Integration in Economic Development“. Journal of Economic Growth, 9 (2) 131-165.

Rodrik, D. (2008). Thinking about Governance. In North, D., Acemoglu, D., Fukuyama, F. & Rodrik, D. Governance, growth and development decision making, the World Bank, Washington, DC.

World Bank (2013). Africa’s pulse time: An analysis of issues shaping Africa’s economic future. April 2013, volume 7.

Zaouali, A. and I. Ouechtati (2013) “Economic vulnerability and Economic growth: what is the role of institutions in MENA Countries? “ International journal of advanced research, Volume 1, Issue 8, 667-675.