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The natural rate of growth, the balance of payments constrained growth model and structural change: the case of sub-Saharan Africa

The natural rate of growth, the balance of payments constrained growth model and structural change: the case of sub-Saharan Africa

Sumra, Shanaz (2016) The natural rate of growth, the balance of payments constrained growth model and structural change: the case of sub-Saharan Africa. PhD thesis, University of Greenwich.

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Abstract

The research aims to answer questions related to the relevance of aggregate demand and the balance of payments constraint for low income countries, with specific reference to the sub-Saharan African region. We empirically test if the natural rate of growth is endogenous to the actual rate of growth. The results across different estimation techniques provide robust evidence that the natural rate of growth is endogenous to demand changes. Applying a political economy and institutionalist approach to the post-Keynesian theory, we show that the responsiveness in the natural rate of growth to demand changes is most sensitive for low income economies and negatively correlated with key institutional indicators.

The above results motivate the application of a demand-led growth model. In the post-Keynesian literature, the main constraint to growth in an open economy is the balance of payments equilibrium growth rate. We therefore empirically test the latter for 22 countries for the 1960 to 2014 period. The results provide strong support that the sub-Saharan region was balance of payments constrained.

In the long run growth in potential output should equal growth in demand, hence we analyse the long run relationship between the natural rate of growth and the balance of payments constrained growth rate using a 4 year average. The results show that within limits, supply adjusts to demand. The results provide further support that the main constraint to long run growth is the balance of payments equilibrium growth rate.

In light of our findings, long run growth can be raised by increasing the income elasticity of demand for exports and decreasing the income elasticity of demand for imports. The respective elasticities of demand are determined by the structure of economic activity. Closer regional integration can help alleviate the demand constraint and facilitate structural transformation along Kaldorian lines for sustainable growth and development.

Item Type: Thesis (PhD)
Uncontrolled Keywords: Balance of payments; political economy; growth and development; Africa
Subjects: H Social Sciences > HF Commerce
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 26 Apr 2019 10:11
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: None
URI: http://gala.gre.ac.uk/id/eprint/23730

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