Replicating Sachs and Warner:Sources of Slow Growth in African Economies

Graham A. DavisDivision of Economics and Business

Colorado School of Mines

York, EnglandSeptember 2011

The Sachs and Warner Resource Curse Data

-4

-2

0

2

4

6

0.0 0.2 0.4 0.6

SXP

GEA7090

(primary exports/GDP, 1970)

Citations of SW Resource Curse Research as of 6/24/2011

Paper

Place of Publication

Citations to date

Average annual citation rate

Sachs and Warner 1995, 1997a NBER, HIID* 1,959 115 Sachs and Warner 1997b AER 535 36 Sachs and Warner 1997c JAE 776 52 Sachs and Warner 1999a JDE 671 52 Sachs and Warner 1999b EE Book Chapter 88 7 Sachs and Warner 2001 EER 1,074 98

Sources of Slow Growth in African Economies (JAE 1997)

Three Groups of Developing Economies

• Sub-Saharan Africa

• Fast Growth Seven (Indonesia, Malaysia, Hong Kong, Singapore, Thailand, Taiwan,S. Korea)

• All Others (the “average” non-African developing country)

Why the Slower Growth in Africa?

Average Real (PPP) per Capita Growth 1965-1990

Sub-Saharan Africa 0.80% per yr

Fast Growth Seven 5.83% per yr

All ‘Other Developing Economies’

GD: 1.38% per yr

SW: 1.76% per yr

Why the Slower Growth in Africa?• Geography?

– Landlocked, tropics, resource curse

• Demographics?– Rapid population growth, poor health

• Policy?– Low government savings, infrequent trade openness,

poor institutional quality

• Special ‘Africa’ Theory?– Africa dummy

African Growth Lag v. Average ‘Other Developing Country’

Geography and Demography Effects

SW EstimateReplication

Estimate

Tropics -0.2% -0.25%

Landlocked -0.1% -0.14%

Resource Curse -0.2% +0.03%

Life Expectancy -0.9% -0.97%

Population Growth -0.6% -0.51%

TOTAL -2.0% -1.83%

African Growth Lag v. Average ‘Other Developing Country’

Policy Effects SW EstimateReplication

Estimate

Trade Openness -0.9% -0.42%

Government Saving +0.2% +0.22%

Institutional Quality -0.0% -0.02%

TOTAL -0.7% -0.22%

Summary of African Growth Lag v. Average ‘Other Developing Country’

EffectSW

EstimateReplication

EstimateActual

SW/GD

Catch up +1.0% +1.52% na

Geography -0.5% -0.35% na

Demography -1.5% -1.48% na

Policy -0.7% -0.22% na

TOTAL -1.8% -0.54% -0.96/-0.58

NB: regressions only include 20 of the 46 SSA countries,with sample average growth of 0.46 v. SSA growth of ~ 0.80.

African Growth Lag from Not Adopting ‘Fast Country’ Policies

Policy Effect SW EstimateReplication

Estimate

Trade Openness -2.7% -3.15%

Government Saving -0.1% -0.10%

Institutional Quality -0.6% -0.66%

TOTAL -3.4% -3.91%

Aside: African Growth Lag v. Average ‘Fast Growth Country’

EffectSW

EstimateReplication

EstimateActual

SW/GD

Catch up na +1.42%

Geography na -0.65% na

Demography na -2.21% na

Policy na -3.73% na

TOTAL na -5.17% -5.03/-5.03

“…our final estimate is that a country with African structure and LDC policies could have grown at 1.4% (GD: 1.0%) per year

[rather than the realized growth rate of 0.80% per year].”

“…we estimate that Africa could have achieved per capita growth of 4.3% (GD: 4.7%) per annum if it had followed fast-

growth policies.”

“Our regression evidence suggests that part of the explanation for Africa’s slow growth lies with natural factors… However, the evidence also suggests that basic economic policies such as

openness to international trade, government saving and market-supporting institutions have had an even

larger quantitative impact on economic growth rates.”

GD: True if one compares African policies to fast-growing country policies. Not true if one compares African policies to ‘other developing country’ policies.

SW Conclusion