Journal of Advances in Economics and Finance

Download PDF (366.7 KB) PP. 160 - 174 Pub. Date: August 1, 2017

DOI: 10.22606/jaef.2017.23002

• Solomon Abayomi Olakojo^*
  Department of Economies, University of Ibadan, Ibadan, Nigeria

Government revenue in most African countries is based on export proceeds from few primary commodities. This limits their ability to manoeuvre in case of negative exogenous price shocks, with undesired effects on economic growth. This study, therefore, investigates the effect of primary commodity prices on long-run growth of 24 primary commodity-based African economies between 1980 and 2015. A neoclassical growth model, complimented with Keynesian national income identity, was estimated with Pooled Mean Group heterogeneous panel data regression. The result reveals a significant positive inelastic effect of primary commodity export prices on economic growth in the long run, especially among the less diversified African countries. Thus, Africa has less to gain from export prices increase in the long run. Hence, there is a need for African countries to intensify efforts at diversifying production and export base to minimise the impact of negative price shocks on their long run growth.

Africa, primary commodities export prices, long-run growth, heterogeneous panel data.

[1] A. Deaton, “Commodity prices and growth in Africa,” Journal of Economic Perspectives, vol. 13, no. 3, pp. 23-40, 1999.

[2] Central Bank, ”Central bank of Nigeria Statistical Bulletin,” 2015.

[3] J. Bhagwati, “Immiserizing growth: a geometrical note,” Review of Economic Studies, vol. 25, pp. 201-205, 1958.

[4] M. Bleaney and D. Greenaway, “Long-run trends in the relative price of primary commodities and in the terms of trade of developing countries,” Oxf Econ Pap, vol. 45, no. 3, pp. 349-363, 1993.

[5] J. Tilton, “The terms of trade debate and the policy implications for primary product producers,” Division of Economics and Business Working Paper Series, 2012. Available: http://econbus.mines.edu/workingpapers/wp201211.pdf

[6] S.A. Kalumbu and J. P. S. Sheefeni “Terms of trade and economic growth in Namibia,” International Review of Research in Emerging Markets and the Global Economy, vol. 1, no. 3. pp. 90-101, 2014.

[7] R. Arezki, K. Hadri, P. Loungani, and Y. Rao, “Testing the Prebisch-Singer hypothesis since 1650: evidence from panel techniques that allow for multiple breaks,” International Monetary Fund working paper, 2013. Available: https://www.imf.org/external/pubs/ft/wp/2013/wp13180.pdf

[8] G. Idrisov, M. Kazakova, and A. Polbi, “A theoretical interpretation of the oil prices impact on economic growth in contemporary Russia,” Russian Journal of Economics, vol. 1, pp. 257–272, 2015.

[9] Y. Kurihara, “Oil prices and economic growth in developed countries,” International Journal of Business and Social Science, vol. 6, no. 11, pp. 40-46, 2015.

[10] H. N. O. Tiawara, “The effect of commodity prices on african economic growth,” Culminating Projects in Economics. Paper 1, 2015. Available: http://repository.stcloudstate.edu/cgi/viewcontent.cgi?article=1000&context=econ_etds

[11] B. Gruss, “After the boom–commodity prices and economic growth in Latin America and the Caribbean,” IMF working Paper 14/154, 2014. Available: https://www.imf.org/external/pubs/ft/wp/2014/wp14154.pdf

[12] T. Cavalcanti, K. Mohaddes, and M. Raissi, “Commodity price volatility and the sources of growth,” IMF working paper number WP/12/12, 2011. Available: http://www.imf.org/external/pubs/ft/wp/2012/wp1212.pdf

[13] P. Collier, and B. Goderis, “Commodity prices and growth: reconciling a conundrum,”. Available: http://sticerd.lse.ac.uk/seminarpapers/dg26022007.pdf.

[14] P. May, H.-C. Ehrlich, and T. Steinke, “Zib structure prediction pipeline: composing a complex biological workflow through web services,” in Euro-Par 2006 Parallel Processing. Springer, 2006, pp. 1148–1158.

[15] J. Dehn, “Commodity price uncertainty and shocks: implications for economic growth,” Centre for the Study of African Economies Working Paper 2000-10, 2000. https://www.csae.ox.ac.uk/workingpapers/pdfs/20-10text.pdf

[16] P. Pedroni, “Critical values for cointegration tests in heterogeneous panels with multiple regressors,” Oxford Bulletin of Economics and Statistics, vol. 61, pp. 653-670, 1999.

[17] P. Pedroni, “Purchasing power parity tests in cointegrated panels,” Review of Economics and Statistics, vol. 83, pp. 727-731, 2001.

[18] K. S. Im, M. H. Pesaran and Y. Shin, “Testing for unit roots in heterogeneous panels,” Journal of Econometrics vol. 115, pp. 53-74, 2003.