1 Background and Motivation
A major policy challenge facing African countries is how to achieve and sustain a higher rate of economic growth that will help them reduce poverty while also being both socially inclusive and environmentally sustainable (Acemoglu 2009; Barro 1997; Barro and Sala-i-Martin 2004; Heshmati et al. 2015; Kim and Heshmati 2014; Tausch and Heshmati 2012; and others ). The other challenges facing the continent include the rapidly increasing population and its ageing, rapid urbanization, increasing need for construction of urban infrastructure, providing services, recovering from the recent global economic crisis, corruption and inefficiency of governance and urgency in responding to climate change (AfDB 2016 and 2017; Belshaw and Livingstone 2002; Binns et al. 2012; Chitonge 2014; Johnson 2016; Ndudu et al. 2008; Robson and Lury 2011).
Against this background , the Jönköping International Business School in cooperation with some African national universities like the University of Rwanda and Addis Ababa University organize yearly conferences on economic development in the region. This volume is a collection of selected empirical studies on determinants of economic growth in Africa. Several of its papers were selected from those presented at a conference on Recent Trends in Economic Development, Finance and Management Research in Eastern Africa held at Kigali, Rwanda, on 14–16 June 2017. These selected papers are further complemented by other invited studies. Following the review process and revisions, 11 papers were finally accepted for publication in this edited volume.
The core argument for compiling this book is providing an up-to-date picture of the state and pattern of economic growth and development in Africa; the focus of attention is on the periods both before and after the global economic crisis. A main contribution of this volume is identifying important determinants of growth and development on the continent and estimating their effects using up-to-date standardized data, modelling and estimation methods. The studies jointly provide a comprehensive picture of the state of economic growth , its measurement, the causal relationships between the key determinants and efficient policies and practices for achieving progress on the African continent as a whole and also in selected groups of developing countries .
Growth rates vary in these countries and the low rates in some of them represent major challenges to governments and organizations whose aim is achieving higher growth and alleviating deep rooted chronic poverty in certain countries and regions.
This volume has contributions from 16 authors. The studies are grouped into three domains that influence financial sources and economic growth ; sources of productivity growth ; and the relationships of prices, exchange rates and trade with growth in regions in Africa or on the continent as a whole. The studies provide a comprehensive picture of the state of growth, its measurement and causal factors. They investigate heterogeneity by individual countries and efficient policies and practices in growth and poverty reduction on the African continent as a whole and also in selected countries. Variations in growth rates are high in these countries which pose major challenges for governments and international organizations whose aim is achieving economic growth and alleviating poverty . The results can have strong implications for economic growth and poverty reduction policies.
For several decades Swedish International Development Cooperation Agency (SIDA) has contributed to higher education and research in Africa. This volume is an addition to books edited in recent years on the subject as a part of the series. These books are the output of recent years of financial support from SIDA to collaborative higher educational programs and research capacity building in a number of African countries. This support has resulted in the publication of a number of academic books related to poverty and well-being (Heshmati 2016a), entrepreneurship and SME management (Achtenhagen and Brundin 2016), economic integration and currency (Heshmati 2016b), economic growth and development (Heshmati 2017a), poverty reduction (Heshmati 2017b), management challenges in different types of firms (Achtenhagen and Brundin 2017) and entrepreneurship in developing countries (Ramirez-Pacillias et al. 2017). Altogether, these studies have improved our understanding of the process of economic development and growth and the challenges facing African countries.
2 Summary of Individual Studies on Economic Growth in Africa
This volume is a collection of selected empirical studies on determinants of economic growth and development in Africa. The volume has 12 chapters (one introduction/summary and 11 contributory chapters) contributed by 16 experts specializing in the fields of growth and development. The studies are grouped into three domains that influence financing growth; sources of productivity growth ; and macroeconomic determinants of growth with growth in regions in Africa or on the continent as a whole.
2.1 Part I: Financing Growth
This first part of this edited volume has 5 chapters on foreign direct investment (FDI), remittances, foreign aid inflows, the role of financial development and institutional quality and their impact on economic growth in Africa.
The first study (Chapter 2) by Yemane Michael , The FDI and economic growth controversy in sub-Saharan Africa, analyzes the impact of FDI on economic growth in 43 sub-Saharan African (SSA) countries for the period 2001–2015. It develops a dynamic system generalized method of moment (GMM) model to capture the impact of FDI on economic growth . The method takes care of endogeneity problems and it alleviates possible biases in estimation and accounts for time-invariant individual country heterogeneity . The study finds that there was no meaningful difference in the growth of per capita gross domestic product (GDP) and also in its ability to attract FDI inflows. The findings indicate that FDI had a negative and statistically significant effect on the growth rate of per capita GDP in SSA for the period under consideration.
The second study (Chapter 3) by Alemayehu Geda and Addis Yimer , Determinants of FDI inflows to Africa, identifies the main determinants of FDI inflows to Africa. Using a panel cointegration approach for the period 1996–2012 it finds that market size, availability of natural resources, openness to trade, a stable macroeconomic environment , better infrastructure and an effective bureaucracy had a strong positive impact on attracting FDI to Africa while political and macroeconomic instability and high financial and transfer risks had a negative effect on attracting FDI to the continent. The effects of these factors varied across the newly developed analytical country classification. Hence, the new classification scheme could be an important guide in the working of continental organizations.
The third study (Chapter 4) by Biratu Bekere and Mekonnen Bersisa , Impact of FDI on economic growth in Eastern Africa, indicates that the FDI and economic growth nexus is an intensely debated issue in developing countries . For East Africa a fundamental challenge is how to achieve a sustainable increase in output over time. The countries in this part of the continent have been attracting FDI to bridge the gaps between domestic savings and investment demands; generating foreign exchange; transferring technology; and enhancing job creation and human capital skills to achieve sustainable economic growth and development. The study examines the impact of FDI on economic growth and its determinants in 14 sub-Saharan African countries over 20 years. It employs the dynamic GMM estimator for the data analysis. Empirical evidence reveals that FDI had a positive effect on economic growth in the region. However, while attracting FDI the countries need to take care of its nature and composition.
The fourth study (Chapter 5) by Gutu Gutema , The role of remittances, FDI and foreign aid on economic growth of low- and middle-income African countries, investigates the relative contribution of FDI, net official development aid (ODA) and personal remittances to economic growth in 50 African countries during 1985–2015. It uses the system GMM approach and analyzes the effect of these t...