Transcript Do the Sub-saharan Africa economies with volatile GDP

Do the Sub-saharan Africa
economies with volatile GDP
promote innovation?
Yaya KY
UCAD/CRES
François Joseph CABRAL
UCAD/CRES
SUMMARY
• Objective
• stylized Facts
• Methodology
• Results
Objective
• We aim to show in this paper that the
accumulation of innovation and knowledge
through their production or absorption can be
strong and sustainable factors of GDP growth.
Stylized facts
• In most Sub-saharan Africa economies, economic
growth is mostly driven by the export of low valueadded commodities.
• A dozen commodities (Cocoa, coffee, oil, gas, cotton,
mining,…) represent 80% of total exports.
Stylized facts
• In general, the trend of GDP growth is not correlated
with the level of innovation of the economy even if
the average GDP growth rate seems to be correlated
with innovation for some economies.
• However, the volatility of GDP growth, measured by
standard deviation is correlated with innovation.²
Stylized facts
Graph 1: Link between coefficient of variation of GDP growth rate,
innovation index and TFP
Stylized facts
The economic literature (aghion,2014; dinopoulos,1999; jones,1995; kortum,1997;
Peretto,1998; segerstrom,1998; young,1999) finds a positive correlation between the
productivity growth and the share of research and development in GDP i.e. the magnitude
of innovation activities and knowledge accumulation.
Empirically, the mains contributions can be aggregate under tree perspectives
1. The identification of source of macroeconomic volatility;
(Guillaumont,2010; loayza and Raddatz, 2007 ; combes, 2002, Fata and Mihov ,2006,
2007)
2. The measure of macroeconomic volatility
(Dehn,2000; Chauvet and becker,2006; Hnatkovska and Loayza, 2005; afonso,2010;
Serven,1997)
3. The assessment of the impact of macroeconomic volatility on economic development
(Dawe,1996; Dehn,2000; guillaumont;1999; Koren and Tenreyro,2006)
Methodology
• The volatility index vt at time t is define as:
Where gl is the GDP growth rate at time l. The model with interaction term estimate is :
where
is the log of GDP of the balanced growth path
Methodology
• The volatility can be expressed in terms of GDP per capita.
• The parameter lambda is a specific volatility coefficient of each
country. It is a function of innovation.
• From this equation, an economy can control the level of volatility of
GDP if and only if the volatility depends on GDP per capita and
lambda is negative.
• Control the volatility depends on the level of innovation if
Methodology
Five specifications are estimated:
1. The first model builds on all the countries for which data are available
2. The second model take into account the financial development of the
country. Financial development is captured as the volume of private sector
credit in term of GDP.
3. The third model includes an interaction term between GDP per capita and
innovation index
4. The fourth model concern only the Sub-saharan Africa countries
5. The last model uses the previous model and includes an interaction term
between GDP per capita and innovation index
All these models are estimated with general moment method (GMM)proposed by
Arellano and Bond (1991). The estimation take into account the robust option.
The data source are: : World Development Indicator ; World productivity Base (WPB)
Results
• The level of volatility is related to that of the innovation. This level is
particularly volatile for economies whose innovation index is 1 or 2;
• For these economies, volatility of the rate of GDP growth is higher
and ranking from 4% to 6% of GDP. The economies with innovation
index equal to 7 have a volatility equal to 4% of GDP at the beginning
of the period and declines to 2% at the beginning of the millennium.
• The economies whose level of innovation is 8 or 9 have the lowest
level of volatility. This is a trend hovering around 2% GDP.
Results
Graph2: GDP volatility by innovation index (world)
Results
Graph3: GDP volatility by innovation index (africa)
For most Sub-saharan
Africa economies, the
volatility of GDP growth
rate exceeds 3% of
GDP
Results
Table 1: Estimation results
Results
• Innovation is a factor of resilience of instability of GDP. All models
show that innovation has a significant effect on the volatility of GDP.
• The effect is negative in models without interaction term between
GDP per capita and innovation index.
• The interaction term (βiny ) is negative and corresponds to -0.163 for
the model estimated on all countries and -0.10 for the model
estimated on Sub-saharan Africa countries.
Results
Graph4: Confidence interval of innovation impact on volatility
Results
Most other regions have a less volatile growth rate than countries in subSaharan Africa.
The threshold of GDP per capita from which a marginal change in the index
of innovation reduces volatility is US $ 6,374.1 for all countries. Its 90%
confidence interval is [US $ 943.9 -US $ 171,099.4].
Countries whose GDP per capita is less than this threshold represents 56%
for all countries and 87% for countries in sub-Saharan Africa.
This threshold is US $ 652.1 for sub-Saharan Africa countries with a
confidence interval [US $ 70.1 -$ 2,123.6 UD].
Conclusion
• The objective of the paper is to assess the impact of innovation on
volatility of GDP in economies in sub-Saharan Africa.
• We built a volatility index of the rate of GDP growth and assessed
the impact of innovation on this index using dynamic panel model.
• Countries that do not produce enough innovation have a GDP growth
rate that is highest but most volatile compare to countries that
promote innovation.
• In addition, countries whose coefficient of variation is weakest have
an innovation index higher and a Total Factor Productivity (TFP)
substantial.
• Estimates show that innovation reduces the volatility of the GDP
growth rate.
Conclusion
• The findings bring the proof that innovation is a resilience factor of
volatility of the rate of GDP growth.
• Countries with less income, in general, and sub-Saharan Africa
countries in particular whose economy are victim of exogenous shock
can promote knowledge accumulation to control the instability of
their GDP growth.
• Because the process of innovation is long, expensive and irreversible,
these countries can identify knowledge which benefits their
economy. They should identify the main means that allow them to
produce innovation, and develop policy to absorb them
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