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Dependency Ratio and the Economic Growth Puzzle in Sub-Saharan Africa

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  • Bichaka Fayissa
  • Paulos Gutema

Abstract

Conventional growth theories in the literature explain the poor economic performance of African economies by stressing the inadequacy of savings, human capital, and poor institutional quality. However, the key question is how to enhance savings for the accumulation of both physical and human capital in order to spur growth. A common thread that runs through the existing models is that the dependency ratio, not only remains constant over time, but has no long-run negative impact on economic growth. By relaxing this rigid assumption, this paper constructs a growth estimating equation which accommodates this demographic factor. The analytic results from the modified model suggest that economies with high dependency ratio face their stable equilibrium at lower levels of their income per capita. Moreover, econometric results from analysis of panel data drawn from Sub-Saharan Africa economies suggest that the growth puzzle can be well explained in terms of the demographic factors, especially the level and dynamics of dependency ratio of the region.

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File URL: http://capone.mtsu.edu/berc/working/DependencY_%20Ratio_WP_6_1_2010_.pdf
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Paper provided by Middle Tennessee State University, Department of Economics and Finance in its series Working Papers with number 201010.

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Date of creation: Jun 2010
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Handle: RePEc:mts:wpaper:201010

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Web page: http://www.mtsu.edu/~berc/working/Economics_Working_Papers.html
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Keywords: Sub-Saharan Africa; growth model; dependency ratio; steady state; panel data; fixed-effects model; random-effects model;

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