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Terms of Trade Volatility and Economic Growth in Sub-Saharan Africa

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  • Awel, Ahmed Mohammed

Abstract

This paper investigated the effect of terms of trade growth and its volatility on economic growth in Sub-Saharan Africa. I employed dynamic panel data models of difference and system GMM that could account biases associated with endogeneity of explanatory variables and problems induced by unobserved country specific characteristics. I used both net barter terms of trade and income terms of trade as a measure of terms of trade for the entire analysis of this paper. Using data from 1985 to 2010, I found that the net barter terms of trade and income terms of trade growth has positive and significant effect on economic growth. Furthermore, the result proved that volatility of net barter terms of trade and income terms of trade have negative and significant effect on economic growth. Finally, this result is found to be robust using alternative volatility measures.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45453.

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Date of creation: Aug 2012
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Handle: RePEc:pra:mprapa:45453

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Keywords: Economic Growth; Terms of Trade; Volatility; Sub-Saharan Africa;

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  1. Jacks, David S. & O Rourke, Kevin H. & Williamson, Jeffrey G, 2009. "Commodity Price Volatility and World Market Integration since 1700," CEPR Discussion Papers 7190, C.E.P.R. Discussion Papers.
  2. Syed tehseen, jawaid & Abdul, waheed, 2011. "Effects of Terms of Trade and its Volatility on Economic Growth: A Cross Country Empirical Investigation," MPRA Paper 32694, University Library of Munich, Germany.
  3. Lutz, Matthias G, 1999. "A General Test of the Prebisch-Singer Hypothesis," Review of Development Economics, Wiley Blackwell, vol. 3(1), pages 44-57, February.
  4. Kim, So Young, 2007. "Openness, External Risk, and Volatility: Implications for the Compensation Hypothesis," International Organization, Cambridge University Press, vol. 61(01), pages 181-216, January.
  5. Arize, A. C., 1996. "Cointegration test of a long-run relation between the trade balance and the terms of trade in sixteen countries," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 203-215.
  6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  7. Cavalcanti, T.V.de V. & Mohaddes, K. & Raissi, M., 2011. "Commodity Price Volatility and the Sources of Growth," Cambridge Working Papers in Economics 1112, Faculty of Economics, University of Cambridge.
  8. Sarkar, Prabirjit, 1986. "The Singer-Prebisch Hypothesis: A Statistical Evaluation," Cambridge Journal of Economics, Oxford University Press, vol. 10(4), pages 355-71, December.
  9. Sapsford, D, 1985. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures: A Comment and Some Additional Evidence," Economic Journal, Royal Economic Society, vol. 95(379), pages 781-88, September.
  10. Lutz, Matthias, 1994. "The effects of volatility in the terms of trade on output growth: New evidence," World Development, Elsevier, vol. 22(12), pages 1959-1975, December.
  11. Jeffrey G. Williamson, 2008. "Globalization and the Great Divergence: Terms of Trade Booms and Volatility in the Poor Periphery 1782-1913," NBER Working Papers 13841, National Bureau of Economic Research, Inc.
  12. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  13. Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
  14. Dungey, Mardi, 2004. "Identifying terms of trade effects in real exchange rate movements: evidence from Asia," Journal of Asian Economics, Elsevier, vol. 15(2), pages 217-235, April.
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