How important are external shocks in explaining growth in Sub-Saharan Africa? Evidence from a Bayesian VAR

This paper assesses the relative importance of external shocks in explaining the GDP growth in Sub-Saharan African countries. We estimate a Bayesian VAR model with the Stochastic Search Variable Selection (SSVS) approach for five countries in the region - Botswana, Ethiopia, Kenya, Mauritius, and Nigeria - two of which are among the fastest growing countries over the last decade, while the other three are countries for which relatively complete data are found on variables of interest. The results suggest the following two points. First, the contribution of external shocks to the variation in the growth rate of GDP of the home country varies significantly across the countries considered. Second, the terms of trade shock is the most important of the external factors we included in our analysis. One lesson that can be drawn from this study is that generalizations about the impact of external shocks to the whole Sub-Saharan African region are misleading.