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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.

Suggested Citation

  • Bichaka Fayissa & Paulos Gutema, 2010. "Dependency Ratio and the Economic Growth Puzzle in Sub-Saharan Africa," Working Papers 201010, Middle Tennessee State University, Department of Economics and Finance.
    • Handle: RePEc:mts:wpaper:201010
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    File URL: http://capone.mtsu.edu/berc/working/DependencY_%20Ratio_WP_6_1_2010_.pdf
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    References listed on IDEAS

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    1. Ram, Rati, 1982. "Dependency Rates and Aggregate Savings: A New International Cross-Section Study," American Economic Review, American Economic Association, vol. 72(3), pages 537-544, June.
    2. Khaled Hussein & A. P. Thirlwall, 1999. "Explaining differences in the domestic savings ratio across countries: A panel data study," Journal of Development Studies, Taylor & Francis Journals, vol. 36(1), pages 31-52.
    3. Hall, Robert E & Jones, Charles I, 1997. "Levels of Economic Activity across Countries," American Economic Review, American Economic Association, vol. 87(2), pages 173-177, May.
    4. Shumaker, Linda D & Clark, Robert L, 1992. "Population Dependency Rates and Savings Rates: Stability of Estimates," Economic Development and Cultural Change, University of Chicago Press, vol. 40(2), pages 319-332, January.
    5. Nicola Rossi, 1989. "Dependency Rates and Private Savings Behavior in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 36(1), pages 166-181, March.
    6. World Bank, 2002. "World Development Indicators 2002," World Bank Publications - Books, The World Bank Group, number 13921, December.
    7. Leff, Nathaniel H, 1969. "Dependency Rates and Savings Rates," American Economic Review, American Economic Association, vol. 59(5), pages 886-896, December.
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    Cited by:

    1. von Gaessler, Anne Edle & Ziesemer, Thomas, 2016. "Optimal education in times of ageing: The dependency ratio in the Uzawa–Lucas growth model," The Journal of the Economics of Ageing, Elsevier, vol. 7(C), pages 125-142.
    2. Makmun Syadullah & Benny Gunawan Adriansyah & Tri Wibowo, 2019. "Impact of Economic and Non-Economic Factors on Income Inequality in ASEAN Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(12), pages 1346-1357, December.

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    More about this item

    Keywords

    Sub-Saharan Africa; growth model; dependency ratio; steady state; panel data; fixed-effects model; random-effects model;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • N3 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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