Musila_ Jacob_IAABD_May_ 2012_1.pptx - AUSpace - Athabasca

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Musila_ Jacob_IAABD_May_ 2012_1.pptx - AUSpace - Athabasca Powered By Docstoc
					  Dynamic Effects of the African Regional
Economic Integrations: Panel Data Evidence




                   Jacob W. Musila
                 Faculty of Business
           Athabasca University, Canada
           Email: jacobm@athabascau.ca




                                             1
Abstract

This paper uses panel data to estimate the impact of AMU, COMESA, ECCAS,
ECOWAS and SADC regional economic integrations on the level and rate of
growth of economic activity in Africa. The impacts of each integration scheme
on the level of investment and the rate of growth of real GDP per capita are
estimated. The estimated results show that the impacts of COMESA, ECOWAS,
and SADC on the level of investment are positive and significant while that of
AMU is negative and significant. Only ECCAS has a negative and significant
influence on the rate of growth of real GDP per capita. The impacts of AMU,
COMESA, ECOWAS and SADC on rate of growth of real GDP per capita are
insignificant. With respect to the marginal impacts, COMESA, ECOWAS and
SADC are found to reduce the marginal impact of trade openness on
investment, COMESA is also found to reduce the marginal impact of trade
openness on economic growth while ECCAS increases the marginal impact of
trade openness on growth.

                                                                             2
Sketch of the presentation

•   Theoretical framework
•   Empirical Analysis
•   Empirical Results
•   Conclusion




                             3
Theoretical Framework: New Growth
Theory

Economic growth occurs when the following
occurs:
(i) Growth of labor supply – (pop growth)
(ii) Growth of labor productivity –
       a) physical capital growth – investment;
       b) human capital growth – accumulation of
skills & knowledge; and
       c) technological progress – discovery &
application of new tech)
                                                   4
Theoretical Framework: New Growth Theory
(cont.)




                                           5
Theoretical Framework: Sources of
Economic Growth




                                    6
Theoretical Framework: The Link between
Economic Integration & Economic Growth




                                          7
Empirical Analysis: Model specification
Investment Regression Equation:




where:
Investment Ratio   = Gross fixed capital formation/GDP
FDI Ratio          = (Foreign Direct Investment)/GDP
INF_CHG            = change in inflation rate
TRADE              = (Exports + Imports)/GDP)
IS                 = Integration Schemes (AMU, COMESA, ECCAS, ECOWAS & SADC);
                     IS = 1 if a country is a member of the IS and 0 otherwise
e                  = white noise
α‘s                = are coefficients to be estimated

                                                                                 8
Empirical Analysis: Model Specification (cont.)
Growth Regression Equation:




where:
RGDPPC g = rate of growth of real GDP per capita
KSTOCK g = rate of growth of capital stock per capita
HSTOCK g = rate of growth of human capital per capita (represented by rate of growth
         in primary school enrolment per capita
INF_CHG = change in inflation rate
μ        = white noise
β‘s      = are coefficients to be estimated
TRADE and IS are as defined earlier




                                                                                       9
Data Sources & Econometric Issues

• World Bank’s African Development Indicators
  (ADI) database for the period 1980-2009.
• The author constructed the dummy variables
  for AMU, COMESA, ECCAS, ECOWAS, and
  SADC.
• The Hausman test for endogeneity rejected
  the least squares technique. Panel Two-Stage
  Least Squares (PTSLS) - instrumental variables
  - technique is used.

                                                   10
Empirical Results: Investment EQ.




                                    11
Empirical Results: Investment EQ.
             (cont.)




                                    12
Empirical Results: The Growth EQ.




                                    13
Empirical Results: The Growth EQ. (cont.)




                                            14
Empirical Results (cont.)




                            15
Concluding Remarks
• This study examines the impact of Africa’s major regional economic
  integration schemes on the level of investment and rate of
  economic growth.
• The study finds evidence that support the view that African
  regional economic integration schemes that implemented trade
  liberalization programs and entrenched the economic integration,
  have positive and significant impact on the level of investment.
  The impact on the rate of economic growth however is mixed or
  insignificant in most cases.
• The study also finds macroeconomic instability (measured by the
  change in inflation) to have adverse significant effect on both
  investment and growth while trade openness has positive and
  significant impact.
• The study also finds the marginal impact of economic integration
  on rate of growth to be mixed or insignificant.

                                                                   16

				
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