MODELING ECONOMIC GROWTH IN SUB-SAHARAN AFRICA: A PANEL DATA APPROACH.

Abstract

The debate on the effectiveness of macro-economic variables as a tool for promoting growth and development remains inconclusive given conflicting results of recent studies. Thus, the controversy is yet to be settled. Against this background, this study sought to fit a model to best predict economic growth in sub-Saharan Africa considering Government revenue, Trade Openness, Urbanization and Fiscal Freedom as the predictor variables and hence further explains the combined effect of the variables on economic growth. The study made use of secondary data of sub-Saharan African Countries in panel least squares. The hypotheses were linearly tested while adopting the panel data estimation under fixed-effect assumptions. Findings reveal that all the variables except fiscal freedom has a positive and significant effect on the economic growth of sub-Saharan Africa when the countries were pooled together. Only government revenue has a negative and insignificant effect on the economic growth of the countries in the fixed-effect model which considers the heterogeneity and individuality of the countries. The study therefore recommends that Governments of sub-Saharan Africa countries should engage in critical check on the revenue generated. Improving and strengthening the fiscal freedom so as to attract inflows of investors in order to boost the economic growth and improving the standard of living of the citizens is also recommended.