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

Publisher
Ethiopian Economics Association (EEA)
Author
Ahmed Mohammed Awel, Gashaw Desalegn

Abstract

This paper investigated the effect of terms of trade and its volatility on
economic growth in sub-Saharan Africa. The study employed dynamic panel
data models of difference and system Generalized Method of Moments (GMM),
which could account for biases associated with endogeneity of explanatory
variables and problems induced by unobserved country-specific
characteristics. The study used both net barter terms of trade and income
terms of trade as a measure of terms of trade for the analysis of the entire
data for this paper. Using data from 1985 to 2014, the study found that the
improvement in both net barter terms of trade and income terms of trade is
growth-enhancing, whereas its deterioration is growth-retarding. As the
majority of the sample countries are primary commodity exporters, their
terms of trade shows deterioration through time and this adversely affects
economic growth. Furthermore, the result proved that volatility of net barter
terms of trade and income terms of trade has a negative and significant effect
on economic growth. Finally, the use of alternative data set contributed to the
result being robust.