MACROECONOMIC VARIABILITY AND ECONOMIC GROWTH IN SUB-SAHARA AFRICAN COUNTRIES

Abstract

This paper investigates the relationship between macroeconomic variability and long run economic growth in a panel of 40 African countries over the period 1980 – 2014. The paper re – examines the postulates of both Ramey and Ramey (1995) – where investment was the primary link between volatility and growth -  and Aghion et al (2005) – where financial credit constraints was the primary link, that there is a negative and significant correlation between macroeconomic volatility and long run economic growth. The findings in the paper refutes this negative relationship between volatility and economic growth, with the conclusion that there exist a significant and positive correlation between volatility and economic growth with reference to the sample data set used. This counterfactual is explained by the risk associated with macroeconomic volatility inducing savings more than how it discourages investment. The findings of this paper are robust to controls for investment, different and appropriate measures of financial development, level of openness, government size and each countries initial level of real per capita GDP.