Effect of Export Instability on Economic Growth in Africa

Abstract

Findings regarding the impact of export instability on economic growth in less developed countries (LDCs) have been far from consistent. Many studies have uncovered evidence in support of the traditional hypothesis that export instability (El) is deleterious to economic growth.' In contrast, several studies have revealed little, or even a positive, relationship between El and economic growth.2 Still others have found the relationship to be rather unstable.3 The preceding studies employ differing sample compositions and periods; however, these samples involve few African countries. The present study concentrates on African (and sub-Saharan African) LDCs as a group and examines the effect, if any, that export instability may have had on their economic growth. While African economies are by no means homogeneous, they are likely to be similar in terms of industrial structure and culture relative to other LDCs. For example, in 1986 about 40 percent of sub-Saharan Africa's merchandise exports were agricultural, compared with only 22 percent for all LDCs.4 Not only might this influence the El-economic growth relationship for African LDCs, but also if export earnings derived from mainly agricultural products are subject to relatively large fluctuations, then examining the impact of export instability on economic growth may be relatively critical for African LDCs. Unlike the typical study on the El-growth nexus, the current one analyzes the influence of EI within the framework of the augmented production function, the arguments of which comprise El as well as growths of capital, labor, and exports.5 The paper distinguishes between the overall impact of El when other functional arguments are allowed to vary and its direct effect independent of production input levels. Theoretical Issues and Models The theoretical rationale underlying the possible effect of export instability on economic growth has been extensively discussed in the development literature. The usual postulation of a negative influence is based

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