Table 14 - uploaded by Klaus Schmidt-Hebbel
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A deep rift separates Africa and Latin America (and to a lesser extent Asia) from OECD countries with regard to fiscal adjustment, macroeconomic performance, and long-term growth. Case-study and cross-country econometric evidence drawn from a large world sample is provided to explain at least part of the OECD's better performance. Public deficits a...
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Citations
... Mishkin (1995), specifically maintains that expansionary fiscal policy that increase government spending or decrease taxes impact positively on aggregate demand and thereof the equilibrium level of output. Nevertheless, previous empirical studies in and outside Tanzania lack a specific analysis of the effect of fiscal expansion (big government) and fiscal adjustment (cut of government expenditure) to small government size, a feature in previous stabilization programmes (Schmidt-Hebbel, 1995). Third, serve for Kayandabila (2008) the previous studies on Tanzania only used the ordinary least squares (OLS) method to estimate linear model not subjected to cointegration test. ...
... Recent decades have brought mounting evidence of the harmful effects of excessive fiscal deficits on macroeconomic performance. Empirical studies have linked excessive budget deficits to slow economic growth (Fischer, 1993;Adam and Bevan, 2005), high inflation (Easterly and Schmidt-Hebbel, 1993;Catão and Terrones, 2005), and general macroeconomic volatility (Schmidt-Hebbel, 1996). After some two decades of widespread fiscal austerity and the absence of fiscal activism (or at least of official acknowledgement thereof), the international financial crisis of 2007-2009 resulted in large increases in budget deficits and government debt, especially in some OECD countries (see Cecchetti, Mohanty and Zampolli, 2010). 2 Fiscal activism returned to favour but the extent of the policy interventions also required renewed focus on the balance between short-term fiscal stimulation and longer-term fiscal sustainability. ...
several empirical studies have found that fiscal policy has been sustainable in South Africa since 1960. This paper complements these studies by providing perspective on the manner in which fiscal sustainability was maintained. It discusses two episodes of significant increases and one period of substantial reduction in the public debt burden to show that periods of rising deficits and government debt in South Africa were followed by returns to sustainable levels, thereby preventing major domestic economic crises and external interventions. The paper also provides a projection of the fiscal outlook for South Africa based on a structural VAR model. The results suggest that the discretionary fiscal decisions of 2007 to 2010 might pose a serious threat to the sustainability of fiscal policy unless the authorities respond as they did in the past by checking large budget deficits and concomitant rapid increases in the public debt burden promptly.
... For a cross section of countries, Barro (1991) shows that a dummy for sub-Saharan Africa exerts a significant and negative effect on the average growth of per-capita GDP for the 1960-1985 period, after controlling for a broad set of growth correlates. In the same vein, some progress towards a deeper understanding of the area's specific problems is made by Easterly and Levine (1997), who highlight the potential role of ethnic diversity, by Schmidt-Hebbel (1996), who focuses on fiscal policies, and by Sachs and Warner (1997), who emphasize the impact of geography. ...
This essay investigates the determinants of the growth performance of Africa. I start by illustrating a broader research agenda which accounts not only for basic economic and demographic factors, but also for the role of history and institutional development. After reporting results from standard growth regressions, I analyze the role of Africa’s peculiar history, which has been marked by its colonization experience. Next I discuss the potential growth impact of state fragility, a concept which reflects multiple facets of the dysfunctions that plague the continent. The last topic I address is the influence, in and out of Africa, of the slave trades. The essay ends with critical conclusions and suggestions for further research.
... Moreover, the resulting high budget deficits fuelled the accumulation of crippling external debt burdens. During the 1970s, for example, the average public deficit of African countries amounted to 6.4% of GDP – well above the corresponding figures for Latin America and the Caribbean (4.6%), other developing countries (4.5%) and the OECD countries (1.2%) (Schmidt-Hebbel, 1996 While the IMF has certainly contributed to the literature on the economic and financial impact of fiscal policy, it is not its own insights that principally distinguish the IMF's perspective. The IMF is clearly a user of a body of theoretical and empirical analysis that has been elaborated over the last halfcentury… and thus much of its views are likely to be seen as in the mainstream of conventional wisdom on fiscal policy. ...
This paper traces salient aspects of the evolution of fiscal policy in sub-Saharan Africa since 1960 and highlights the need for further reforms to consolidate the gains of the recent past. The fiscal position of the sub-Saharan African region as a whole has improved markedly during the past ten years, but most countries still face formidable fiscal challenges. To consolidate the progress made during the past decade and to tackle the remaining problems, sub-Saharan African policymakers should remain firmly committed to sound fiscal policies.
... A number of hypotheses concerning the poor performance of Africa have been proposed in the literature. Different authors have considered a variety of reasons for Africa's relatively weak performance, examples including the role of institutions (Freeman and Lindauer, 1999), ethnic divisions (Easterly and Levine, 1997), fiscal policy (Schmidt-Hebbel, 1996) and geography (Sachs and Warner, 1997). Many such studies start from the assumption or come to the conclusion that Africa is different to other continents, an argument rejected by Rodrik (1998Rodrik ( , 1999. ...
The relationship between openness and growth remains a controversial issue in development economics with many studies focusing on the export-growth relationship. This paper examines whether the relationship between exports and growth found in large cross-section studies also holds in the context of African economies. The paper employs threshold regression techniques to examine whether African countries benefit more from exports when they reach a certain level of development or openness. Our results suggest that there is indeed a positive relationship between exports and growth in Africa. The threshold regression analysis also suggests that it is not necessary for a country to reach a certain level of development or to have an existing export base for this relationship to hold, though it is found that the relationship is stronger for countries that experience higher rates of export growth.
... Barro (1991) shows that a dummy for Sub-Saharan Africa exerts a signi¯cant and negative e®ect on the average growth of per-capita GDP for the 1960-85 period 1 . Some progress towards a deeper understanding of Africa's speci¯c problems has been made by Easterly and Levine (1997), who focus on ethnic diversity, by Schmidt-Hebbel (1996), who points to the role of¯scal policies, and by Sachs and Warner (1997), who emphasize the impact of geography. However, with the exception of Rodrik's (1998) analysis of trade policy, the literature has exclusively stressed how Africa as a whole di®ers from the rest of the world, thus obscuring important heterogeneities within Africa itself. ...
We investigate the impact of 20th-century European colonization on growth. We find that colonial heritage, as measured by the identity of the metropolitan ruler and by the degree of economic penetration, matters for the heterogeneity of growth performances in Africa. Colonial indicators are correlated with economic and sociopolitical variables that are commonly employed to explain growth and there are growth gains from decolonization. Colonial indicators also add significant explanatory power to worldwide growth regressions and are correlated with the Sub-Saharan Africa and the Latin America dummies.
... Ž . This is the case in Easterly and Levine 1997 , Lee 1994 andSchmidt-Hebbel 1996 . Ž . ...
This paper argues that understanding the mechanisms of growth requires going beyond the reduced form, and demonstrates important differences in the mechanisms of growth in Africa. Certain policy distortions and exogenous factors are more costly to growth in Africa than elsewhere, while the growth benefits of other reforms and exogenous factors are more limited in Africa than elsewhere. These differences are most apparent in equations which separately explain the explanatory variables common in reduced form growth equations. An expanded growth accounting framework shows that many of the differences in Africa's growth mechanisms are also quantitatively significant in explaining Africa's slow growth.
... Thus, in order to test for the influence of education on economic growth, we specify a growth equation similar to Fischer's (1993), Barro's (1992), Schmidt-Hebbel's (1994), Easterly and Levine's (1994), Easterly and Rebelo's (1994) ...
... it is similar to some results obtained by Clark (1993) and Schmidt-Hebbel (1994) who used disaggregated school variables as ours. Such a result has three implications. ...
... Unless, primary school leavers advance to higher education the money spent on them becomes a waste. The second implication is that the argument being advanced by the World Bank (1988, 1994 that developing nations should curtail University education is untenable in the Nigerian context since this will negatively affect economic growth. The third implication is that using an aggregate school enrolment variable to represent the contribution of education in growth studies seriously masks the true source(s) of growth from the educational sector, particularly in developing countries. ...
... We 7 Taiwan and Hong Kong drop out of our TC samples whenever we report results based on MF data because of lack of data for individual MF indicators. differ from preceding studies that have included macroeconomic variables among the list of growth regressors (see Easterly and Rebelo 1993, Fischer 1993, Corbo and Rojas 1993, Schmidt-Hebbel 1996, Easterly and Levine 1996 by testing for the contribution of our broader measures of MF policy performance (MFPOP) and MF instability (using either MFINS or its three individual components). ...
... Elbadawi (1996) compares East Asia in 1980-90 to SSA in 1991 in an attempt to capture the latter and more consolidated stages of the African economic reforms.11 For a review of the literature on assessing sustainability of fiscal policy seeSchmidt-Hebbel (1996). ...
High instability and low growth characterise the macroeconomic performance of most developing countries. Inadequate policies
are often to blame. This paper documents the empirical regularities that characterise the relationships among macroeconomic/financial
policies, instability and growth across developing and industrial nations. While successful transitions to low instability
and high growth are not frequent, they have been observed in a dozen countries. Such win-win transitions require that institutions
and rules be put in place to change government incentives for choosing between policies that reflect narrow interests or social
conflict — contributing to more instability and less growth — and social welfare maximising policies that help growth and
make economies more resilient to residual instability.
... In cross-country regressions, researchers have frequently been unable to eliminate a dummy variable for sub-Saharan Africa; a large part of its slow growth is left unexplained by the usual set of variables. Studies such as Barro (1991), Easterly and Levine (1997) and Schmidt-Hebbel (1996) consistently find that the African dummy is significant and negative. Among recent studies, only Sachs and Warner (1997) are able to eliminate the Africa dummy. ...
Observable variables capturing initial conditions can account for well over half of the variation in developing country growth
rates. This paper investigates their role in explaining Africa's recent economic history. Should the origins of slow growth
be traced to Africa's social arrangements, high inequality and ethnic diversity? Based on cross-country empirical work, this
paper argues that the best answers are yes, no and maybe.
