Commodity price volatility and economic growth in Africa: the mitigating role of trade policy

  • Received September 16, 2019;
    Accepted July 22, 2020;
    Published October 5, 2020
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  • Article Info
    Volume 18 2020, Issue #3, pp. 350-361

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This work is licensed under a Creative Commons Attribution 4.0 International License

The extreme volatile behavior of Africa’s output and consumption is strongly related to the extent of exposure to external shocks in its trade earnings. The volatility of export earnings inherent in African economies depicts trade and export structure not diversified, and the need for development managers in easing the over-arching dependence on commodity exports earnings as a major source of budget financing. This study investigates the effect of commodity price volatility on real GDP using a longitudinal data covering fifty-three African commodity-dependent countries for the period 1970–2017. The theoretical framework is premised on the neoclassical growth model, and the system generalized method of moments (SGMM) estimation technique was adopted. The results from the estimation procedure indicate a negative contemporaneous relationship between commodity price volatility and growth. However, the intervention of policy instruments such as contrasting openness degree signals short-run relief for commodity export-dependent economies, as trade policy mitigates the adverse effect of commodity price volatility on growth.

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    • Table 1. Description of the variables used in the estimation
    • Table 2. Commodity price volatility-growth (control variables) regression
    • Table 3. Commodity price interacted with trade openness
    • Conceptualization
      Adeyemi Ogundipe
    • Formal Analysis
      Adeyemi Ogundipe
    • Methodology
      Adeyemi Ogundipe
    • Project administration
      Adeyemi Ogundipe
    • Software
      Adeyemi Ogundipe
    • Validation
      Adeyemi Ogundipe
    • Writing – original draft
      Adeyemi Ogundipe
    • Writing – review & editing
      Adeyemi Ogundipe