Growth and Volatility Nexus in Sub-Saharan Africa
Jemberu Lulie Mekonnen and Ali Suut Dogruel
Using cross-sectional and panel data estimation techniques with various methods of volatility measures, we have
found a signiﬁcant negative impact of growth volatility on growth for 35 sub-Saharan African countries from 1980 to 2013.
When we consider the possible endogeneity of growth volatility, we obtained a more strong negative relationship. Decade by
decade regression indicates a decline in the volatility effect over time for standard deviation based method. Nevertheless,
volatility coefﬁcient of one decade does not signiﬁcantly vary from the other decade when we test for the equality of the
coefﬁcients. We further classiﬁed SSA countries into ‘resource rich’ and ‘resource non-rich’ so as to observe if volatility varies
by resource within the region. Although the latter groups seem to have a stronger negative relationship, it is the ‘resource rich’
countries which have a stronger negative relationship when endogeneity of growth volatility is taken into account.
Macroeconomic ﬂuctuations and growth used to be studied independently. However, since the 1980s, their independence is
being questioned (see, for example, Nelson and Plosser, 1982). Following this, considerable attention moved towards studying
how they interact and affect the welfare of society. Particular attention has been paid to the role of growth volatility in an
economy. This includes its long-run impact on growth, its implication for the welfare of the society and its importance in telling
the overall macroeconomic structure of economies.
Growth volatility usually refers to the variability of growth over time from its mean value or its deviation from trend value. Its
deﬁnition depends on the measure of growth volatility used. In general, macroeconomic volatility reﬂects a country’s exposure
to shock and vulnerability from the shocks (Calder
on and Schmidt-Hebbel, 2008). The magnitude of shocks and their frequency
determine the level of volatility whereas a country’s structure determines the degree of vulnerability. Major shocks affect all
countries in the world. Additionally, there are country-speciﬁc shock factors apart from the common ones. Developing countries
are found to have higher volatility due to their structure. The degree of volatility depends on the structure of economies,
institutional setup, and domestic and international shocks. Natural disaster and political instability also played a role in
increasing volatility in some countries (UN-OHRLLS, 2014).
There are many characteristics which make the sub-Saharan Africa (SSA) region particularly vulnerable to volatility. Lower
output diversiﬁcation, poor economic and political institutions and sluggish structural change are the major ones. The region has
been one of the least developed with low, volatile and ‘unsustainable’ growth. For example, Ramey and Ramey’s (1991)
ﬁndings, from 1962 to 1985, show that growth in Africa was the lowest and volatility of growth was the highest compared to
other world regions. Speciﬁcally, mean growth was as low as À2.06 in Mozambique and mean growth volatility was as high as
12.59 in Uganda.
While the volatility of most macroeconomic variables has been studied often for SSA, growth volatility studies speciﬁcally to
the region are scanty. SSA countries are generally included in the growth volatility studies of developing countries. We are
interested in addressing the impact of growth volatility on growth in SSA. Studying growth volatility is important, besides as a
study of short-run ﬂuctuation, because of its implication for long-run growth and welfare. Short-run ﬂuctuations have an adverse
effect on society especially when the proportion of poor is high. Evidences also suggest that growth volatility is negatively linked
Jemberu Lulie Mekonnen would like to thank the Scientiﬁc and Research Council of Turkey (TUBITAK) for the assistance received during PhD study
at the Department of Economics, Marmara University, Istanbul, Turkey.
Jemberu Lulie Mekonnen, Department of Economics, Kotebe Metropolitan University, Addis Ababa, Ethiopia; e-mail: firstname.lastname@example.org/
email@example.com. Ali Suut Dogruel, Department of Economics, Marmara University, Istanbul, Turkey; e-mail: firstname.lastname@example.org
African Development Review, Vol. 30, No. 2, 2018, 175–186
© 2018 The Authors. African Development Review © 2018 African Development Bank. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.