Growth Convergence In Southern African Customs Union (Sacu): A Dynamic Panel Approach

This study examines the growth convergence within SACU economies using the unbalanced panel dataset for the period of 1992 to 2015. The study used a dynamic panel approach to check if less developed countries in SACU registered more growth than more developed countries in order to converge to a common steady state. In support to the main objective of the study we used the two GMM estimators (that is the one-step system GMM and one-step difference GMM models) to investigate growth convergence. Validity of these models is confirmed by the second order serial correlation test and Sargan test for overidentifying. The results shows that real GDP per capita as a measure of growth is significant in determining convergence for both the one-step system GMM and one step difference GMM estimators. This implies that within the region less developed countries attained growth in order to converge to their own steady state within the period of 1992 to 2015.The results has confirmed to conditional beta convergence and absolute beta convergence for SACU countries. The policy implication of this finding is that policy makers must cautiously implement economic development policies that aim to promote growth of GDP per capita and reduce on areas that discourage the growth of the country in order to converge. Using the one-step system GMM model shows that the highest rate of convergence is about 9% within the SACU region while the highest rate of convergence is about 5% using one-step difference GMM model. This difference is supporting literature that suggests that the system GMM produces more efficient estimates. The results for the one-step system GMM shows more significant coefficients for variables than the difference GMM estimator for panel estimation. Foreign Direct Investment (FDI), trade openness, physical capital and tertiary school enrollment positively and significantly affect economic growth and convergence as expected. Therefore this implies that for FDI, the more the country is attracting foreign investors, this augments the levels of domestically human capital. For trade openness (OPEN), the more the individual country is open to trade the higher the gain in productivity growth due to increase in flows of goods and services. Therefore these cases promote high economic growth in order for countries to converge.