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Africa's Great Moderation

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  • Krantz, Sebastian

Abstract

Over the past 30 years (1990-2019), African economies have experienced remarkable improvements in real macroeconomic conditions, characterized by higher and more stable real per-capita growth rates, and lower and more stable inflation, which deserves to be called a "Great African Moderation". This paper documents the persistent decline in macroeconomic volatility at the aggregate and sectoral levels and seeks to provide some explanations. Sectoral analysis shows a particularly strong reduction of growth volatility in agriculture, followed by services. On the expenditure side, private consumption and investment growth have stabilized considerably. Analysis of a broad range of explanatory factors yields that only a small fraction of the Africa Moderation can be explained by structural change, or changes in major structural characteristics such as institutions, trade intensity, and diversification, natural resource dependence, or conflict incidence. Rather, this paper brings forth evidence to suggest that changes in the external environment (terms of trade, external debt), improved macroeconomic policy frameworks (exchange rate management, fiscal rules), and 'softer' structural improvements such as the deepening of the financial sector and increases in human capital, were important towards reducing volatility on the continent.

Suggested Citation

  • Krantz, Sebastian, 2022. "Africa's Great Moderation," Kiel Working Papers 2229, Kiel Institute for the World Economy (IfW Kiel), revised 2022.
    • Handle: RePEc:zbw:ifwkwp:2229
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    File URL: https://www.econstor.eu/bitstream/10419/266593/1/KWP2229rev.pdf
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    References listed on IDEAS

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    1. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    2. Ahmed, Abdullahi D. & Suardi, Sandy, 2009. "Macroeconomic Volatility, Trade and Financial Liberalization in Africa," World Development, Elsevier, vol. 37(10), pages 1623-1636, October.
    3. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    4. Gaaitzen de Vries & Marcel Timmer & Klaas de Vries, 2015. "Structural Transformation in Africa: Static Gains, Dynamic Losses," Journal of Development Studies, Taylor & Francis Journals, vol. 51(6), pages 674-688, June.
    5. Cesar Calderon & Sebastien Boreux, 2016. "Citius, Altius, Fortius: Is Growth in Sub-Saharan Africa More Resilient?," Journal of African Economies, Centre for the Study of African Economies, vol. 25(4), pages 502-528.
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    More about this item

    Keywords

    macoeconomic stability; structural resilience; growth; inflation; volatility; structural change; economic structure; institutions; macroeconomic policy;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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