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| Title | Foreign inflows and growth challenges for African countries |
| Subtitle | An intertemporal general equilibrium assessment |
| Author |
Diao, Xinshen Breisinger, Clemens |
| ORCID | http://orcid.org/0000-0001-6955-0682 Breisinger, Clemens; http://orcid.org/0000-0003-4843-1670 Diao, Xinshen; |
| Year | 2010 |
| Abstract | Foreign inflows are important sources of income that many African governments use to finance public investments and to support the development of manufacturing or export-oriented service sectors. Yet the recent growth experience of many African economies shows that domestic-oriented industry (construction, utilities) and services have become the largest sectors. Using Ghana and its newly found oil as an example, we analyze the dynamic relationship between increasing foreign inflows and economic growth and structural change by developing a multisector intertemporal general equilibrium model. We find that the sudden increase in petrodollars used to finance either the government's recurrent spending or public investment generates a substantial short-run growth shock consistent with the Dutch disease theory. Opposed short-run effects on the growth of the tradable and nontraded sectors lead the structure of the economy to become more domestic oriented. The creation of an oil fund helps reduce the negative growth and structural effect, while in the longer term, if oil spending does not enhance productivity, growth declines and the GDP share of the nontraded sector further increases. Smart use of oil revenue thus not only involves the creation of an oil fund but also spending inflows on productivity-enhancing investment. Whether public investments can help overcome Dutch disease effects also depends on the growth magnitude of the inflows. At the same level of investment-to-productivity-growth efficiency, public investments take longer to overcome the negative growth effects the higher the growth rate of inflows. This paper further shows that the structural effect of foreign inflows on economic development is a long-term challenge for Africa. The domestic-oriented economic structure can become a persistent phenomenon for countries that continue to receive foreign inflows in the form of petrodollars or in any other form. |
| Series Name | IFPRI Discussion Paper |
| Series Number | 967 |
| Publisher | International Food Policy Research Institute (IFPRI) |
| Place of publication | Washington, D.C. |
| Language | English |
| Record Type | Discussion paper |
| Peer Reviewed - PR or Non-PR | Non-PR |
| Subject - country location |
GHANA WEST AFRICA AFRICA |
| Subject - keywords |
Growth structural change foreign inflows Dutch disease intertemporal general equilibrium |
| JEL Descriptors |
O55 Economywide Country Studies: Africa O41 One, Two, and Multisector Growth Models O11 Macroeconomic Analyses of Economic Development F43 Economic Growth of Open Economies D90 Intertemporal Choice: General D58 Computable and Other Applied General Equilibrium Models C68 Computable General Equilibrium Models |
| IFPRI Descriptors |
IFPRI1 GRP32 |
| IFPRI Division | DSGD |
| Access Rights | Open Access |
| Display Notes | Effective January 2007, the Discussion Paper series within each division and the Director General�s Office of IFPRI were merged into one IFPRI�wide Discussion Paper series. The new series begins with number 00689, reflecting the prior publication of 688 discussion papers within the dispersed series. The earlier series are available on IFPRI�s website at http://www.ifpri.org/publications/results/taxonomy%3A468. IFPRI Discussion Papers contain preliminary material and research results. They have been peer reviewed, but have not been subject to a formal external review via IFPRI�s Publications Review Committee. They are circulated in order to stimulate discussion and critical comment; any opinions expressed are those of the author(s) and do not necessarily reflect the policies or opinions of IFPRI. |
| LOC call number | IFPRIDP00967 |
| Physical description | 26 pages |
| IFPRI Web link | http://www.ifpri.org/publication/foreign-inflows-and-growth-challenges-african-countries |
| RePEc Downloads | https://ideas.repec.org/p/fpr/ifprid/967.html |
| Requests | mailto:ifpri-library@cgiar.org |
| CONTENTdm file name | 1092.cpd |
| Date cataloged | 2016-09-07 |
| Date modified | 2016-09-07 |
| OCLC number | 778453233 |
| CONTENTdm number | 1091 |
Description
| Title | ifpridp00967 26 |
| Access Rights | Open Access |
| Requests | mailto:ifpri-library@cgiar.org |
| CONTENTdm file name | 1081.pdfpage |
| Date cataloged | 2011-06-15 |
| Date modified | 2011-06-15 |
| CONTENTdm number | 1080 |
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