Determinants of Economic Growth inAfrica with Emphasis on the Role of Financial Intermediaries Using Bayesian Averaging of Classical Estimates

Abstract

This paper examines variables, which significantly determine longrun growth in Africa. Emphasis is put on financial intermediaries. The study used 37 countries and 14 variables. It employed an approach, which was introduced by Sala-i-Martin and D. Miller (2000) called Bayesian Averaging of Classical Estimates (BACE). This method constructs estimates by averaging Ordinary Least Squares (OLS) coefficients across models and weights given to individual regressions have a Bayesian justification similar to the Schwarz model selection criterion. Results vary from period to period but the most recent evidence shows that determinants of growth in Africa are Foreign Direct Investment (FDI) and population growth. Of 14 explanatory variables, FDI shows the strongest evidence. Unexpectedly, all used three financial intermediary indicators were not significant except for Liquid liabilities/ GDP (llgdp), which was significant from 1992 to 1998.