The Determinants of Economic Growth in Africa: A Dynamic Causality and Panel Cointegration Analysis

This paper examines the dynamic causal relationships between trade openness, foreign aid, domestic investment, long-term external debt, government spending and economic growth for a panel of 33 highly aid-dependent African countries for the period 1974-2009. Short-run bidirectional causality is found between economic growth and trade openness. Short-run unidirectional causalities are found from external debt to foreign aid, from trade openness, foreign aid, external debt to domestic investment, from economic growth, trade openness to external debt and also from trade openness to government spending. The long-run effects of trade openness, domestic investment and government spending on economic growth are significantly positive.