.///. -■'
l\
UNITED NATIONS
ECOINOMIC AND SOCIAL COUNCIL
FKJCtXKIC CTfTUPSICF FOR 7PRICT
OP IFPICI.V IJ?v
Ministerial FollCT?-up Ccnnittor on International TracTo anc1 Finance lor African
Second ?teeting i c\ 25-2G .Tr
Dintr.
29 neca?bor 19R1 Oriainal
I.
II
EFFECTS OF E3OI3=I5\L inTHTTFENESE ON THE GPCKTH OF AFRIC?iN COUNTRIES
Table of Contentr,
FCCNDMIC GPOTTH OF rvF^»2C;jT CaJtirrrRI7'S DlTPIT-r 1270 - 19pn 5
EXTEPNhL IMDEBTEDKESS ....„.„.„. To
EFFECTS OF E^IERN?I, TOEETFTMFSr OF TCOK^nC CPOv^H
PJO DQvrSTIC ^.VINPF ... o .„ o. o .".,„ o._ I. .„ 17 - Tlieoretical annroaches ...,„„,. „, 0 o o „ „., „ o e o,, s s 17 - Estimation model ...•...„.,, *>*
- Results .«--..-...o o.o o,o jb o„t o .,^ ^ op
- Final remarks •<--.-•...-. ....o... o... 35
34 36
Pages
1 - 4 4 -■ 7
8 - 12
9 -» 11 11 - 12
lo Almost all grovrth models of developing countries are based on the sirnple hypothesis that the growth rate of* the gross domestic nroduct (ODP) can be stepped, up through an : increase in. external capital flews, vith this capital leading to an increase in over-all donestic savings and investments. African developing countries have in this way
considerably increased their inflows of foreign capital in recent years.
2. During the period 1970-1930, the external public debt of the countries as a whole has risen at an average rate of 27.3 per cent per year- Compared to OT> at factor cost, the outstanding debt, including amounts not disbursed, rose from 15 per cent in 1970 to almost 17 per cent in 1979, Interest and amortization payments on the principal gradually increased and, in 1979, reached an amount approximately equivalent to il per cent of the' total export revenues for goods and services of African countries.
3. : During the same period, (TO of the African develoning countries rose by.5 per cent per year, that is, at a rate ^nich is barely higher than the 4.7 per cent recorded during the
1960s. ; In view of this fact, one can ask to what extent the increase pi external debt has
promoted economic growth in the region, : ;
4. ..ipuring.its first meeting, held frcm 9 to 11 March 1981, the Ministerial Follow-up Committee on International Trade and Finance for African Development requested the secretariats of BCA and OAU to undertake an in-depth study on the current problems and prospects of African countries with respect to external indebtedness and on concrete measures that can be taken by these countries to solve the problems. This document, prepared pursuant to this reconmendation, is divided into three sections. The first two sections analyse recent trends between 1970 and 1980 in the growth of GDP and external indebtedness in African countries. The effects of external indebtedness on growth are considered in the third section on the basis of a multiple regression model.
X.
GRo?n-i of African countries duping i?70 - 1980^
5. During the 1970s, GDP in the developing African countries taken as a whole rose at the rather steady pace of about 5 per cent per year, except for t>r> exceptional years, 1975
and 1976, during which GDP increased by 2.7 per cent and 7,2 per cent per year respectively.
This rate increased frcm 4.8 per cent in 1970-4975 to 5.6 per cent in. 1975-1979. If the lewer growth rate recorded during the first phase is to a large extent the result of a
mediocre year for the non-oil-exporting subregiens of Eastern and Southern Africa, the marked increase recorded during the second phase is primarily due to a rise in oil revenues of
the oil-exnorting countries (see table 1),
V "Survey of: Econanic and Social Conditions in Africa, 1979-1980", Part I (E/CN. 14/802), Chapter IV.
Table 1, Economic growth indicators of .African developing countries based on national accounts
in constant prices (percentage unless otherwise *
HC-
fe
Groups of countries Period <3)P growth
rates
African developing countries
Major oil- exporting countries
countries
Countries with a per capita CDP
less .than fus 100 ^
Countries with per capita GDP between $US 200 and 5 300
1970/75 1975/79 1970/79 1970/75 1975/79 1970/79 1970/75 1975/79 1970/79
1970/75 1975/79 . 1970/79 Countries with a per capita CDP
between $US 100 and $ 200 -: 1970/75
1975/79 1-970/79 1970/75 1975/79 1970/79
Countries with a per capita GDP 1970/75
between $US 300 and $ 400 1975/79
1970/79 3 a
5,6
7OR 8.3 P.I 3.5
3"!p
2.4/
2-o7 3.8 3; 2
3.0 5.3 4,0 6.1 5,5 5O8
Source': TCA, Statistics Division
1/ Reference periods are 1970, 1975 and 1979.
Capital- output
ratio
Domestic
4.7 4.P
4.9 4.3
4.6
6.3
6,6 5.3 5,6 3,7
4.0
.A 7
witli respect
to GDP~1/
lB.'S 15.5 19.8
15.5
15.
15.
16,
13.
13.
12,
14.
14.
14, ,1 , 9
■*?
9
1 7
4 3 5;
14,312.0 15 D0 28,9.
27.3 27.2
Marginal -propensity
to save
0.05 3,37 0.22 0o13 ,0.52 0o22 0.21 0.21 C.21
C.08 0..09
0.13 0U6ff.15
0.2P 0o?.2 0.23 0a?.7 0,
FT/FCAAJP.1/10 Page 3
6. The above averages do not reveal the considerable differences which appear in comparing the performances of groups of countries.
7. As shorn in table 1, it is the middle-income countries including the major oil- exporting countries,, which recorded the most rapid growth. The oil-exporting countries in particular recorded average growth rates of 8.1 per cent during the period 1970-1979.
Nevertheless, in 1979, their growth rate was lower than the average, that is, 7.1 per cent, because of relatively large supplies of oil,on the world market. The results obtained by non-oil-exporting countries were, however, much less favourable? the net decline in their growth since the beginning of the 1970s, which fell to an absolute minimum of 0=9 per cent in 1975, has stopped,, but their growth has ranained irregular. As a whole, their average growth rate of 3.9 per cent is practically the sane as in the 1960s, in spite of a clearcut increase in external capital flows.
8. The data available on domestic savings and gross investments are not very reliable.
However, it can be estimated that for African countries as a whole, the rate of domestic savings with respect to GDP increased, from 18.8 per cent in 1970 to 19.8 per cent in 1979 = Once again, there are strong; disparities ..in the performance of different groups of
countries. While the sayings rate of hpn-pil-exporting countries remained at a level barely higher than 15 per cent during the 1970s, the savings rates of the major oil- producing countries dropped sharply from. 24-. 8 per cent in 1970 to 15.5 per cent in 1975, and then strongly rallied to 25.4 per cent in .1979= The drop in. results recorded during the first half of the 1970s was due to the very large growth in both public and private consumption in these countries, while the reversal of the trend reflects the adoption by the countries'in question of various series of stabilization measures to control inflation in their countries. In the noii-oil-exporting countries, especially the low-income countries, the savings rate fell off and runs the. risk of dropping even more in the future,
9. The capital coefficient with respect to GDP plays a major role in models which analyse the effects of external .indebtedness on economic growth. During the period- under
consideration., the capitai^output ratio of African countries taken as a whole was 4 = 6 per cent, with a rather strong upward trend during the two periods 1970-1975 and 1975-1979
(table 1)=
10. Nevertheless, as concerns non-oil-exporting countries, the capital-output ratio fell from 5.1 per cent in the first phase to 4.6 per cent in the second phasea This change
is proof of the success achieved by this group of countries in utilizing existing production capacities and obtaining the best possible returns from their new investments. However, the rrajcar oil-exporting countries recorded an increase in the capital-output ratio, especially after 1975, as did the countries with very low incomes (less than $US 100 per capita). The steady rise of this ratio in countries of the first group is most likely due to the recent tendency in the countries concerned to undertake large and costly
progranmes using a minimum of manpower and. to the increased attention given to education, health and hygiene programmes with a generally long gestation period. However, the
unfavourable.trend noted in the second group of countries seems to a large extent to be the result of long delays in the implementation of their projects as -well as other factors linked to the structural weakness of their economies.
ST/ECA/VP.1/10 Page 4
*■««=.- 4. «* observations should be taken into account in order to understand the
^^^r^t!^reSS2ai ^^ch will be presented in the third section on the effects of
external indebtedness on economic growth.
II. EXTERNAL INDEBTEDNESS
^favourable trends in general econonic conditions have led to a rapid increase
i since 1975. In African countries for which dataware available, the external public debt increased fran-$OS 7.6 billion in 1970 in 1975 and reached the record figure of $66.8 billion in 1979,fn 1O7Q ^n^JP? a^?U?1 growth rate of 27 e 3 per cent over the entire period fron
to 1P79 compared to 24.3 per cent for 1970 to 1975 (table 2) 1/.
external public debt of the developing countries of the Latin America rose at the clearly less rapid pace of
^f^™f i faT clearlv less rapid ^ce of
$41 6^1?^ S^^h ^ ^ to 1979' Vdth ^ ^^ £^nt disbursed increasing fran
$41.6 billion to $257 billion betaken the two dates. Because of the disparity in the rates
of increase, Africa's share of the total outstanding external public defcTS thftSee
regions rose fron 18 per cent in 1970 to 26 per cent in 1979 (table 2).
f? ^ dabt structure for African countries by catenory of creditor. As
?£ f^- developing countries in recent years, there is a clearcut ur^ard trend in the relative share of debt contracted vdtb. private sources, ccmnercial banks and other
private^financial institutions. This share, ivhich did not reach 30 per cent in 1975,exceeded 38 per cent in 1979. Nevertheless, since torrowing procedures have beccxne
increasingly difficult and restrictive, primarily because of variable interest rates, onlv
navTaecesfS t^SS^LS^ ^^ ^ *
15o ahe worsening of borrowing terms has been reflected in an increase in debt servicing.
During the period under consideration, payments due for amortization and interest incrpased at the same rate as the amount disbursed of the total debt, that is, at an average annual
?™ ?n f^P centnbetween 1970 and 1979. In absolute values, the payments increased frcm $0.9 billion itj 1970 to $2O9 billion in 1975 and reached $7O9 billion in 1979. These figures represent 11 to 12 per cent of the amount disbursed of the total debt.
f™ V!Sr ^J^01^163 Ust:Gd ^ taihle 4' ^ ratio of debt servicina to total revenues
T^Tq^ <-^^ non-factor goods and services increased significantly fran 6.3 per cent
in 1970 to 10.9 per cent in 1979. This means that about 11 per cent of the export revenues
LSf£? S7S S WGre SPent f°r dGbt Servicillg ^ 1979 ltereas o^y 6 P^ cent had been
J/- for a previous study on the same subject, sees "External debt nrcblens: nossibl(
urpact on the Afncar countries" (E/CN.14/FO3/153).
oin
C^tstazgin^^tgrnal nublic debt of the de^lopim.yuntrtes by rorion (itounts disbursed cnly)
AFRICA
NorthAfrica
RestofAfrica
EasternAsic.andthePacific
MiddleFast
SouthernAsia
1ATINTHECEKIBEE?*:]
Totalof18
countries 3909
' 1977
1379197C1975268^30030412315^.970
115910R3?1^4126466118511561P 21676
19555 30545
24425 6682436022
308021256044913S1528663997119879072
18795
62061992.: 2446-'
23176 ?999638427
103933945
2601028P26
IbrldBank,AnnualReport,1372and1079-1981 18.3/.0.821O623^-25,026.0
7.0-'1.339O237O732^3Co7
^2Z6 1112H 34.7 37.9 3P.2 38OS 42,6 (.3.3
100100100100100
able 3-° Outstanding external public debt of Africa by category of creditor as of 31 Deosrfaer 197f>
snd1970-1575=~~~~~*■-————■-—orH
rH —197019751Q7619771978197^ic701975l97S1?77icy™1Cllounionsofupdollars)"~r^ercentageoftotilT~
:otalfincludingnon-
disbursed amounts 10^ _ ISj? 2^. 30^ 3U ^ no 100 100 100 1CC 100 fc of rtibiic origin I! 1M ILi £L5 £^7 2M 6f 72 7HO1 6qo;> tba, flo7
Bilateralc.G8.210.''-l"o?V7Multilateralxi^^3?* of private arlrrin _2^ ^ ,2,3 1^ 130 17,6 ^ -S ?o c ,lp 3.^ 3P 3
0,1 -Financialinstitution*-Other 7o
fr.
2.5
1.2
0.4 13,8a5,5.lo
3a €■-i3c0 1710€7
0 .1,-..7,3.5■)
Source,'T'"brlcDank;AnnualIte^ort,1P72aid1975-lORi,
Si.
. l/io aoe 7 Table 4,
Payments for servicing the external public debt of African countries
as a percentage of' exports of goods and services- 1970-1979
Algeria Benin
Botswana ,. ■ Burundi
United Republic of Cameroon Central African
Republic Chad
Canoros Congo Egypt Ethiopia Gabon Gambia Ghana Guinea Upper Volta
Ivory Coast Kenya
Lesotho Liberia Madagascar
Malawi Mali
Mauritania Mauritius Morocco Niger Nigeria Rwanda Senegal Sierra Leone Sanalia Sudan Swaziland Togo Tunisia Uganda
United Republic of Tanzania Zaire
Zambia
Average for the above-mentioned countries
T970 1971 1972 1973 1974 1975 1976 1977 1978 19]
3.2 2.2 2.7 2.3
3.1 3.2 2.9 8.4 28.7 11.3 5.5 0.7 4.9 28.7 3.9 6.7 5.5 9=6 7.2 3.5 7.0 1.8 3.2 3.7 7.7 3.8 1=3 10.0 2.0 10.3 4,7 2.9 17.1
7.3 5.4
5,8 4,0 2.2 2.6 4,4
2.0 8.5 0.1 8,2
->Q Q '
<.Og O
10.3 7.2 0.9 7.1 29.2
7^6
8.1 6.7 6.6 7.7 1.2 3.6 4.2 10.2 3.0 3.0 1.8 5.0 7,3 2.3 12,9 5.2 2.9 K.8 4.0 8.1 4.9 10.011.8 3.3 2.8 6.6
4.8 1.4 5.0 0.0 8 31
8.7 7.1 1.0 3.2 31.1 2.9 8.1 6.0 3.8 6.1 3.5 7.4 1.3 10.2 1.6 9,5 2.6 2.8 2.1 ■ 3.9 S.G 2,9 13,8 10.1 6,4 15.2 4,0 13.4 8.0 12O9
12.2 1.9 2.6 2.5 4.7 4.6 3.5 2.1 8.6 40.2 6.-1 14.1 1.1 3.6 29.9 3.3 7,2 5.5 3.2 5.3 5.3 7.4 5.8 9.0 1.3 8.3 2.0 4,0 0.2 7.9 8.7 3.6 11.9 9.5 6.9 10.6
8.6 8.5 30.9
12.7 4.8 2*7
4.3 5.1 3.3 1.1 6.8 21.7 5. A 4.1 0.8 3.7 16,8 2.8 7.9 4.7 2.1 4.9 3o6 7.6 2.3 6.6 0.8 5.5 2.8 1.7 0.8 5.4 a.5 4.2 14.2 2.3 3.4 6.7
6.6 12.4 7.3
8.7 13.0 3.6 2.7 3.1 1.5 5.6 4.4 5.3
7.9 5.9 4,6 12.7 22,5 7.5 5,5 0.6 5.8 14.8 3.5 8,8
■4.5 2.4 5.5 3.0 7.7 2.4 20.7 1.6 5.7 4.6 2.7 0.6 5.4 10.3 21.1 1.6 9.8 6.9 3,7
5.4
5.7 8.4 18.5 6.4 6.7 0.6 6-.2 15.0 3.0 3.8 5.9 4.4 4.4 3.7 7,3 2.8 37.0 1.0 7.2
.-. fl
3.4 0.8 5.7 15.6 2.6 14.1 0.8 6.7 7D0 2,9 7.4 6.6 15.1 7.5 10.2 10,2
15.3 1.9 1.8 2.9 5.3 4.7 10.0 7.0 10.5 5.9 9.5 0.5 3.6 19.0 2,2 10 o 4 4.8 3.3 6.0 3.2 5.2 3,3 22.4 1.6 10.8 4.4 0.8 0.9 6.1 10.6 3.6 7.6 0.9 11.4 9.5 3,0 7.2 8.3 IP,7
20.4 3.3 2.4 3.5 7.4
2.6 11. P 10.8 7.3 22.3 6.5 20.5 0.8 4.7 20.0 3.9 13.0 8.1 1.9 5.8 3.3 9.8 7.1 16.3 . 2.4 18.7 2.7 1.2 1.4 13.4 18.2 3.1 9.5
"1.6 K.5 10.9
o o
25.6 5.1 1.6 3.1 9.5 oa 14.4 NA
24,6 15.ft 4.9 17.0 0.4 4.2 22.2 3.8 15.2 7.5 0.6 13.8 3.9 9.4 8.5 32.4 3.7 21.8 3.6 1.5
0.6
13.7 22.2 1.1 33.0 2.0 24.4 11.8 7.4 7.4 7.4 8.2 9.1 20.8 19.7
6.3 6,7 7.3 3.0 5.f 7.0 6.8 1.2 8.7 10.9
Sources World Bank, Annual Report, 1978 to 1981.
Page 8
III. EFFECTS OF EXTERNAL INDEBTEDNFSS ON BCOTMC GEO*TH AND DOMESTIC SAVINGS
Theoretical approaches
17. TWO theoretical approaches have been adopted to analyse relationships between external capital flows in developing countries and growth, rates of GDP. 1/ 2/
18. Under the first approach, most growth r^odels are essentially based on the hypothesis of a fixed capital-output ratio and an average propersity to constant savings. According to this hypothesis, these models consider that external capital inflows in developing countries produce two results leading to an increase in the growth rates of GDP: first,
the inflows supplement domestic savings and therefore lead, to an increase in investment rate?;
second, they stimulate the marginal propensity to save by increasing per capita incane. In other words, this type of model assumes that any increase in foreign capital flows is
entirely focussed on raising the investment rate and, consequently, the growth rate of GDP.
External resources would thus tend to supplement domestic savings rather than increase -
consumption.
19O Conversely, a second type of approach considers that external capital flows ^ basically be substituted for-domestic savings and that a large share of this capital is
used to increase consumption rather than, investment.
20. Furthermore, capital flows may tend to increase the capital-output ratio andr<
consequently, actually lead to a reduction in growth rates. The explanation for this
phenomenon is that projects financed through external resources are generally more capital- intensive than those financed through domestic savings.
21. Moreover, a large amount of external public assistance is attributed, to activities which are either not directly productive or have long gestation period?. For example, during the 1960s, African countries emphasized infrastructure projects, such as road, port
and airport construction. J'ore recently, after 1975., as shown in section I, attention has been focussed on programmes concerning education, housing and the construction of large
irrigation and electrification dams. Regardless of the desirability of these programmes, in theinselves, they tend to divert the allocation of investments to projects vtiich often have a slight or merely long-term influence on domestic production. r v 22. Even if external public assistance is attributed to directly productive activities, its inpact on growth may still be weak because, nost often, investments tend to be
concentrated in liighly capital-intensive industries. Given these conditions, the ultimate effect of external capital flows is to increase the capital-output ratio and reduce the"
growth rate of GDP.
23. The following paragraphs will endeavor to determine which of the two types of models described above has proved to be true in African countries over the past years or? in other words, to answer the two following alternative questions;
(a) To what extent external capital flows.have ccroleiiented domestic savings and - have led to an increase in GDP (positive imnact); or
(b) 1b what extent these funds have replaced domestic savings and led to a
~ decrease in GDP (negative impact). ■
j/ Keith Greffin, "Foreign capital, domestic savincs and economic development'", Oxford University Bulletin of Economics and ftatistics, February 1S70, pp, 99-112.
2/ K.L. Oreffin and J.L. Enos, ''Foreign assistance, objectives nnd consequences1", Economic Development and Cultural Chancre, April 1^70, pp. 313-337.
Page 9 Estiiriacion model
24. Estimation of the effects of capital flows and external indebtedness on the growth of GDP and domestic savings in African countries during the past few years is based on the results of a recent study which critically analysed previous ntudies on dcveloning
countries. 1/
25. The sample used as tho basis for the study comprised 83 developing countries, of which 30 i-re classified among the poorest countries v.dti: the lo^ost incomes, and 53 are classritxod <is raddle-income countries. Data on external debt relate to capital flows from counUies members of the Develonnent Assistance Comnittee (DAC) of OECD during the period 1969^.1576 aiv1 are divided into two ports:, public dev^lorrxnt aid (PDA) md o+*her financial
flows (table 5) 8
26. Africa is represented, by 3fi countries, of which T-.l arc. among the roorest and 15 among the niadle-incoTie countries, representing <\3 per cent of the total samrie and 70 per cent of the group of poorest countries respectively. The results obtained, may therefore be
appropriately applied to the majority of African countries.
27. The effects of external indebtedness have been estimated, by a multiple regression
model of thG growth rate of GDP with respect to domestic savings'" nnd external capital flows •
PDAand other financial flews from countries members of arc, domestic savings and externalifcal flews expressed as percentages of GDP.
28. Teble 6 gives the results of the regression analysis. The coefficients determining
the recession equations (R-) are very low* only 4 or 25 per cent of the grov-th rate of CD?of 6eveia?xj-J3 countries in general and of African countries in particular can be explained by mpui- or foreign capital and domestic savings durina the 1970s, The poor analytical cr-pacUy of clie model is not surprising given the large number of other variables which can Jufluencff growth rate, in particular, internal political conditions, posession of mineral resources a:.'^. other rare natural resources <3nd the gra-th rate of the value of exrorts.
Nevertheieofa, die results suggest that external assistance, vjhich had at one time been*
considered an important factor detsrmininq the growth of developina countries, can nc
longer be considered as such.
29. Por^tiM countries taken as a whole (equations 1 and 2), there is a correlation, which
is nc+-. ■:•-.,;; _er.v' rnd insignificant but even negative, bcta^cen the aro\vth rato of npr and external c-p.ital riows. This means that the steady increase- in the external debt of the majority of African countries seems to have had a r.-thor restrictive off.-ct on theirrate.
30. Trere is a difference, however, if the countries are separated into tw income qroups
Yox^ ^,-pc^;t to j.c*>-ancane countries, the influence of external capital is more difficultO3 deton:.rK- while PER tends to increase the growth rate of those countries to some extent, Jne otnar f u^oial flows on commercial terms exercise a negative effect (equations 5 and 6)
1/ P-iMil ^t-sley, "Aid savinqs and growth revisitodE\ Oxford Univcrsitv ^iulletir of
Ecatiaru.es c!r^ Statistics, May 19S0, r^a 70-76. ^~—:—:- '
Page 10
Table 5. Growth rate of GDP? external capital f]
African countries
Per capita income level
1977 (US dollars)
Poorest countries 1- Ethiopia 2a rtiLi 3. Rwanda 4. Somalia 5. Upper Volta 6, Burundi 1, Chad 8, Malawi 9O Zaire 10. Guinea 11. Niger 12, Lesotho 13, TYbzarribique 14. Tanzania 15. Madagascar 16. Sierra Leone 17. Central Af. Rep.
18. Kenya 19. Uganda 20, Botswana 21. Togo
Middle-income countries 22. Egypt
23. Cameroon 24= Sudan 25, Angola 26, .Mauritania 27. Nigeria 28. Senegal 29. Gambia 30o Liberia 31, Congo 32. itorocco 33. Ghana
34. Ivory Coast 35. Tunisia
36. Algeria 1
Sources Paul Mosley, Economics and Statistics
(1)
110 110 130 110 130 130 130 140 130 220 160 210 150 190 240 190 250 270 270 300 300
320 340 290 300 270 420'^30
450 420 490 550 380 690 S60 110
Growth rate of GDP 1970--1377
(2)
;\5 3.5 3.9 .1.2 3.3 1,4 0.8 6.3 1.9 5,3
■1.8 5,2 -5..0 4.7 -0 = 3 1.9
r-. n
6 = 2 -0.1 8.4 3,1
7.9 3.4 5.0
■ 10.4 2U?
6.2 2 .-8 2O?
2.7 5.6 4.8 0.4 6,5 9.4 5.3
''Aid swings and growth
, May l$80/pp. 79-96.
Lc*73 and domestic savings in some
Total DAC aid 1969-1976
(averaae) O)
"> r.
S-' a J-
IC.l 7.4 2.4 7,5 5. '.' 7.8 5O2 4^2 0.9 9.6 5.9 0.7 1.2 2.9 1.9 6.1 2.4 0.7 8,5 3.8
1,2 '".6 1.2 0.1 f- "*
0.2 3 5 l.S 2.2 4.7 1 = 2 1.6 1.3 , 2.6 0.6 revisited1',
Other financial fIovts frcpi D?«C
countries 1969-1976
(averaae) (4)
no04
■ 0.7C -0. 0^:
0.2 0.06 0.03 0,02 0.7 6.5 1.4 1.1
■0.6 -0.09
0.8 0.4 -0.03 -0.1
1.3 C.I
■2.5 1.0
0,5
1^7
l.G 1.0 -0.4
n 1
\i - >>.
0.6
r ac
27.6 7-2 1.0 -0.2 1,7 1.2 3.4
Domestic savings
(percent^ tc
(5)
r\
8 8 7 -24 9
~ 3 10 20 7 11 7 B 17 f.
20
3
25
p
18 32
24 22 11 7 7 29 0 21 27 10 7 6 26 22 38 Oxford University Bulletin of
FP. 1/10
■ Page 11
31. For the middle-income countries (equations 7 and 8) , there is a constant negative correlation between .the GDP growth rate and the inflows of external capital on any terms*
It seems, therefore, that in these countries external indebtedness has contributed, as little as possible to economic .development.
32„ As underscored above/the question of knowing to what extent external capital flows and domestic savings are ccnplementary or replaceable is a separate matter, but it is linked to the effects of external debt on the growth of developina countries.
33. The results shown in table 6 (equation 3) show a negative and significant correlation., that is, a substitution relationship between pry. and domestic savinas for all countries concerned. Consequently,, almost 24 per cent of the drop shown in the savings rate in a number of African countries during the 1970s can be explained by the increase in capital inflows,
3<2O All the above-mentioned results tend to prove that arowth in the majority of African countries during the 1970 1980 decade depended, more on domestic savings than on external capital flows. This conclusion can be clearly drawn from the results of the regression of tile GDP growth rate with respect to the savinas rate; the results actually show a direct, positive link between variables for all regression eouations.
Final remarks
35. The above analysis has shown that external capital flows in recent years have had a slight if not negative impact on the growth of African countries* During the period 1970- 1980* the annual growth rate of HDP in low-income countries barely exceeded their population growth rate. .. In fact, most of the growth recorded in the region can be attributed, to
the group of middle-incane countries and the major oil~expDrtin.g countries. Nevertheless, the results of the regression do not show any direct correlation between this arowth and. the increase in capital inflows. However, the increase in GDP is closelv linked to the increase in domestic savings.
36. In the final analysis, the future growth of the economics of African countries seems to depend basically on the strengthenina of savings and investment efforts, the efficient use of resources and the establishment of institutional reforms ?md better economic
managqinent. This growth vdll dependf in particular, on rccnGures adopted by ^ovGrmnentE to implement the Lagos Plan of Potion as it concerns the mobilization and. utilization of domestic resources for developnent0
Table6.EffectsofexternalcapitalflowsongrowthofGDPanddomesticsaviiKjs
Dependentvariable(1) Constant(2) Aid(3) OtherOtherfinancial7idfinan-flowsGKp(laggedcial(lagaadSavingsper-5years)flows5years)ratecapita(*>(5)(6)(7)'(P) R(9) D.W.(10)A.Hesultsforlessdevelopedcountries(no.ofobservations-83ofviiichAfrica=36)
(1)
(2)
(3)
(4) 2SLS
2SLS
OLSOLS GrowthGrowthAid
Aid 6.13**(3.11)5.00**(3.43)3.63**(9.45)3.19**(10.14) -0.<«(1.185)-1.08(1.74) -0.72(0.59)-0.34(0.93) 0.029(0.43)0.10*(2.43)-0.11**(5.08)-0,0015*(5.15) 0.CS570.28850.24410.2488 2.2S172.33722,00251*8519
"poorest"countries(No.ofobservations)=30ofwhichAfrica=21)
(5)
(6) 2
2 SLP
SIS Growth
GrovTth 0.2-^**(2.15)0.042(0.02^) 0(0 .45.22)0o(2. 98**51) -0.(0. 2606)—0(0 .32.31) 0.C3S(0.69)0.48(0.78) 0,02172-4902
0o10K2.2839
C.Resultsfor53"middle-inocne"oountries(no.ofobservations=53ofTtfiichAfrica=15)
(712SLS
(8)2SLS Growth4.56**
Growth3.75**(2.89) -1.02(1.08)-1(1 ,04.09) -0.085(0.02)-0.040(1.13) 0.11**(1-73)0.16**(2.92) 0.04612O2327
0.26442.2618
Source:
