Determinants of Economic Growth in Africa with Emphasis on the Role of Financial Markets Using Bayesian Averaging Of Classical Estimates

This study examines the variables which should be included in the valid growth model in Africa. In other words, it examines variables which significantly determine long-run growth in Africa. Though out the study, emphasis is put on financial markets. The study uses 37 countries and 14 variables. It employs an approach which was introduced by Sala-i-Martin, X. et al (2004) called Bayesian Averaging of Classical Estimates (BACE). This method constructs estimates by averaging OLS coefficients across models and the 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 the determinants of growth in Africa are foreign direct investment (FDI) and population growth. Of 14 explanatory variables used FDI shows the strongest evidence. To my surprise, all the 3 financial market indicators used are not significant except for Liquid liabilities/GDP (llgdp) which is significant from 1992 to 1998.