Sources of Economic Growth in African and East Asian Countries: A Panel Causality Analysis

Abstract This paper examines the sources of growth in selected African and East Asian countries, using the growth accounting framework on data from 1960 to 2016. We demonstrate the causal association between labour quantity, total capital service (tks), total factor productivity (tfp) and economic growth. The lower growth in gdp during the 1980s and 1990s in Africa matches with the slower growth in tks. The tfp growth does not explain the economic growth difference among countries; it contributed negatively to gdp growth in the two regions until the 2000s. However, in African countries, its positive contribution during the 2000s returned to negative in the 2010s, while Asian countries continued driving a positive contribution up to 28.9% as a result of tfp growth. In all East Asian countries, tks contributed more than half of their growth in gdp, which makes their growth capital-driven, while African countries’ growth in gdp was more dependent on labour quantity growth. In Africa, we discovered bidirectional causality between labour quantity and gdp and between tks and gdp, as well as unidirectional causality running from gdp to tfp. In East Asia, we found only a one-way causality running from gdp to tks and to tfp. Policymakers in Africa should adopt policies aimed at increasing capital accumulation and efficient allocation of economic resources in order to sustain growth acceleration.