Friday, October 14, 2016: 2:35 PM
This paper estimates the effects of openness, trade orientation, human capital, and other factors on total factor productivity (TFP) and output for a pooled cross-section, time-series sample of countries from Africa and Asia, as well as for the two regions separately. The models are estimated for the level and growth of both TFP and output by using panel fixed effects. The generalized method of moments is also applied to address endogeneity issues. Several variables related to political, financial, and economic risks are used as instruments, together with the lagged values of the dependent and endogenous explanatory variables. The data for this study span 40 years (1972–2011) and are grouped into five-year averages. Several sources were used to obtain the most updated data, including the Penn World Table. The paper finds that inducing a greater outward orientation generally boosts TFP, per capita output, and growth. Greater accumulation of human capital has a consistently positive effect on output and TFP growth in both Africa and Asia. Its positive influence develops rather independently of trade variables than interactively with openness. Furthermore, inflation does not negatively affect growth, although inflation variability is found to adversely affect TFP and output in Africa. Among other indicators, life expectancy, the social development indicator in the model, positively and significantly affects TFP in Africa. Most poor countries are expected to improve their life expectancy over time and yet many countries in sub-Saharan Africa experienced an absolute decline in life expectancy during portions of the sample period. There is strong evidence to suggest that a rise in this indicator will raise TFP in Africa