GROWTH CONVERGENCE IN SOUTHERN AFRICAN CUSTOMS UNION (SACU): A DYNAMIC PANEL APPROACH
Date
2017-06-06
Authors
Tshireletso, Baboloki
Journal Title
Journal ISSN
Volume Title
Publisher
University Of Bostwana
Abstract
This study examines the growth convergence within SACU economies using the unbalanced
panel dataset for the period of 1992 to 2015. The study used a dynamic panel approach to
check if less developed countries in SACU registered more growth than more developed
countries in order to converge to a common steady state. In support to the main objective of
the study we used the two GMM estimators (that is the one-step system GMM and one-step
difference GMM models) to investigate growth convergence. Validity of these models is
confirmed by the second order serial correlation test and Sargan test for overidentifying. The
results shows that real GDP per capita as a measure of growth is significant in determining
convergence for both the one-step system GMM and one step difference GMM estimators.
This implies that within the region less developed countries attained growth in order to
converge to their own steady state within the period of 1992 to 2015.The results has
confirmed to conditional beta convergence and absolute beta convergence for SACU
countries. The policy implication of this finding is that policy makers must cautiously
implement economic development policies that aim to promote growth of GDP per capita and
reduce on areas that discourage the growth of the country in order to converge.
Using the one-step system GMM model shows that the highest rate of convergence is about
9% within the SACU region while the highest rate of convergence is about 5% using one-step
difference GMM model. This difference is supporting literature that suggests that the system
GMM produces more efficient estimates. The results for the one-step system GMM shows
more significant coefficients for variables than the difference GMM estimator for panel
estimation. Foreign Direct Investment (FDI), trade openness, physical capital and tertiary
school enrollment positively and significantly affect economic growth and convergence as
expected. Therefore this implies that for FDI, the more the country is attracting foreign
investors, this augments the levels of domestically human capital. For trade openness
(OPEN), the more the individual country is open to trade the higher the gain in productivity
growth due to increase in flows of goods and services. Therefore these cases promote high
economic growth in order for countries to converge.