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Growth is the most powerful weapon in the fight for higher living standards - Discuss in relation to sub-Saharan Africa.

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Introduction

Question 5: 'Growth is the most powerful weapon in the fight for higher living standards. Faster growth will require policies that encourage macroeconomic stability, shift resources to more efficient sectors, and integrate with the global economy.' Discuss in relation to Sub-Saharan Africa. Introduction: Sub-Saharan Africa suffers from the lowest living standards in the world. Many less developed countries have successfully reduced levels of poverty and achieved higher growth rates by embracing the changing economic and political global environment, becoming free market open economies. Sub-Saharan Africa has, however, remained embroiled in poverty and conflict. Low growth rates have been attributed to adverse geographical factors and endemic disease. 1 However, the continent has continued to fall further behind the rest of the world because of macroeconomic instability, inefficient allocation of resources and comparatively closed economies. This essay aims to examine the relationship between economic growth and higher standards of living in Sub-Saharan Africa. Using the neo-classical growth theory (Solow), the endogenous growth theories (Lucas and Romer), and various trade theories, I plan to investigate the effects of macroeconomic stability, efficient allocation of resources and integration into a global economy on levels of GDP in Sub-Saharan Africa. This will be done using empirical evidence combined with my own research. A comparison between Ghana and Nigeria explores the disparate ways economies have attempted to achieve growth. Malaysia has been included as an example of a developing country that has achieved sustained, high economic growth and significantly reduced levels of poverty. Poverty in Sub-Saharan Africa The World Bank 1998, has defined poverty as: 'Hunger... A lack of shelter... Being sick and not being able to see a doctor... Not being able to go to school.... Not knowing how to read.... Not being able to speak properly... Not having a job ... Fear of living 1 day at a time... Illness bought about by unclean water... Powerlessness... Lack of representation and freedom.' ...read more.

Middle

Figure 4 shows tariff rates in various African economies. Figure 4: Trends in Average tariff rates, 1980-1999 (unweighted in %) 1982 1984 1986 1988 1990 1992 1994 1996 1998 Ghana 43.3 30 20 17 17 17 17.5 12.5 Kenya 40.3 41.7 39.2 41.7 43.7 33.6 13.5 18 Nigeria 32.6 35 33.7 35.7 34.4 29 24.4 23.4 Rwanda 33.0 42.0 34.8 Sierra Leone 25.8 25.8 41 39.5 21 Malaysia 15.8 13 12.8 13 8.7 7.1 Source: WTO database and Trade policy review, UNCTAD, Worldbank, Trade policy reform in developing countries, The Uruguay round: Statistics on Tariffs Concessions, 1996 World development indicators. Summers 2000, estimated that Africa's inward policies have caused an annual loss of income of approximately 20% of GDP. Sachs and Warner 1995, exemplify the popular belief that openness to trade is an important determinant to cross country growth. Rating countries as closed (0) or open (1) they found the average for developing countries is 0.37 but is only 0.04 for Africa.12 They found that open economies grew at approximately 2.5% more then closed economies because of the significantly higher levels of investment. Figure 5 shows foreign direct investment in developing economies. Figure 5: Net capital flows to developing countries. ($bn annual average.) 1984-1989 1990-1996 All developing countries 18.2 131.2 Asia 13.0 55.7 Middle East 1.7 25.2 Western Hemisphere 0.2 45.7 Africa 3.6 4.4 Access to foreign savings has played a catalytic role in the growth of the newly industrialised Asian economies. Although there has been a 5fold increase in investment in less developed countries, FDI in Africa has remained significantly lower then the other regions. Cameron, Proudman & Redding 1999 found that technical transfers from abroad contribute to long run economic growth. The rate at which technology can be imported; the proportion of foreign technology that can be adopted; and domestic growth rates without technology transfers, influence the rate of growth of TFP. ...read more.

Conclusion

Worldbank. Graph 9 shows life expectancy trends in Ghana and Nigeria. From 1970-1997 life expectancy improved in all of the economies at a rate unrelated to GDP growth. In Africa life expectancy fell towards the end of the twentieth century because of HID/AIDs. This disease is not curable with any amount of economic reform and GDP growth, although education on the consequences of AIDs can help prevent the spread in the future. Similarly graph 10 shows that infant mortality rates have been falling but at a diminishing rate. Education levels have improved in these countries as seen in graphs 11 and 12 Nigeria, the poorest of the three countries has the highest level of illiteracy although primary enrolment ratios are also high. Illiteracy levels in Ghana and Nigeria are falling at constant rates even though their growth levels fluctuate. There does not seem to be any obvious changes in these trends during the countries reforms in 1983 and the early 1990s. Conclusion: Macro economic stability the efficient allocation of resources and integration into a global economy are important determinants of economic growth. Ghana and Nigeria who have improved their growth prospects through vigorous reforms have proved this. These policies allow countries to attract investment, which is (according to the neo-classical growth theory) the main determinant of economic growth, particularly in developing countries. Where Ghana has been successful in achieving these goals, many countries have failed, maintaining high import duties etc, which distort resources and deter investment. Growth has the potential to be the most powerful weapon in the fight for higher living standards providing extra revenue is being directed towards health, education and other public services. The evidence to prove this is, however, ambiguous as to whether growth has direct effects on life expectancy etc. Furthermore, the concept of living standards cannot be fully covered by these basic measures. For example, although data suggests that Ghana has achieved sustained growth and improved standards of living, the level of repression and human rights violation remained unchanged. The HIV/AIDs epidemic has outweighed the effects of growth on the standards of living in many African countries. ...read more.

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