Growth Accounting in ECOWAS Countries: A Panel Unit Root and Cointegration Approach

Abstract

Long term economic growth is necessary for poverty reduction and it can be enhanced by increasing the productivity of factors of production. There have been various policy efforts to strengthen economic growth in the ECOWAS region but sustainable economic growth coupled with accelerated poverty reduction remains a challenge. The paper therefore investigates the sources of economic growth in the ECOWAS region with a view to unearthing whether growth of the region during the period 1980–2012 was driven more by factor accumulation or factor productivity. The methodology involves the estimation of a production function with real capital stock and labour as inputs while real GDP is the output, over the period 1980–2012 for the ECOWAS countries. Panel unit root and panel cointegration tests including the Levin-Lin-Chu, Maddala-Wu and Im-Pesaran-Shin tests for unit root and the Pedroni, Kao and Westerlund tests for cointegration are applied. Fixed and random effect models of production function are estimated. The growth accounting technique is then applied to the estimated shares of capital and labour in production. The results show that during the period 1980–2012, with the exception of Nigeria and Cote d’Ivoire productivity growth was not the hardcore of the growth observed in the ECOWAS countries but the growth was driven by factor accumulation. In addition, the contribution of labour to growth was positive but low in all the countries, the contribution of capital was negative in Cote d’Ivoire and Nigeria but positive in the other countries and that of total factor productivity was negative in Burkina Faso, Cape Verde, Ghana, Guinea, Mali, Niger and Senegal. The policy implication of this result is that in order to enhance long run economic growth in ECOWAS countries there is need to exert more efforts at raising productivity of factors of production. This requires more efforts at building human capacity for labour to be more effective and more investment in infrastructure, especially energy, in order to make capital more productive.