Determinants of Economic Growth inAfrica with Emphasis on the Role of Financial Intermediaries Using Bayesian Averaging of Classical Estimates

Grace Alinaitwe


This paper examines variables, which significantly determine longrun growth in Africa. Emphasis is put on financial intermediaries. The
study used 37 countries and 14 variables. It employed an approach,
which was introduced by Sala-i-Martin and D. Miller (2000) called
Bayesian Averaging of Classical Estimates (BACE). This method
constructs estimates by averaging Ordinary Least Squares (OLS)
coefficients across models and weights given to individual regressions
have a Bayesian justification similar to the Schwarz model selection
criterion. Results vary from period to period but the most recent evidence
shows that determinants of growth in Africa are Foreign Direct
Investment (FDI) and population growth. Of 14 explanatory variables,
FDI shows the strongest evidence. Unexpectedly, all used three financial
intermediary indicators were not significant except for Liquid liabilities/
GDP (llgdp), which was significant from 1992 to 1998.

Keywords: Financial intermediaries, economic growth, Bayesian averaging
of classical estimates.

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