Bias correction in a dynamic panel data model of economic growth: The African dummy re-examined
Stellenbosch Working Paper Series No. WP04/2002Publication date: 2002
Author(s):
[protected email address] (Nuffield College, Oxford)
The discrepancy between the observed and expected growth rates of African economies in cross-country or panel growth regressions is often summarised in a significant African dummy. However, the existence of this dummy may be an artifact of the panel data techniques used. The standard LSDV (least squares dummy variable) method produces a large bias in the estimate of the coefficient on the lagged dependent variable, which could generate the observed African dummy. The lagged dependent variable in a growth model is used to calculate the cross-country rate of convergence. If, however, the convergence rate is overestimated, then the Africa dummy would result due to the clustering of African economies at the lower end of the world cross-country income distribution. Correcting for the bias - using Kiviet’s (1995) algorithm - allows a fresh look at the apparent systematic underperformance of African countries relative to their growth predictions. Little evidence remains of such underperformance by African economies once the relevant bias in the dynamic panel has been accounted for.
JEL Classification:O400, O410
Keywords:growth regressions, dynamic panels, African dummy
Download: PDF (474 KB)Login
(for staff & registered students)
Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
Read the full issue
Upcoming Seminars
Monday 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
Read the full issue