AN EMPIRICAL INVESTIGATION OF PER CAPITA INCOME CONVERGENCE HYPOTHESIS IN SUB-SAHARAN AFRICA

ABSTRACT

The incidence of cross-country per capita income convergence has been debated for long by economists; all in the attempt to either validate or reject the per capita income convergence hypothesis as predicted by the Human capital - augmented Solow model (HC-ASM). However, researchers seem to have given little attention to Sub-Saharan African (SSA) in this ongoing discourse despite the wide per capita income disparity gap in the region. This present study fills this gap by conducting an empirical investigation of per capita income convergence hypothesis in SSA based on the strict assumption of a closed economy without government activities of the HC-ASM. The hypothesis is further tested by relaxing these restrictive assumptions specifically, by including into the basic model, government spending, FDI and openness to trade.

Using panel dataset on 37 SSA countries selected mainly on the basis of data availability, the study examined the convergence hypothesis employing panel Generalized Least Squares from 1980 to 2010. The study established per capita income divergence among the countries in SSA, with the level of divergence increasing with the inclusion of FDI, trade openness and government spending into the basic model. These findings are in complete disagreement with the prediction of the HC-ASM and further suggest that regardless of the presence of FDI, trade openness and government spending per capita income disparity gap among countries in SSA tends to widen.

Against these findings, it is recommended that poorer countries in SSA should urgently make pragmatic policies to attract FDI and make efficient utilization of these resources to reduce the per capita income gap since FDI was found to positively impact on per capita income growth in SSA.