Appendix. Definitions and Sources of Variables
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We would like to thank Paul Reding, Laurean Rutayisire, Emilio Sacerdoti, James Stock, Ousmane Mamadou, Regis N’Sonde, Gabriel Srour, Abdoulaye Tall, Saji Thomas, and Boulel Touré for helpful discussions and comments. Anne Grant provided excellent editorial assistance.
Niger is a member of the franc zone. The CFA franc is issued by the Banque des Etats de l’Afrique de l’Ouest (BCEAO). The CFA franc was created in 1945 with a fixed exchange rate vis-à-vis the French franc. That rate was changed only twice—in 1948 and in 1994. Since the demise of the French franc in January 1999, the CFA franc has been pegged to the euro.
With perfect competition, factor inputs are paid their marginal products and the labor’s share of income connects the real wage (W/P) and labor productivity (Y/L): (1 - α) = W*L/P*Y = (W/P)/(Y/L). Hence, if labor’s share of income is constant, the growth rate of real wages must exactly equal the growth rate of labor productivity.
Government activity in areas that offer a comparative advantage (production of public goods) will enhance growth, but continued expansion as a share of GDP will eventually have a negative impact on the economy as expenditures are channeled into less-productive (and later counterproductive) activities. The rate of economic growth will then diminish and eventually decline.
North (1990) defines institutions as the “formal and informal constraints on political, economic, and social interactions.”
There is no agreement on this issue, however. For instance, Rajan and Subramanian (2005) argue that regardless of the situation—for example, in countries that have adopted sound economic policies or improved government institutions—or the type of assistance, aid does not appear to stimulate growth over the short or the long term.
Results of these tests can be obtained from the authors.
The appropriate lag length for the VAR and cointegration analysis was determined using Wald F-tests and the Bayesian Schwarz Criterion (BSC).
This is computed through (1 - γ)t = (1 - δ), where γ is the estimated speed of adjustment and δ is the share of the targeted catch up (e.g., 0.5 for a half-life reduction).
Interest payments on external debt have declined since 2001, thanks to HIPC debt relief. Subsidies and transfers have been rising since 1999 because of subsidies on some agricultural imports and increasing welfare obligations (see World Bank, 2005).