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4 Conclusion

Economic growth is desired by policymakers in both the developed and developing countries. It is however desired not for its own sake but for development purpose, which involves improvement in the welfare of the people. Economic growth varied across the ECOWAS Countries in the last four decades with higher growth in countries that were relatively politically stable and in those that experienced relative macroeconomic stability as well, though external shocks in various forms were occasionally constraints—for example, the 2008 financial crisis was an external shock component. The labour force in the region also grew though unemployment issue still remains a challenge. The environment also attracted capital, especially in the 2000s, which experiencing more stability in the political and macroeconomic sense.

The paper south to investigate in the ECOWAS countries whether output growth during the period 1980 to 2012 was driven by total factor productivity or accumulation of capital and growth of labour. The methodology involved estimation of a production function with output per worker depending on capital per worker. Series for capital stock was first of all constructed for each country from 1980 to 2012 based on data on Gross Fixed Capital formation based on the perpetual inventory method. The method of estimating the production functions involved testing for unit root in the variables and the results of the unit root tests necessitated testing for co-integration. Growth accounting technique was then applied to decompose the growth of the countries into capital accumulation, labour growth and factor productivity growth.

A number of results were obtained. First, output per worker variable is not stationary but is stationary after first differencing while capital per worker is stationery after second differencing. The cointegration tests reveal that there is no cointegration between output per worker and capital per worker in the ECOWAS region. The share of capital in total output during the period was 0.95 and the share of labour was 0.5. Growth of total factor productivity was negative in 7 of the 14 countries, during the period 1980–2012 and where it was positive, it was low in most of the countries. It was strong only in Nigeria and Cote d'Ivoire with 6.3 % and 3.2 % respectively. In the two countries with relative strong growth of total factor productivity, the contribution of capital to growth during the period was negative. This emanated from negative growths in real capital in the two countries (Nigeria and Cote d'Ivoire). The two countries that had relatively strong growth of output (above 4.0 %) had negative total factor productivity growth and strong growth of capital (Ghana 8.9 %, with average annual Real GDP growth of 4.4 % and Cape Verde, 7.8 %, with average annual real GDP growth of 7.5 %) during the period 1980–2012. Hence growth of the region during the period 1980–2012 was driven more by factor accumulation, especially capital but not factor productivity, which is what sustains long run growth and development. The contribution of labour force growth to growth of output (representing worker growth) was 0.1 % in each country except in Benin, Gambia and Niger where it was 0.2 %. Suggesting weakness in absorbing labour in jobs (high unemployment).

In terms of policy implications, since capital is the greatest contributor to growth in the ECOWAS region, it is imperative for the policy makers to design strategies for labors' contribution to increase as this would ameliorate income inequality problem. This rests on the idea that ECOWAS Countries are labour surplus and capital scare. As a majority of the people are employed in the agricultural sector, which do not involve huge capital in operation while few individuals have access to capital inequality in income widens.

Supply side policy should be directed to putting weight on increasing the productivity of labour, which would not only reduce income inequality problem but would also help to reduce poverty, hence contributing to inclusive growth. This requires efforts at expanding access to quality education; ensuring increased access to health care that is affordable; and increased investment in rural infrastructure. Raising productivity growth should also involve strong weight on technological progress, which can be easily achieved in the case of the ECOWAS countries through technological transfer rather than innovation. This requires efforts at building good governance, the legal framework, political stability and attractive package for foreign direct investments in the agricultural sector.

References

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