Investment in physical capital
Investment in physical capital (INV) spurs growth not only by increasing labour productivity, but also total-factor productivity. Physical capital can also influence growth through its effects on trade (Baldwin and Seghezza 1996; Wacziarg and Welch 2003). Studies on the growth performance of African countries often show that low investment share of GDP is a major reason for the region’s slow growth (Levine and Renelt 1992). Investment in physical capital is proxied in this chapter by the mean annual percentage growth of gross fixed capital formation during the period 2000-2008. The coefficient of this variable is expected to be positive.
It is widely believed in the development literature that Africa’s high fertility rates may be slowing down the region’s growth (Moss 2007). With stagnant or declining output, high fertility rates have the effect of reducing output per head. It may also lead to deficit spending, as the government tries to provide social services needed to support the high dependency ratio that comes with high fertility rates. Population is measured by the annual rate of growth of the population of the sample countries. The coefficient of population growth (POP) is expected to be negative.