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Empirical Analysis Of Macroeconomic Instability And Economic Growth In Sudan

IJED, Vol. 13 No. 2, (2020)

This study investigates how macroeconomic instability has been deterring economic growth in Sudan over the period 1969-2016. We constructed a macroeconomic instability index (MII) from major economic and policy indicators of Sudan. The MII shows that the economic performance of Sudan has been chronically instable. The study then uses dynamic econometric methods of cointegration and vector error correction modeling (VECM) to empirically investigate the short run dynamics and long run equilibrium relationships of macroeconomic instability indicators and economic growth. Cointegration analysis shows existence of a long run equilibrium relationship of macroeconomic instability and economic growth. Empirical findings from estimation of a VECM shows that in the short run GDP instability is affected significantly by unemployment, velocity of money, exports, trade openness and financial development respectively. In the long run, GDP growth is found to be influenced significantly negatively by unemployment, velocity of money, trade openness and financial development, but only positively and significantly by exports. The study finds unidirectional causality running from unemployment to GDP with no feedback effect. Exports, overall trade openness and financial development are found to be Granger causing GDP growth. Recommendations are provided accordingly.

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