Africa’s Growth Performance Amidst Inflationary Pressure and Current Account Deficit: Will Diversification Spur a Better Trajectory?

Abstract

This study analyzes the impact of inflationary pressure and current account deficit on real GDP growth rate of 48 randomly selected Africa countries from 2001 to 2023. A panel-based dataset was collected from the World Bank Development Indicator, Africa Development Bank data repository, Central Bank of each country as well as their Bureau of Statistics. Data was analyzed using Driscoll Kraay two-way fixed effect estimation, while robustness check was done using quantile regression estimation. Result shows that the impact of inflation on real GDP growth remains negative and insignificant across most quantiles, while current account deficits demonstrate varying effects depending on a country’s position within the growth distribution. Notably, export diversification and concentration indices significantly moderate the adverse effects of current account deficits, particularly at both lower and upper quantiles of GDP growth. Hence there is need for promoting export diversification as a policy priority among African countries, especially those at the extremes of the growth spectrum. Also targeted interventions, such as enhancing industrial capacity and improving export competitiveness are recommended to bolster economic resilience. Finally, there is need for continuous monitoring of inflation trends and current account balances especially for African countries reliant on imports.