State Fragility, Macroeconomic Policies and Macroeconomic Outcomes in Sub-Saharan Africa

We study how state fragility conditions affect macroeconomic outcomes in sub-Saharan African economies, and identify some of the most plausible transmission mechanisms. Applying dynamic panel estimation techniques and structural vector autoregressions to data on 48 sub-Saharan African economies over the period 1995 to 2014, we show that countries with greater fragility suffer higher macroeconomic volatility and crisis; they also experience weaker growth. When we jointly control for state fragility along with selected macroeconomic policy variables, we find that the latter seizes to play a significant role—providing circumstantial evidence of the “seesaw effect”. Hence, we conclude that it is state fragility conditions, and not necessarily macroeconomic policies, that are of first-order importance in explaining macroeconomic performance in Africa. Moreover, the knock-on effects are mostly mediated through the fiscal channel, the aid channel, and the finance channel. Consequently, interventions to fragile states should best be organized in such a way that they focus on exploiting the potential for using fiscal policy, aid, and finance as instruments to improve macroeconomic outcomes in sub-Saharan Africa.