Risk, recessions and resilience of sub-Saharan African economies

Abstract

The ability to predict overall developments in the economy is extremely limited. The track record of forecasting is very poor, especially immediately before or during recessions when good forecasts are needed most by policy-makers. This paper examined facts on duration and size of recessions, which can be used by policy-makers in assessing macroeconomic risks. In addition, models of the business cycle in economic theory will be required to replicate or substantiate these facts. Evidence is taken from 17 Sub Saharan African economies between the periods of 1960 to 2010. Two definitions of recession are used, and the resulting analyses from the two are robust with respect to the definitions. The striking feature of the data is the resilience of the economies. The majority of recessions last for a year and small minority persisted for more than 2 years. However, in terms of size and duration, the bigger the recession and the longer it persisted, the less likely recovery becomes. This is not consistent with the assumption made in mainstream macroeconomic theory that business fluctuations are driven by recurring identically independently distributed random shocks