Andrew Berg, Shu-Chun S. Yang, and Luis-Felipe Zanna
This chapter presents a stylized framework for modeling African economies using the dynamic stochastic general equilibrium (DSGE) approach. We introduce several features relevant to low-income countries, including a large population without access to financial markets, restricted international capital mobility, low governance quality, and explicit central bank balance-sheet effects. The calibrated model can be useful in addressing important macroeconomic policy issues in many African economies. The applications presented here include (i) reserve accumulation policy responses to aid surges, (ii) government spending, financing schemes, and fiscal multipliers, (iii) management of natural resource revenues, and (iv) public investment surges and debt sustainability.
Mainstream economists have promoted the idea of universally representative agents, which allows for simple modeling techniques to describe and predict human thinking and decision-making. Yet, there has been a debate in the economic literature on the existence of the rational “economic man” in Africa. The continent’s long history of oppression, its sub-optimal economic performance, and colonial fantasies, have contributed to the development of a discourse of otherness fed by prejudices. This chapter tackles some of these epistemological dilemmas and policy issues in that debate through a reconsideration of the basic principles of economics. A didactic approach is followed, popularized by Gregory Mankiw, and a list of ten principles different from the ones he proposed is produced. This chapter offers a series of counter-narratives to conventional economic thinking, and highlights how some of the recent developments in economics are consistent with analyses made in the study of Africa’s economic experience.