The Determinants of Economic Growth in Low Income Countries

Abstract

Despite the consistent effort of the international community to eradicate poverty, extreme poverty still prevails in the world and fighting poverty remains the focus of international dialogue. The motivation of our study is identifying which sector should be supported with priority for effective poverty reduction. To this end, this paper examines the determinants of economic growth in low income countries using panel data across 150 countries. Sanitation is known to be closely linked to general health conditions, especially in low income countries. Our findings show that improving sanitation in low income countries contributes to economic growth whereas it does not have a similar output on economic growth in middle and high income countries. This provides us with two implications: one is that improving basic health through improved sanitation contributes to primary human development and, in turn, leads to economic growth in low income countries. The other is that different kinds of human development drive economic growth at different stages of a countrys economic development

therefore, the focus of human development should be adjusted as the economy grows. Our study, combined with previous studies, contributes to illustrate two themes on human development and economic growth. Firstly, our study reinforces the assertion that human development should precede or at least accompany general economic growth initiatives. Our study is aligned with this assertion by demonstrating the relative importance of human development compared to economic infrastructure development. Secondly, we summarize the full picture of human development that is needed for economic growth at different development stages as follows: basic health like hygiene and nutrition is important at the bottom of the development stage. After escaping extreme poverty, basic education like secondary education becomes more important. After succeeding to jump to middle and high income stages, higher education like tertiary education and innovation become more crucial factor for economic growth. In spite of its importance to economic growth in low income countries, the basic health sector is not easy to intrigue and attract private financial resources compared to that of economic infrastructure. Therefore, we suggest that the international community gives more attention to the basic health sector in low income countries and focus their support with priority in this sector for effective use and allocation of limited support resources in order to achieve our ultimate goal of reducing poverty.