Urbanisation and economic growth causal nexus: Evidence from panel data analyses of selected positively urbanizing countries in Sub-Saharan Africa

Abstract

The urbanisation process in Sub-Saharan Africa (SSA) has often been highlighted as a puzzle that deviates from the stylized facts in the literature. This study investigates the causal nexus between urbanisation and economic growth from the two dominant viewpoints in the literature viz. urbanisation-led economic growth and economic growth-led urbanisation. We employ the two-step system generalized methods of moments and the Dumitrescu and Hurlin (2012) procedure for Granger-causality test in heterogenous panel on data from 30 countries in SSA with positive annual urbanisation rates between 1970-2019. The study finds evidence of positive bi-directional causality, and non-linear relationship between urbanisation and economic growth in both the short-run and the long-run. These findings which are in line with the ‘Africa on the rise’ discourse reappraise the popular literature that largely describes urbanisation in SSA as economically dysfunctional. However, the sustainability of the urbanisation process and its full social, political and economic benefits cannot be reaped automatically. This calls for substantial investment in urban planning, public services and infrastructure provisions in major cities across SSA.