TECHNOLOGICAL PROGRESS AND ECONOMIC DEVELOPMENT: ANALYSIS & SIMULATION OF AN ECONOMETRIC MODEL OF ' THE SUDAN

Abstract

RESEARCH ABSTRACT Although Sudan is endowed with abundant natural resources, it is still economically backward as reflected by many economic indicators. Notably among these are slow economic growth rates, increasing inflation rates, widening budget deficits, deteriorating balance of payments, mounting external debt and intensifying poverty. The main objective of this research is to study the effect of technological progress on economic growth in Sudan. The study also aims to analyze the macroeconomic performance of the Sudanese economy with respect to technological progress via different technological scenario. In order to achieve the above-mentioned objectives, an econometric model of the Sudan was built first. The model belongs to the traditional Keynesian national income-expenditure models and it consists of ll behavioral equations and l2 identities and definitional equations constitute the demand and supply sides of the real sector, the monetary sector and the labour market. As a first step in the empirical evaluation of our model, ordinary least squares (OLS) estimation technique is used to estimate the model equations. Each each estimated equation was subjected to the conventional statistical tests (signs of the estimated coefficients, significance, etc), as well as econometric tests. More information was incorporated into the estimation process by use of two stage least squares (ZSLS) and three stage least squares(3SLS)estimation techniques. All the above estimation methods were evaluated with a view of choosing the most appropriate one. Basedto technological progress. The main finding of the study is that there is strong negative trend in the rate of the neutral technological progress in the production function. This means that there is a continuous declining in total factor productivity in Sudan. In addition, the coefficient of capital stock is very low (0.08) indicating that investment activities are very weak in Sudan. The study also revealed that the p olicy packages adopted during the 1990s has a positive influence on the rate of the technological progress. This is reflected by the relative improvement in the rate of technological progress( from -0.033 before 1992 to -0.025 after 1992). The simulation experiments were conducted in order to trace the likely growth paths of the Sudanese economy in response to technological progress. This was done via three different scenarios. The first scenario (described as a basic scenario) assumes that the rate of technological progress (productivity) was increased by 33 percent. The second scenario (described as a very optimistic scenario) assumes that the rate of technological progress was increased by 100 percent (i.e., the negative trend of the technological progress was neutralized). The third scenario (described as an optimistic scenario) assumes that the rate of technological progress was increased by 50 percent. The achieved results indicate that there is a possibility to achieve higher economic growth rates in the Sudan if rate of the technological progress was increased (upgrading the productivity). For the first scenario, the study revealed that the gross domestic product was grown by 7.4 percent (in average) annually. This is a bit higher than the officially declared rate of growth which is around 6 percent per annum. Therefore, it could be aimed at in the short-run. For the second scenario