• South Africa: gross domestic

Africa Gross domestic product

The study used the Production Function (PF) analytical framework to estimate the loss in GDP attributable to deaths related to disasters in the Region. A PF describes the transformation of the factors of production (inputs) into outputs with its existing technology. The general mathematical form of the production function is: Y = f(L, K, R, S, v, ã), where: Y = output, L = labour (skilled, semi-skilled and unskilled), K = capital (buildings, equipment and inventories), R = raw materials, S = land input (which encompasses all natural resources), v = returns to scale, and ã = efficiency parameter, measuring the entrepreneurial-organizational aspects of production . Thus, a PF shows the maximum amounts of the various combinations of outputs that a country can produce with its existing resources and techniques .

The gross domestic product (GDP) is one of the main national output measures. GDP is the sum of the total value of consumption expenditure, total value of investment expenditure, government purchases of goods and services and net exports (i.e. exports minus imports) of goods and services. It can also be viewed as the total value of consumption expenditure, gross private savings (including business and personal savings); net tax revenues (tax revenue minus domestic transfer payments, net interest paid and net subsidies); and total private transfer payments to foreigners .

Intuitively, disaster-related deaths can impact on the production of GDP in a number of ways. First, they reduce the quantity of the labour force and hence the number of people involved in output production. Second, disasters maim and kill the unskilled, semi-skilled and highly skilled labour force and entrepreneurs, who are in acute short supply in the African Region. The attrition of the latter three categories of human resources may impact negatively on GDP.

Third, the typically high funeral-related costs might force affected households to liquidate/sell off some of the output-producing assets (e.g. land, farm machinery and equipment) to pay for funerals. In third world economies, characterized by the high levels of underemployment/unemployment of the labour force and the low levels of capital investment, depletion of these assets could spontaneously lead to a reduction in output.

Fourth, given the high levels of poverty across the African Region, the bereaved children may be forced to drop out of school due to lack of school fees, or to work in order to compensate for the lost household income. This would have adverse repercussions on human capital creation (i.e. the quality and quantity of future labour force) and hence on the sustainability of GDP and its growth.

Fifth, premature death of people in active labour force may lead to a reduction in the total household consumption expenditure, government tax revenues, private business and personal savings, and hence the resources available for investment purposes.

Sixth, when disasters strike, households, governments and non-governmental organizations are forced to divert resources from productive sectors into reconstruction/rehabilitation programmes. And often, such programmes do not make net contributions to GDP.

Formally, the effect of disaster-related mortality on GDP can be expressed as follows:

GDP = f(D, L, K, HK, EA, OE, DS) (i)

where: GDP = real per capita gross domestic product, i.e. real value of annual volume of goods and services divided by population; D = land; L = labour input (persons aged 15 years and above); K = physical capital stock; HK = human capital, i.e. the skills and knowledge embodied in a person; EA = entrepreneurial ability (the ability to plan, organize and produce new commodities); OE = openness of the economy; and DS = number of people killed by disasters.

Equation (i) shows the effect of DS on GDP, holding the effects of D, L, K, HK and EA constant. If deaths caused by disasters are a burden on the economies of African countries, the coefficient for DS variable would be expected to assume a negative sign. The effects of the explanatory variables on the dependent variable (GDP) are unlikely to be linear; thus, in this study we shall estimate Cobb-Douglas production function of the following form:

GDP = aDß1Lß2Kß3LEß4ENß5Xß6Mß7DSß8e (ii)

where: LE is life expectancy; EN is school enrolment; X is exports and M is imports.

Taking the logarithms of both sides of equation (ii), we obtain the following log-log (or double-log, log-linear or constant elasticity model):

log GDP = log a + ß1 log D + ß2 log L + ß3 log K + ß4 log LE + ß5 log EN + ß6 log X + ß7 log M + ß8 log DS + e (iii)

where: log is the natural log (i.e. log to the base e, where e equals 2.718); a is the intercept term (i.e. the output if all the explanatory variables included in the model were equal to zero); ß's are the coefficients of elasticity, which can take any value between 0 (perfectly inelastic) to 8 (perfectly/infinitely elastic); and e is a random (stochastic) error term capturing all factors that affect gross domestic product but are not taken into account explicitly in the model . Why, readers might ask, did the authors choose to include the above-mentioned variables in the model?

'Land' includes all natural resources like soil, mineral deposits, rivers, lakes, sea, fish, forests, oil (petroleum), natural gas, wild animals, etc. Civilizations have drawn great strength from productive land resources . It is common knowledge that agriculture is the backbone of the majority of the economies in Africa. Most of the African people earn their livelihood from land, either directly (through farming) or indirectly (in agro-processing industries). More than three decades ago, Professor Gunnar Myrdal , a Nobel laureate in economics, made the following remarkable statement: "It is in the agricultural sector that the battle for long-term economic development will be won or lost." That statement is very pertinent to Africa even today. We would expect a positive relationship between the arable land per capita and GDP per capita, since agriculture makes substantive contribution to the latter.

'Capital' means the stock of physical reproducible factors of production, i.e. tangible investment goods, e.g. plant and equipment, machinery, buildings, etc. . Development economists have argued that capital formation (i.e. investment in capital goods that leads to increase in capital stock, national output and income) is the key to economic growth and development. The process of capital formation entails: (i) an increase in the volume of real savings; (ii) the existence of credit and financial institutions to mobilize savings and channel them to productive use; and (iii) the use of these savings for investment in capital goods .

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