Can Central Africa escape the curse of primary commodities?

We study the effect of primary commodities on development indicators in a sample of 86 countries over the period 1965-2005. To this purpose we employ a system of equations. We use interactive terms to estimate separate slope coefficients for Sub-Saharan African (SSA) countries, Central African countries, and rest of the world. The main results of our exercise can be summarised as follows: (i) a higher dependence on primary commodities reduces economic growth, increases income inequality, and slows down the rate of human capital accumulation; (ii) the negative effects of primary commodities on growth, inequality and human capital appear to be statistically stronger in Central Africa and SSA than in the rest of the world; (iii) in the case of growth and inequality, the negative effect of primary commodities and the differences of the slope coefficients across groups of countries persist after controlling for the quality of institutions; on the contrary (iv) in the case of human capital, the negative effect of primary commodities as well as the differences across groups of countries vanish once institutional development is controlled for. Two main policy recommendations stem from our analysis. First, the degree of dependence on primary commodities must be reduced through the diversification of productive structure in order to foster development. Second, a dynamic private sector is a key driver of diversification. Countries must therefore improve the business environment and strengthen financial intermediation to assist the expansion of the private sector