SOURCES OF ECONOMIC GROWTH IN THE SOUTHERN AFRICAN DEVELOPMENT COMMUNITY: ITS LIKELY IMPACT ON POVERY AND EMPLOYMENT Monaheng Seleteng and Sephooko Motelle Central Bank of Lesotho Abstract As a means to combat poverty, many countries still pursue high and stable rates of economic growth. There are several sources of growth such as physical capital accumulation, human capital development and technological progress. In order to attain sustained economic growth, it is crucial that countries do not only accumulate a certain stock of factors of production, but demonstrate the ability to combine such factors in a manner that is efficient. The Southern African Development Community (SADC) continues to pursue high and stable economic growth as a way of fighting poverty and inequality. This study attempts to investigate the key sources of economic growth in the region using different panel data techniques and make inference on poverty and employment. The findings reveal that the factors affecting economic growth in the region are: inflation, government expenditures, openness to trade, human capital, level of financial development, and political stability. Furthermore, it can be inferred from the analysis that higher growth rate has a positive impact on employment and hence may lead to poverty reduction. Key words: Convergence, Economic Growth, Fixed Effects, Difference GMM, System GMM, Seemingly Unrelated Regressions, Inequality, Unemployment, Poverty JEL Classification: C33, E31, O43, O47, O55, J640. Corresponding author: Central Bank of Lesotho, P. O. Box 1184, Maseru 100, Lesotho; email:
[email protected] 1 The views expressed are those of the authors and do not necessarily represent those of the members of the Committee of Central Bank Governors (CCBG) in the Southern African Development Community (SADC).