The determinants of economic growth in Algeria

Abstract

Since ancient times, people have always looked to improve their live chances and get a better house, stable work and get access to the maximum of goods available in markets. After a long process of mutation, humanity managed to create a system responsible of the best management of production and distribution of goods and services, a system called “economy”. The economy, by definition, is dynamic and includes many interconnected agents (individuals, firms, public administrations). The dynamic was not remarkable until the beginning of the industrial revolution when production started to grow faster than population. The last 200 years is known as the dawn of “economic growth”. Economists have tried to find an answer about the factors that determines growth, obstacles that growth may face and how should policymakers promote economic growth. The determinants of growth in Algeria are the main interest of the dissertation. In hope to find a complete answer about growth, a theoretical investigation was necessary to help understand the importance of economic growth, variables that are commonly considered as “determinants” of growth, and how to improve the growth process. A projection on the Algerian economy was made using a principal components analysis and a FAVAR modeling to analyze the economic context and extract variables that have the most contribution in the national production. The results indicate that real variables like hydrocarbon exports, consumption and capital accumulation related to hydrocarbon sector have the most contribution compared to other real and monetary variables, which indicate a less strong growth process. Reforms of the banking system and stimulate investment in other productive sectors seems the priority when thinking about the improvement of the growth process of Algeria.