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Africa has experienced sustained growth rates over 4% annually since 1995, remaining largely resilient during the 2007/2008 financial crisis. However, this growth raises critical questions about its robustness due to persistent structural challenges. By examining productivity differentials, the diversity of products, and firm dynamics, we seek to understand the implications of Africa's "structural deficit" for future growth. This analysis considers how a lack of necessary structural change could hinder long-term development, while also exploring actionable policy recommendations for African governments and international aid agencies.
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Is Africa’s Recent Growth Fragile? Topic 1: Structural Change Old and New National Graduate Institute For Policy Studies IDTP Fall 2012 John Page
Africa’s Growth “Turn Around” • Since 1995 Africa has grown at rates exceeding 4 percent per year. • The region was largely untouched by the global financial crisis of 2007/2008. • Economists have mistakenly predicted turning points in Africa’s growth before. • How robust is growth this time? • Well, let’s use old and new structuralism to try to answer that question.
Sectors, Products and Firms in Africa’s Recent Growth • Sectors: • Productivity differentials • The “structural deficit” • Growth reducing structural change • Products: • Diversity • Sophistication • Firms: • Firm size and productivity
Africa has the largest differences in productivity Differences in Labor Productivity Between Sectors Source: McMillan and Rodrik (2011); author’s calculations
Africa’s “Structural Deficit” • Notes: Africa low income sample ETH, MWI, GHA, KEN, MAD, MOZ, SEN, TZA • Africa middle income sample MUS, ZAF • Africa resource rich economies BOT, LES, NGA, NMB, ZAF • Sources: McMillan and Rodrik (2011) data base, World Bank WDI database, Timmer and de • Vries (2008) database. Author’s calculations
The growth potential of Africa’s dualism Structural Change and Growth (percentage change)
Decomposing Productivity Change Δ Y = Σ θi ,t-kΔ y i, t+ Σ y i, tΔ θi, t Overall = Within Sector + Structural Productivity Productivity Change Change Change
Yields a worrisome result “Perverse” structural change has slowed productivity growth
“Out of Africa”:Industrial development lags Selected Indicators of Industrial Development, 2005 - 2008
“Out of Africa”:Production has become less diverse... Production Intensities by Level of Sophistication and Country Type Low Sophistication Products
“Out of Africa”:...and less sophisticated Production Intensities by Level of Sophistication and Country Type High Sophistication Products
Productivity and Firm Size in 10 African Countries Note: The graph shows predicted value added per worker based on a regression of log value added per worker on a third-order polynomial in log employment and country dummies. The predictions are normalized at 100 for a firm with five employees.
What are the Implications of these Trends? • Is lack of structural change a cause for concern? • What has sustained growth in the absence of structural change? • What sectors should drive structural change? • What policy options are available to African governments to accelerate structural change? • What can/should aid agencies do?
