The Comparative Economics of Catch-Up in Output per worker, total factor productivity and technological gain in Sub-Saharan Africa

Ssozi, John and Asongu, Simplice A (2015): The Comparative Economics of Catch-Up in Output per worker, total factor productivity and technological gain in Sub-Saharan Africa.

Abstract

After investigating the effect of external financial flows on total factor productivity and technological gain, we use the beta catch-up and sigma convergence to compare dispersions in output per worker, total factor productivity and technological gain in Sub-Saharan Africa (SSA) for the years 1980-2010. The comparative evidence is articulated with income levels, years of schooling, and health factors. We find; first, a positive association between foreign direct investment, trade openness, foreign aid, remittances and total factor productivity. However, when foreign direct investment is interacted with schooling, it is direct effect becomes negative on total factor productivity. Second, beta catch-up is between19.22% and 19.70% per annum with corresponding time to full catch-up of 25.38 years and 26.01 years respectively. Third, we find sigma-convergence among low-income nations and upper-middle income nations separately, but not for the entire sample together. Fourth, schooling in SSA is not yet a significant source of technology, but it can make external financial inflows more effective. Policies to induce external financial flows are not enough for development if absorptive capacity is low. More policy implications are discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: External capital flows, Human capital, Total Factor Productivity, Convergence, and Sub-Saharan Africa
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

References

Abramovitz, M. (1986). Catching up, forging ahead, and falling behind. The Journal of Economic History, 46(02), 385-406.

Anyanwu, J. C. (2014). Factors Affecting Economic Growth in Africa: Are There any Lessons from China?.African Development Review, 26(3), 468-493.

Akpan, U. S. (2014). Impact of Regional Road Infrastructure Improvement on Intra-Regional Trade in ECOWAS, African Development Review, 26(S1), 64-76.

Arellano, M., and Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.

Arellano, M., and Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.

Arcand, J. L. (2001) Undernourishment and Economic Growth – The Efficiency Cost of Hunger (Rome: Food and Agriculture Organization).

Armstrong, H. 1995. Trends and disparities in regional GDP per capita in the European Union, United States and Australia. European Commission, Report 94/00/74/017.Brussels.

Asongu, S. A., (2013a). Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone. Journal of Financial Economic Policy, 5(1): 20-38.

Asongu, S. A., (2013b). African Stock Market Performance Dynamics: A Multidimensional Convergence Assessment. Journal of African Business,14(3): 186-201.

Asongu, S. A., (2014a). Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis. African Journal of Economics and Management Studies, 5(1): 9-29.

Asongu, S. A., (2014b). African financial development dynamics: Big time convergence. African Journal of Economics and Management Studies, 5(2): 160-194.

Asongu, S. A., (2014c). African Development: Beyond Income Convergence. South African Journal of Economics, 82(3): 334-353.

Asongu, S. A., and Nwachukwu, J. C., (2015). Revolution empirics: predicting the Arab Spring. Empirical Economics: Forthcoming.

Baliamoune, M. (2009). Openness, Growth and Convergence in Africa: Evidence from 1980-1999 Data. Journal of African Development, 11(1), 109-126.

Baliamoune‐Lutz, M. (2011). Growth by Destination (Where You Export Matters): Trade with China and Growth in African Countries. African Development Review, 23(2), 202-218.

Baricako, J., & Ndongo, G. X. D., (2014). Intégration régionale et croissance: Le cas de l'Afrique Centrale,African Development Review, 26(S1), 33-51.

Barro, R. J. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal of Economics, 106(2), 407-443.

Barro, R. J. and Sala-i-Martin, X. (1995) Economic Growth (New York: McGraw Hill).

Benhabib, J., and Spiegel, M. M. (1994). The role of human capital in economic development evidence from aggregate cross-country data. Journal of Monetary economics, 34(2), 143-173.

Bhargava, A., Jamison, D. T., Lau, L. J., and Murray, C. J. (2001). Modeling the effects of health on economic growth. Journal of health economics, 20(3), 423-440.

Borensztein, E., De Gregorio, J., and Lee, J. W. (1998). How does foreign direct investment affect economic growth?.Journal of international Economics, 45(1), 115-135.

Blundell, R., and Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.

Caselli, F., 2005. Accounting for cross-country income differences. In: Aghion, P., Durlauf, S. (Eds.), Handbook of Economic Growth. Elsevier, Amsterdam.

Cashin, P. (1995). Economic Growth and Convergence across the Seven Colonies of Australasia: 1861-1991. The Economic Record, 71(213), 132-44.

Charaf-Eddine, N., & Strauss, I., (2014). The Ten Commandments of Applied Regional Integration Analysis: The African Case, African Development Review, 26(S1), pp. 7-20.

Cole, M.A. and Neumayer, E., (2006) The impact of poor health on total factor productivity, The Journal of Development Studies, 42(6), 918-938

Cuñado, J. and F. Pérez de Gracia, F., (2006). Real convergence in Africa in the second-half of the 20th century, Journal of Economics and Business, 58 (2), 153-167, ISSN 0148-6195, http://dx.doi.org/10.1016/j.jeconbus.2005.07.002.

Devarajan,S., Easterly, W.R., and Pack, H., (2003). Low Investment Is Not the Constraint on African Development, Economic Development and Cultural Change, 51 (3), 547-571.

Durlauf, S., Johnson, P. and Temple, J. (2005). “Growth econometrics”, in Aghion, P. and Durlauf, S. (Eds.), Handbook of Economic Growth, Elsevier, North Holland.

Ebaidalla, E. M., &Yahia, A. M., (2014). Performance of Intra-COMESA Trade Integration: A Comparative Study with ASEAN's Trade Integration, African Development Review, 26(S1), 77-95.

Elu, J.U. and G.N. Price (2010), ‘Does China Transfer Productivity Enhancing Technology to Sub-Saharan Africa? Evidence from Manufacturing Firms’, African Development Review, Vol. 22(S1), pp. 587–98.

Engel, R.C. (2003). Life, Death, and Human Capital: Essays on How African Firms and Workers are responding to the HIV/AIDS Crisis. Ph.D. dissertation, Columbia University, New York.

Easterly, W. and Ross Levine, R. (2001). It’s Not Factor Accumulation: Stylized Facts and Growth Models. World Bank Economic Review 15, no. 2: 177–220.

Gallup, J. L. and Sachs, J. D. (2000) The economic burden of malaria. Working Paper, No. 52, Centre for International Development, Harvard University.

Gerschenkron, A., 1962. Economic Backwardness in Historical Perspective: A Book of Essays. Harvard University Press, Cambridge, MA.

Gui-Diby, S. L., and Renard, M. F. (2015). Foreign Direct Investment Inflows and the Industrialization of African Countries. World Development, 74, 43-57.

Hammouda, H. B., Karingi, S. N., Njuguna, A. E., and Jallab, M. S. (2009). Why Doesn't Regional Integration Improve Income Convergence in Africa?.African Development Review, 21(2), 291-330.

Islam, N. (1995). Growth empirics: a panel data approach. The Quarterly Journal of Economics, 1127-1170.

Jajri, I. (2007). Determinants of Total Factor Productivity Growth in Malaysia. Journal of Economic Cooperation, 28, 3, 41-58.

Jerzmanowski, M., (2007). Total factor productivity differences: Appropriate technology vs. efficiency, European Economic Review, 51 (8), 2080-2110.

Jones, B. (2002). Economic integration and convergence of per capita income in West Africa. African Development Review, 14(1), 18-47.

Kayizzi-Mugerwa, S., Anyanwu, J. C., & Conceição, P., (2014). Regional Integration in Africa: An Introduction, African Development Review, 26(S1), 1-6.

Klenow P.J. and Rodriguez-Clare, A. (1997). The Neoclassical Revival in Growth Economics: Has It Gone Too Far?.NBER Macroeconomics Annual, 73–114.

Lucas, R. E. (1988). On the mechanics of economic development. Journal of monetary economics, 22(1), 3-42.

Lusigi, A., Piesse, J., and Thirtle, C. (1998). Convergence of per capita incomes and agricultural productivity in Africa. Journal of International Development, 10(1), 105-115.

Maism, A. and Arshard, M. (1992). Pattern of Total Productivity Growth in Malaysia Manufacturing Industries, 1973-1989. Serdang: Universiti Pertanian Malaysia.

Mankiw, N. G., Romer, D., and Weil, D. N. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Economics, 107(2), 407-437.

Martin, R., &Sunley, P. (1998). Slow Convergence? The New Endogenous Growth Theory and Regional Development*. Economic geography, 74(3), 201-227.

McCarthy, F. D., Wolf, H. and Wu, Y. (2000) The growth costs of malaria. Working Paper, No. 7541, National Bureau of Economic Research.

McCoskey, S. K. (2002). Convergence in Sub-Saharan Africa: a nonstationary panel data approach. Applied Economics, 34(7), 819-829.

Miller, S. M., and Upadhyay, M. P. (2000). The effects of openness, trade orientation, and human capital on total factor productivity. Journal of development economics, 63(2), 399-423.

Miller, S. M., & Upadhyay, M. P. (2002). Total factor productivity and the convergence hypothesis. Journal of Macroeconomics, 24(2), 267-286.

Narayan, P. K., Mishra, S., & Narayan, S., (2011). Do market capitalization and stocks traded converge? New global evidence. Journal of Banking and Finance, 35: 2771-2781.

Nelson, R.R. and Howard Pack, H. (1999). The Asian Growth Miracle and Modern Growth Theory. Economic Journal 109: 416–36.

NikHashim, N. M., (1998). Output versus Productivity Growth in the Manufacturing Industry. An Experience for Sustainable Development Planning, BengkelFakultiEkonomi, 19-21 Jun, Port Dickson.

Njifen, I., (2014). L'informalité: un nouveau paradigme de développement et d'intégration « par le bas » en Afrique, African Development Review, 26(S1), 21-32

Nshimbi, C. C., & Fioramonti, L., (2014). The Will to Integrate: South Africa's Responses to Regional Migration from the SADC Region, African Development Review, 26(S1), 52-63.

Ofa, S. V., & Karingi, S., (2014). Trade in Intermediate Inputs and Trade Facilitation in Africa's Regional Integration, African Development Review, 26(S1), 96-110.

Pissarides, C. A., (1997). Learning by trading and the returns to human capital in developing countries. The World Bank Economic Review, 11(1), 17-32.

Perkins, D. Radelet. S., Lindauer, D., and Block, S. (2013). Economics of Development. New York: W.W. Norton & Company.

Rassekh, F., Panik, M. J., and Kolluri, B. R. (2001). A test of the convergence hypothesis: the OECD experience, 1950–1990. International Review of Economics & Finance, 10(2), 147-157.

Romer, P. M., (1986).Increasing returns and Long-run growth. Journal of Political Economy, 94, 1002-1037.

Romer, P., 1992. Two strategies for economic development: using ideas and producing ideas, World Bank Conference on Economic Development. The World Bank, Washington, DC.

Romer, P., (1993). Idea gaps and object gaps in economic development. Journal of monetary economics, 32(3), 543-573.

Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86-136.

Roodman, D. (2009). A note on the theme of too many instruments. Oxford Bulletin of Economics and statistics, 71(1), 135-158.

Sala-i-Martin, X. (2005). On the Health-Poverty Trap, “Health and Economic Growth: findings and policy implications”, Lόpez-Casasnovas, G., Rivera, B., Currais, L.,(Editors) ,The MIT Press, 95-114.

Shell, K. (1966). Toward a theory of inventive activity and capital accumulation. The American Economic Review, 62-68.

Shuaibu, M. (2015). Trade Liberalization and Intra-Regional Trade: A Case of Selected ECOWAS Countries, African Development Review, 27(1), 27-40.

Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65-94.

Temple, J. (1999). The New Growth Evidence. Journal of Economic Literature, 37(1), 112-156.

Tumwebaze, H. K and Ijjo A. I., (2015). Regional Economic Integration and Economic Growth in the COMESA Region, 1980–2010, African Development Review, 27(1), 67-77.

Young, A. (1995). The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience. Quarterly Journal of Economics 110: 641–80.