Long-delayed signs of economic growth are starting to show in Sub-Saharan Africa (sSA). In the last two decades, countries such as Ethiopia, Mozambique, and Côte d'Ivoire have experienced growth episodes that resemble those of the growth miracles of the Asian Tigers in the 1970s and 1980s. To a lesser but still promising extent, countries such as Ghana, Nigeria, Kenya, Uganda and Zambia have also shown evidence of economic growth. However, little is known about the drivers of these growth processes and their sustainability. This project aims to understand the nature of recent growth episodes in sSA, and study how they relate to production diversification in these economies.
Measuring production diversification poses challenges due to the lack of detailed harmonized data on sectorial value added, investment and intermediate input use among countries. To overcome this limitation, the author leverages insights from the economic growth and trade literature and combine them with newly harmonized data of sectoral FDI from UNCTAD, and detailed trade flows from the Atlas of Economic Complexity (AEC). They consider the sectorial composition of trade and investment flows as an indirect measure of production diversification within each economy. From an inputs’ perspective, most of the capital used in developing countries is produced in a handful of rich economies (Eaton and Kortum, 2001) and therefore needs to be imported to become available in poorer economies. From an outputs’ perspective, realized comparative advantage can be inferred from export flows. The author then analyses the magnitude and direction of the change in investment and exports before and after the growth spurts. They define the direction of investment by measuring its nature, i.e. from flows related to improving infrastructure to flows related to accumulating equipment; from flows related to agricultural equipment to communication equipment, and the direction of exports by measuring export shares by detailed sectors. The author documents that since the growth-spurts, the export structure in most sSA countries has slowly converged towards that of the Asian Tigers.
There is plenty of room for policy interventions geared towards the diversification of production to boost long-term growth. To quantitively assess the role of diversification of production for recent growth experiences in sSA, the author uses a multi-sector dynamic trade model that allows for endogenous sectoral investment rates and structural change. The newly constructed data paired with our model would be a powerful policy-relevant tool to quantify the role of investment on different types of capital for episodes of economic growth. It allows for assessing the impact of shifts in the direction of FDI, and inform policy makers on the impact of tariff reductions, or tax-free zones that may be geared towards certain economic activities. A model-based assessment of these policies would be informative towards potentially different short and long-term outcomes. The path of economic prosperity in sSA in an increasingly integrated world and where technology is diffusing at an unprecedented speed, may not coincide with that of currently developed economies.