The Political Economy of Economic Performance. Voxi Heinrich Amavilah
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and even expand. This requires better understanding of the source of this good performance, and the current essay, beginning with the assumption that a feeble technology was responsible for slow growth in the past and finds that the impacts of new technologies, measured by the intensities of internet and cell phone use are very strong. The policy implications of the findings recommend increased investment in new technologies for which productivity is high and the adoption and diffusion costs seem low.
African countries suffer from Africa-itis—a stigma that makes it hard for observers to notice good economic performance of African countries, and makes it obsessively easy to point out the bad news. As David Bloom and Jeffrey Sachs (1998, 37) put it, it is not only that “Africa surely suffers from a remarkable inattention of the international scientific community,” it is also that the little attention that African countries receive is inordinately normative and pessimistic. Rarely do even the best of expert writings on African countries, for example, reveal that although over the 1960–1990 decades African countries made up a large percentage of the “growth disasters,” lately some African countries did make it to the list of the “growth miracles” (see Temple 1999, Table 2, 116; Ndulu and O’Connell 1999). During the late 1990s, for example, up to 39 percent of African countries did catch a little of the receding dotcom wave, and many of them grew at rates not lower than two percent per annum, and strong growth continued past 1998. As the dotcom wave subsided, growth slowed to 3.2 percent in 2002, but it climbed back up to 4.3 percent in 2003, 4.6 percent in 2004, and higher still in 2005 (United Nations Economic Commission for Africa—UNECA 2005). In sum: over the past years to-date African countries have grown at annual rates exceeding four percent, so that by 2004 there were only a few trouble areas in Africa (OECD Observer 2005). Yet, the whole of Africa is more likely to be defined by these few areas than Asia is likely to be characterized by Afghanistan, Pakistan, Burma (Mymar), and North Korea put together. 1
The cloud of Africa-itis is misleading to the extent to which it masks diverse performance across African regions, countries, and even sub-regions within countries, see, for example, IMF (2005). For instance, Botswana and Mauritius have been two of the best performers in the world for nearly four decades. Central African countries have grown at an annual average rate of more than 14 percent during the year 2004–2005. These differences in performance should not be surprising as standard economics teaches that the production possibilities of any economy depend on its technical capability. Technical capability is defined by the quantity and quality of available resources and the current level of technology, so that economic growth is the expansion of production possibilities resulting from improved technical capability, subject to the initial and current institutional conditions, and the policies that govern both. Here is the point: because capabilities differ across economies, so too does economic performance (Amavilah 2006), and no two African should be expected a priori to be the same. Yet, too often, analyses of the sources of the economic performance of SSACs focus exclusively either on external factors for which subsequent policy is exogenous, or on some loose generalizations of internal sources of growth for which useful policy is nearly impossible to conduct. For instance, the UNECA study above lists “macro-stability” and “tourism” as the main internal sources of economic performance for Africa in 2004, but then the same report goes on to lament the weak domestic investment, low domestic savings, and the risk of currency appreciation as “some areas of concern.” Research must do better than this if it is to serve a credible policy function!
While the quality of resources, such as human capital, which individual SSACs have is a matter of considerable debate, quantitatively most SSACs are no more resource-poor than their counterparts in other regions of the world. For the most part, African countries had colonial experiences not unlike those of other developing countries, suggesting congruent initial conditions across some world regions. Additionally, many developing countries around the world pursued similar economic and political policies immediately upon their political independences, and making similar policy mistakes in the process (Nyarko 2007). For instance, the movements toward resource nationalization and import substitution policies were not unique to African countries. This all seems to imply that observed economic growth rate differences are not principally due to resources, initial conditions, or policy alone.
A reasonable constraint on the economic growth of African countries has been the fact that technological change has never “etherealised” progressively and adequately. This is not a new thesis. Different schools of thought have argued for the fact that it was technological advancement that was responsible for the economic development of industrialized countries, and without innovations, the United States could not have grown, or grown as rapidly. Indeed, the Industrial Revolution set off modern economic growth. However, the new growth theory has brought additional clarity to the understanding that technological advancements are no “manna from the heaven.” Technology determines and is determined by economic performance, a joint determination that makes common sense while at the same time raising vexing questions about causality.
For example, a quick glance at the sources of economic growth of the United States over the years would show a clear shift from reliance for growth on resources (Romer’s objects) in the early years to healthy interactions and intra-actions of ideas and objects in the middle years, and increasingly to ideas and technology in more recent times (Denison 1967; Gordon 2002; Aghion 2006). Since nothing of the sort has been documented for African countries, it seems reasonable to suspect that a major obstacle to the economic performance of SSACs has been a feeble technological foundation. In dramatic words, just as the craftiest of construction engineers cannot erect a skyscraper on Jell-O pudding, so too strong and sustained growth needs a strong technological foundation.
The objective of this chapter is to quantify some of the technological foundations of economic performance in African countries, using as an example the forty-six African countries listed below. 2 The objective is important because technology improves the productivity of other resources. It is especially crucial where the relative productivity of other factors of production is a matter of considerable concern (Dasgupta and Stoneman 1987). As Aaron Segal (1985) points out “of all gaps that separate Africa from the rest of the world science and technology is probably the most critical, and the most profound” (110, italics added). The first section below outlines the theory behind the analysis; the second section turns to practical issues including data, estimations, and results; and the final section makes a concluding remark.
Theory
This section first sketches the relevant literature and then states a simple and practical model.
Literature
Paul Collier and Jan Willem Gunning (1999) review a very large set of literature on African performance in an attempt to uncover commonalities of the sources of economic performance there. They relate sources of the economic decline of Africa to the lack of social capital, trade openness, public services, financial depth, a hostile geography, and over-dependence on foreign aid. This list is not new; what stands out from this literature review at the aggregate level, however, is the negative effect on performance of the so-called Africa dummy. Consistent with Collier and Gunning, many other researchers report a significant negative African dummy ranging from −0.010 to −0.54 over the decades 1960–1989 (Benhabib and Spiegel 1994; Alcala and Ciccone 2001; Barro 1991; Easterly and Levine 1997). Also during the years 1960–2003, Africa’s total factor productivity (TFP) has remained low at between −0.05 and −1.34 according to some estimates (Ndulu and O’Connell 1999; Soderbom and Teal 2003; Jorgenson and Vu 2005). 3 The negative effects of Africa’s TFP and dummy are discernible despite the fact that other sources of growth, such as physical capital per worker, or human capital per worker, are not that different from those of other regions. 4
Temple (1999) looks at the new growth evidence from the perspectives of the old (exogenous) neoclassical and new (endogenous) growth theories. The evidence concludes that differences in economic growth are mainly due to differences in capital investment in equipment, people, and R & D; income inequality and the implication of that for (in-)stability; economic freedom and security of property rights; government and its effects with respect to taxation, spending, regulation, and the financing of infrastructure; and openness to trade. However, Temple’s “new evidence” is not really new either; W. Arthur Lewis (1965) argues that “the proximate