Growth and Trade in Africa

• Author: Arvind Subramanian
• Pages: 2-3

Page 2

Raising economic growth so that countries can attain higher standards of living and reduce poverty remains the central policy challenge for sub-Saharan Africa. And facilitating the attainment of this objective through rapid trade integration, which is one of the most important vehicles for poorer African countries to "catch up" with their richer partners, is another related challenge.

The question of why growth has been slow in Africa has been extensively studied by numerous academics on the basis of cross-country growth regressions.¹ The causes fall into four broad categories: (1) adverse inheritance of conditions-geographic, social, and human capital; (2) poor macroeconomic and structural reform policies; (3) external and internal shocks; and (4) weak domestic institutions and governance. Unsurprisingly, research at the IMF has focused on the importance of the policy determinants for growth, although increasingly it has extended to nonpolicy factors as well. Ghura and Hadjimichael (1996) find that per capita real GDP growth in Africa is boosted by increases in investment, particularly private investment, and human capital, as well as by policies that promote macroeconomic stability and external competitiveness on a sustained basis.² These results are confirmed with an extended dataset by Calamitsis and others (1999).³ Hernández-Catá (2000) emphasizes the need to deal with three types of risk (macroeconomic instability, nonenforcement of contracts, and armed conflicts) that reduce investment and hinder the prospects for sustained growth.⁴ Leite and Weidman (1999) identify corruption as an explanation for slow growth in resource-rich economies, but conclude that neither the degree of corruption nor the growth process is different in Africa than elsewhere.⁵

A substantial portion of the research on growth-related issues has been at the country level.⁶ A study on Cameroon by Ghura (1997) confirms the conclusions of Ghura and Hadjimichael (1996) at the aggregate level. Jonsson and Subramanian (2001) use time-series and cross-sectional (across industries) methods to demonstrate the sizable gains to total factor productivity growth from trade liberalization in South Africa. Sacerdoti, Brunschwig, and Tang (1998) build a time series for human capital for eight West African countries, using data on school enrollment and on wage structure by education attainment, and show that schooling in itself is not sufficient to generate growth, and that investment in education must be supported by an environment favorable to the productive application of...