Department of Economics

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Browsing Department of Economics by browse.metadata.advisor "Aziakpono, Meshach Jesse"

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    Essays on the drivers and inclusive growth effects of structural change patterns in Africa
    (Stellenbosch : Stellenbosch University, 2023-12-14) Gbahabo, Paul Terna; Aziakpono, Meshach Jesse; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY: As economies develop, they undergo large scale structural change – the reallocation of economic activities across three broad sectors of agriculture, manufacturing and services that accompany economic development. A fundamental attribute of structural change is the structural heterogeneity within and across countries, giving rise to cross-country variation in structural change patterns. Beyond the systematic variation in structural composition, structural transformation also induces a wide range of complementary processes and changes in technological progress, consumer behaviour, urbanisation, demographic transition, female labour participation, living standards, welfare redistribution, and even socio-political institutions. Although structural transformation has been extensively investigated in several industrialised economies and remains a pertinent policy issue amongst developing economies, empirical insights into these processes within developing economies remain unclear. The collection of four stand-alone essays in this dissertation examines the drivers and inclusive growth effects of African structural change patterns towards providing a deeper conceptual understanding of policy implications. The first essay reconsiders the stylised facts of structural change within the context of Africa. Specifically, the study summarizes broad trends and patterns in the data to understand the empirical regularities in the composition of value-added and employment shares, relative labour productivity levels and growth rates, and capital intensity levels using descriptive statistics of 20 (38) African economies from 1960 to 2018 (1970-2017). The study found considerable sectoral differences, emphasising structural disequilibrium in Africa's economic growth pattern. The following empirical insights were derived from the analyses. First, any talk of premature de-industrialisation in Africa is premature, as the manufacturing sector is still expanding, albeit more slowly than expected. Second, the service sector in Africa is equally or even more productive than the manufacturing sector, which is even more evident in the bottom-income quantile economies in Africa than in the top-income quantile. Third, the agriculture sector has overtaken the manufacturing sector as the fastest-growing sector, an empirical regularity common to emerging and industrialised economies. Fourth, while capital utilisation in agriculture has remained a paltry sum, capital utilisation in the service sector has surpassed that of the industrial sector over the last decade. The second essay empirically examines the relative price hypothesis – which suggests that structural change stems from changes in relative prices reflecting differences in sectoral technology within and across countries. Using a panel of 34 African economies from 1970 to 2017, the study used the instrumental variable and fixed effects models to examine the sources of cross-country variation in the pattern of structural change from a capital intensity and absorptive capacity perspective. Results from the study revealed the following. First, in cross-country comparative analyses, a broad (macro) level of analysis or aggregation approach, such as the two-sector models, masks heterogeneous trends in the data, thus emphasising universal similarities across countries. However, the disaggregated (micro) level analysis allows for variations specific to the peculiarities of countries making up the sample. Second, the study observed robust empirical evidence of capital-skill complementarity among the technological forces driving structural change in Africa. Third, the results showed that beneath the capital-skill complementarity, intersectoral differences abound, with cross-country variations in sectoral capital intensity exhibiting larger effects in capital-intensive agriculture and tradable goods (comprising agriculture and manufacturing), than in low capital-intensive sectors (non-agriculture, non-tradable and services). Conversely, the study observed larger cross-country variations in absorptive capacity in high-skill-intensive sectors (non-agriculture, non-tradable and services) relative to low-skilled sectors of agriculture, tradable and goods production (agriculture, manufacturing and non-manufacturing). Fourth, the study found evidence showing that at the disaggregated level, there is lower cross-country variance in sectors with a high codified knowledge base, technology transfer and absorption, such as mining and utilities, transport and communications and manufacturing, than in sectors with a tacit knowledge base and low technology transfer and absorption such as agriculture, retail and hospitality and other services. The third essay investigates the long-term consequences of commodity specialisation as a driver of structural change by decomposing commodity specialisation into commodity windfall and commodity price effects to estimate their direct and indirect transmission channels using panel quantile regression on 34 African economies from 1970 to 2017. Our results show the following. First, commodity windfall at the aggregate two-sector level diminishes the tradable and non-tradable sectors across the distributional quantile. Conversely, real commodity prices only directly depress growth in the tradable sector at the 75th quantile while damaging the non-tradable sector at both the lower and median quantile distribution. Second, commodity windfall and prices do not directly impact the agricultural sector, irrespective of the distributional quantile. Third, while commodity windfall has no direct shrinking effect on the manufacturing sector except at the 25th quantile, real commodity prices directly diminish manufacturing growth with comparable marginal effects across the distributional quantile. Fourth, contrary to the theoretical prediction, the direct Dutch Disease effect – the crowding out of other sectors of the economy, especially the tradable sector, induced by commodity specialisation in resource-rich economies – is more visible in the non-tradable sector, with the construction sector being worse off, followed by the transport and telecommunication, and retail and hospitality sectors, respectively. Fifth, the loss in non-resource commodity export competitiveness and the declining commodity terms of trade are the most debilitating indirect transmission channels. Also, contrary to theory, the study found that the real effective currency appreciation transmission channel is but a statistical mirage. The fourth and final essay explores the inclusive growth–a generic term for welfare – effects of structural change transition patterns – using the Augmented Mean Group estimator on a panel of 17 African countries from 1971 to 2017. The results revealed the following: structural upgrading from low-productive agriculture to any other part of the modern sector enhances inclusive growth, especially for low-income economies. Second, the study show heterogeneity in the welfare-enhancing effects of the different transition patterns of structural upgrading. Specifically, although structural upgrading enhances living standards, it can also induce welfare loss in many African economies, depending on the transition path followed. For instance, while the transition from agriculture to market services enhances inclusive growth in many African economies, manufacturing upgrades exhibit welfare loss or have no effects on inclusive human development. Third, the structural upgrade from agriculture to non-manufacturing is more welfare-enhancing in many African economies than the upgrade from agriculture to manufacturing, especially in middle-income economies. Third, the direct upgrade from agriculture to market services engenders inclusive growth in more African countries than the upgrade from agriculture to manufacturing. Further, the study also found that while disaggregated non-tradable service upgrades engender inclusive human development in more African economies, the reverse is true for tradable service upgrades, which foster improvements in per capita consumption in more countries. Fourth, the study provides evidence of a persistent trade-off between the welfare-enhancing effects of long-term inclusive human development and short-term household consumption – often favouring household consumption, as observed across several transition channels in several economies, including Rwanda and Lesotho, Senegal and Morocco.