IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2519.html
   My bibliography  Save this paper

Is investment in Africa too low or too high : macro and micro evidence

Author

Listed:
  • Devarajan, Shantayanan
  • Easterley, William R.
  • Pack, Howard

Abstract

The authors investigate the relationship between weak growth performance and low investment rates in Africa. The cross-country evidence suggests no direct relationship. The positive and significant coefficient on private investment appears to be driven by Botswana's presence in the sample. Allowing for the endogeneity of private investment, controlling for policy, and positing a nonlinear relationship make no difference to the conclusion. Higher investment in Africa would not by itself produce faster GDP growth. Africa's low investment and growth rates seem to be symptoms of underlying factors. To investigate those factors and to correct for some of the problems with cross-country analysis, the authors undertook a case study of manufacturing investment in Tanzania. They tried to identify why output per worker declined while capital per worker increased. Some of the usual suspects--such as shifts from high- to low-productivity subsectors, the presence of state-owned enterprises, or poor polices--did not play a significant role in this decline. Instead, low capacity utilization (possibly the by-product of poor policies) and constraints on absorptive capacity for skill acquisition seem to be critical factors. If Tanzania is not atypical,the low productivity of investment in Africa was the result of a combination of factors that occurred simultaneously, not any single factor. What does this tell us? First, we should be more careful about calling for an investment boom so that Africa can resume growth. Unless some or all of the underlying problems are addressed, the results may be disappointing. We should also be more circumspect about Africa's low savings rate; it may be low because returns to investment were so low. The relatively high level of capital flight from Africa may have been a level rational response to the lack of investment oportunities at home. Second, there is probably no single key to unlocking investment and GDP growth in Africa. All of the factors contributing to low productivity should be addressed simultaneously.

Suggested Citation

  • Devarajan, Shantayanan & Easterley, William R. & Pack, Howard, 2001. "Is investment in Africa too low or too high : macro and micro evidence," Policy Research Working Paper Series 2519, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2519
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2001/02/10/000094946_01012705513385/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
    2. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
    3. Dhaneshwar Ghura & Michael T. Hadjimichael, 1995. "Public Policies and Private Savings and Investment in Sub-Saharan Africa; An Empirical Investigation," IMF Working Papers 95/19, International Monetary Fund.
    4. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
    5. Dhaneshwar Ghura & Anupam Basu & Anthony E Calamitsis, 1999. "Adjustment and Growth in Sub-Saharan Africa," IMF Working Papers 99/51, International Monetary Fund.
    6. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    7. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
    8. Dollar, David & Easterly, William, 1999. "The Search for the Key: Aid, Investment and Policies in Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(4), pages 546-577, December.
    9. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    10. J. Bradford De Long & Lawrence H. Summers, 1991. "Equipment Investment and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 445-502.
    11. Hoeffler, Anke E, 2002. " The Augmented Solow Model and the African Growth Debate," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(2), pages 135-158, May.
    12. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
    13. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    14. Dhaneshwar Ghura & Michael T. Hadjimichael, 1996. "Growth in Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 605-634, September.
    15. Pritchett, Lant, 1996. "Where has all the education gone?," Policy Research Working Paper Series 1581, The World Bank.
    16. Alwyn Young, 1995. "The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 641-680.
    17. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters,in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
    18. Oshikoya, Temitope W, 1994. "Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 42(3), pages 573-596, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. -, 2007. "Economic Survey of Latin America and the Caribbean 2006-2007," Estudio Económico de América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1065 edited by Eclac, OCTOBER.
    2. Abu-Ghaida, Dina & Klasen, Stephan, 2004. "The Costs of Missing the Millennium Development Goal on Gender Equity," World Development, Elsevier, vol. 32(7), pages 1075-1107, July.
    3. Harrison, Ann E. & Lin, Justin Yifu & Xu, Lixin Colin, 2014. "Explaining Africa’s (Dis)advantage," World Development, Elsevier, vol. 63(C), pages 59-77.
    4. Leonce Ndikumana, 2008. "Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector-level evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(7), pages 869-887.
    5. Kraay, Aart & Raddatz, Claudio, 2007. "Poverty traps, aid, and growth," Journal of Development Economics, Elsevier, vol. 82(2), pages 315-347, March.
    6. Recanatini, Francesca & Wallsten, Scott J. & Lixin Colin Xu, 2000. "Surveying surveys and questioning questions - learning from World Bank experience," Policy Research Working Paper Series 2307, The World Bank.
    7. Augustin Kwasi Fosu & Yoseph Getachew & Thomas H.W. Ziesemer, 2014. "Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries," Working Papers 201464, University of Pretoria, Department of Economics.
    8. Ambachew, Mekonnen Sisay, 2009. "The Dynamic Links between Investment, Trade and Growth: Evidence from Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 18(2).
    9. Causa, Orsetta & Cohen, Daniel & Soto, Marcelo, 2006. "Lucas and Anti-Lucas Paradoxes," CEPR Discussion Papers 6013, C.E.P.R. Discussion Papers.
    10. Ludvig Söderling, 2002. "Escaping the Curse of Oil? The Case of Gabon," IMF Working Papers 02/93, International Monetary Fund.
    11. Sebastián Fleitas & Andrés Rius & Carolina Román & Henry Willebald, 2013. "Contract enforcement, investment and growth in Uruguay since 1870," Documentos de Trabajo (working papers) 13-01, Instituto de Economía - IECON.
    12. Daniel Cohen; Marcelo Soto, 2004. "Why are poor countries poor?," Econometric Society 2004 Latin American Meetings 75, Econometric Society.
    13. Watu Wamae, 2006. "Why Technological Spillovers elude Developing Countries A Dynamic Non-linear Model," DRUID Working Papers 06-02, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    14. Mangaard Jørgensen, Christina & Bjørnskov, Christian, 2015. "Did Africa’s First Choices Matter? Growth Legacies of Leaders at Independence," Working Paper Series 1090, Research Institute of Industrial Economics.
    15. Nihal Bayraktar & Blanca Moreno-Dodson, 2015. "How Can Public Spending Help You Grow? An Empirical Analysis For Developing Countries," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 30-64, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2519. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.