Collaborative Research - Growth Project

EXPLAINING AFRICAN ECONOMIC GROWTH PERFORMANCE
The “Growth Project”, as it is known, was conceived in 1997 as a collaborative effort by Harvard University, Oxford University, and AERC. More formally, “Explaining African Economic Growth” was officially launched with the presentation of framework papers at a workshop at Harvard in March 1999. Coordinated by Professors Stephen O’Connell and Charles Soludo, the project is designed to produce the first major, comprehensive assessment by African research economists of the continent’s growth experience in the post-independence period. Eight resource persons and 77 researchers are participating.

Until the mid 1970s, African economies grew rapidly. The substantial slowdown since then, especially when compared with the performance of the economies in other regions, has been a major subject of concern in many circles. The current collaborative research project is designed to explain this growth record. It does this by combining the usual macro-growth framework with three approaches grounded on African country experiences: governments, private agents and markets. By analysing data from about 1960 to the present within this four-perspective approach, the study intends to answer the question of why economic growth in Africa has not been as rapid in the later period.

The Design
There are four principal framework papers, each of which presents a survey and synthesis of the literature on one of the four approaches. These are in turn supported by background papers. In addition, there are country-specific case studies matched to the macro-growth country coverage. To be comprehensive, the study aims at covering as many countries as possible; currently, there are 30.

The various perspectives are briefly described below.

Macro-Growth
The macro-growth framework are based on the new applied growth literature on Africa. Consistent with the unique AERC modality, however, this approach is being linked to the country level.

The new growth literature has so far been used to account for African similarity vis-à-vis the rest of the world. The Growth Project extends that framework to account for changes in the performance of a given country over time, as well as to explain differences among African countries.

The country-level growth studies intend to harness the new growth literature to determine how much of a given country's growth experience is explained on the basis of the cross-country growth regression, and then to account for any major residuals. In addition, the approach lends itself to providing considerable scope for regional level analysis of growth performance.

The macro-growth approach , first, identifies a set of salient variables, both policy oriented and structural, in the growth process. Policy variables include the domestic currency exchange rate, especially as related to misalignment; the degree of openness; and fiscal and domestic instruments generally. Structural variables entail such factors as geographical endowment (e.g., if landlocked, disease prevalence, topography), social capital and socio-political configuration.

Second, the macro-growth approach, through its framework paper, will provide a common guide for the growth accounting work at the country level. This macro-country level linkage allows for a greater latitude of refining the currently crude measures of structural variables. For example, Jeffrey Sachs' use of the tropics dummy may be better articulated by the use of measures of agricultural research capabilities. Similarly, the rough indexes of social capital and ethno-linguistic fractionalization may be more finely defined at the country level, where the usual inter-temporal and interactive dynamics can be better explored.

The framework paper uses the overall growth regression to produce for each country a predicted performance on the basis of its observed characteristics, decade-by-decade. The task of the macro-growth cum country case study is two fold. First, it attempts to explain any residuals; that is, why a certain country may not fit a globally applicable relationship (in the case of a non zero residual). Second, it examines why certain explanatory variables took on the observed values; in particular, why were certain policies adopted?

Results from the macro-growth framework would be motivated and interpreted within the following three themes: government, private agents and markets.

Government
The political economy of economic performance can be approached at both macro and micro levels. Consistent with the new growth macroeconomics, the macro level uses political variables to explain economic performance. Thus it provides guidance for the country studies in terms of the variables to be studied. The micro level assumes the endogeneity of the political variables themselves.

Policy choices that may result from the political process include: the provision of infrastructure, size and allocation of the public budget, trade policy, financial repression, and exchange rate policy. The variables should be primarily derived from the incentives created by patterns of political competition among interest groups.

These political outcomes are likely to affect economic performance as measured by private investment, for example. In addition, the politics of interest groups and incentives for political competition may influence investment directly. This is likely to occur through uncertainties introduced into the economic decision making sphere engendered by the variability, rather than the level, of the policy choice.

The existence and nature of political violence is another variable that may determine economic outcomes as well as be influenced by politics. The case studies examine this relationship. In particular, country authors are invited to explain why nations lie above or below the statistical trend in a distribution of political violence across countries.

A last concern entails the creation of political institutions, particularly those that govern the economy. For example, what dynamics exist among the various economic institutions such as the military versus the civilian political agents? How do these dynamics determine the preservation and strengths of the various institutions? Finally, to what extent does the interplay among institutions influence the economic outcome, or is influenced by it?

Private Agents
The case studies discuss the two key groups of private agents: households and firms. In the case of the former, the focus is on farm households, the major component of most African economies. Nevertheless, important issues, such as whether to send children to school, are discussed in the context of drawing the contrast between farm and urban household choices. To the extent that it reflects on aggregate performance, intra-household choice is also addressed in the studies. For example, the husband-wife choice dichotomy may help to explain the structure of production, such as food and export crops.

Regarding firms, the focus is on manufacturing, drawing on available detailed firm-level data for a number of countries. Also of interest is the mineral extraction sector, which has traditionally been more important than manufacturing in much of Africa.

In order to provide the microeconomic foundations for the observed macroeconomic performance, the studies first survey the literature to identify relevant microeconomic variables for economic performance. For example, what is the role of credit availability in firm performance? Such a survey will then provide guidance for the country case studies, in terms of identifying the major microeconomic constraints to the growth process.

Markets
As media of exchange between economic agents, markets are key institutions in the growth process. For example, Douglas North (D. North, 1990. Institutions, Institutional change and Economic Performance, Cambridge University Press, Cambridge), emphasizes the reduction of transaction costs through institution building as the source of modern economic growth. The rather limited evidence for Africa suggests that increasing transaction costs may have featured significantly in the economic decline that has taken place since the mid 1970s.

A major purpose of this section of the study is to identify the role of markets in economic growth, primarily through their ability to reduce transaction costs. This will entails the functioning of markets both individually and as integrated units. For example, to what extent have policies and rapidly depreciating public goods aided possible disintegration of markets in Africa? Relatedly, what has been the nature of the market structure over time? What role has regulation played? Finally, has the type of taxation, for example, impeded market integration?

The analysis provides guidance to the country studies as to the relevant aspects of markets to be studied. In turn, the country studies should make available detailed information bearing on the respective nation's relative position in the distribution of growth performance.