The impact of technology frontier on the total factor productivity growth in African economies: the role of human capital

Abstract

This paper examines the impact of the technology frontier on the Total Factor Productivity (TFP) growth in African countries. The paper includes the human capital channel (i.e., low and high education) in the TFP growth function. The model also adds net foreign direct investment inflows and financial development as control variables. The long-run estimations indicate that the technology frontier hampers the TFP growth. The technology frontier adversely affects the TFP growth in a low education channel. Surprisingly, high education has a positive and insignificant impact on TFP growth. It is also found that financial development decreases the TFP growth while net foreign direct investment inflows have mixed effects. These findings suggest that educated labour embodied in rich technology frontier should also require the proper training for enhancing the TFP growth in African economies.

Keywords:

• Total factor productivity
• human capital composition
• technology frontier
• African economies
• financial development

JEL CODES:

• I20
• D24
• O55
• O30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 A combination of better technological usage and high human capital refers to the technological frontier. However, the technology frontier is usually looked into the total factor productivity differences, which are measured by the ratio of factor productivity of a developing economy divided by the total factor productivity of the United States economy.

2 African economies are mostly facing reduced economic growth and development due to less trade openness and FDI flows (Buysse et al., 2018), higher level of poverty (Yameogo & Omojolaibi, 2021), and minimal opportunities for education and jobs (David & Grobler, 2020).

3 The TFP is estimated as a residual of the aggregate production function (Y/K_αL_1-α), where Y is real GDP per capita, K is physical capital stock, L is the labour force, and α is a portion of income which usually goes to capital stock. The capital stock is measured by employing the Solow model steady-state value of RIi0 / (dep + growth), where RIi0 is the real investment, dep is the rate of depreciation, and growthi is the real investment growth rate over the sample period. The value of the capital stock is generated by employing the perpetual inventory method by taking the current depreciation rate.

4 Liu and Li (2022) pointed out the influential impact of the banking sector on total factor productivity for developing countries. Per their thought, the number of bank branches and expansion of the banking operation across the regions can improve the TFP. Xiuwu et al. (2022) evidenced the importance of two-way foreign direct investment (FDI) on TFP. They stated that the enhancement of the overseas investment opportunity could produce more productivity growth in the domestic economy.

5 More extensive discussion of short-run results is not made to conserve the journal's space.