Public investment and export diversification in low skilled labor force economies. Evidence from sub Saharan Africa

Abstract

Export diversification is a means for sustainable economic growth in low-income countries. Consequently, public investment is made in various sectors to attain diversification. In this study, we assessed the long-run elasticity of export diversification to various forms of public expenditure in economies with a dominant unskilled labor force. Public investments in agriculture, education, manufacturing and mining, and transport and ICT were found to promote diversification in the long term, but all were inconsequential in the short term except for education. We conclude that for countries where a larger proportion of the labor force is unskilled public investment in public expenditures in economic and supporting sectors can encourage export diversification. However, outcomes are as dependent on the quantity of investment as they do on quality. Deliberate strategies to promote diversification should be encouraged.

Keywords:

• export diversification
• intensive margins
• extensive margins
• public expenditure
• SSA

PUBLIC INTREST STATEMENT

Export diversification is considered a means for achieving sustainable economic growth in low-income countries. Consequently, public investment is made to various sectors to attain diversification. In this study, we assessed the responsiveness of export diversification to changes in public expenditure. The results show that in countries where a large proportion of the labor force is unskilled, investments in agriculture, education, and transport and ICT lead to greater diversification while manufacturing and mining expenditures had the opposite effect. Noteworthy, is the weak responsiveness of diversification to outlays. This is indicative of lack of tailor-made interventions to promote diversification in the sectors. Deliberate strategies to promote diversification should be encouraged.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Horace Phiri

Horace Phiri is a Lecturer in the Department of Agriculture and Applied Economics at Lilongwe University of Agriculture and Natural Resources. He holds a PhD in Agriculture and Resource Economics from the University of Malawi. His research interests are in international economics and policy analysis.