Industrialization as driver of sustainable economic growth in Africa

ABSTRACT

Whilst the last couple of decades have witnessed an unprecedented growth expedition in Africa, an important question is how to make the growth sustainable. A remarkable distinction between the growth experience in the Asian economies and the African economies is that Africa has more or less skipped the industrial stage which many developed countries observed. Given the major contribution of industrialization to growth, this paper examines the impact of industrialization on economic growth in Africa. The examination of industrialization has become more imperative following recent commitments of African governments and the African Development Bank to it, and also it been a core part of the Sustainable Development Goals. Employing data for the period 1980–2014 from 37 African countries and the generalized method of moments method, we show two main interesting results despite the fact that industrialization is very much on the low in the region. First, our results affirm the hypothesis that industrialization is an important booster of economic growth. Second, trade openness further augments the effect of industrialization on economic growth. We also employ alternative measures of industrialization and perform sub-regional/sampling analyses. The results are shown to be robust across.

KEYWORDS:

• Industrialization
• economic growth
• generalized method of moments
• Africa

JEL CODES:

• C33
• O14
• O47
• O55

Acknowledgements

We acknowledge research support from the Global Research Unit (GRU) of the City University of Hong Kong and the Hung Hing Ying and Leung Hau Ling Charitable Foundation. We also acknowledge participants of the 2018 CSAE Conference, University of Oxford, UK for their comments.

Disclosure statements

No potential conflict of interest was reported by the authors.

ORCID

Eric Evans Osei Opoku http://orcid.org/0000-0002-4961-5984

Notes

1. Africa remains one of the fastest growing regions in the world (World Bank 2012) with Sierra Leone, Niger, Cote d’Ivoire, Liberia, Ethiopia, Burkina Faso, Rwanda, Mozambique, Zambia and Ghana named among the fastest growing economies in the world (World Bank 2013).

2. We elaborate on this in the next section.

3. Accordingly, the five priorities are: light up and power Africa, feed Africa, industrialize Africa, integrate Africa, and improve the quality of life for the people of Africa. Regarding industrialization, the Bank has committed itself to invest US$3.5 billion yearly in the next 10 years, through direct financing and leveraging. This is in the quest to boost industrialization to hasten economic transformation in Africa.

4. The First Industrial Development Decade was for the period 1980–1989 and the Second Industrial Development Decade, 1993–2002. It must however be emphasized that these two did not bring about the transformation for which they were established.

5. This is the case as there exist unlimited supply of labour at the subsistence level or the agricultural sector.

6. An inclusion of interaction term is likely to cause multicollinearity as it tends to be highly correlated with the original variables used to compute them (Azman-Saini, Baharumshah, and Law 2010; Darlington 1990). Therefore following Azman-Saini, Baharumshah, and Law (2010) and Gui-Diby (2014), we circumvent this in the following two steps: first, is regressed on and variables: second the residuals from the first step are used to represent the interaction term.

7. Durlauf et al. (2005) assert that the weakness and invalidity of several instruments have become unavoidable as the choice of instruments to use suffers some level of inaccuracy due to the qualitative and nonobjective judgment.

8. All the GMM estimations are conducted by the xtabond2 (Roodman 2009).

9. Since both the dependent variable and the main independent variable (industrialization) are logged, the coefficients are interpreted in the premise of log-log regression. That is, if x (the independent variable) changes by 1%, we expect y (the dependent variable) to change by β1 per cent.

10. We drop the North African countries in the sample.

11. To conserve space, we do not report results for this. They are however available upon request.

12. To conserve space, we do not report these results, they shall however be made available upon request.

Additional information

Funding

This work was supported by the Strategic Research Grant (SRG), City University of Hong Kong under [grant number 7004558]; and National Natural Science Foundation of China under [grant number 71403061].