Accelerated Economic Growth in West Africa PDF
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Advances in African Economic, Social and Political Development Diery Seck Editor Accelerated Economic Growth in West Africa Advances in African Economic, Social and Political Development SeriesEditors DierySeck,CREPOL-CenterforResearchonPoliticalEconomy,Dakar,Senegal JulietU.Elu,MorehouseCollege,AtlantaGA,USA YawNyarko,NewYorkUniversity,NY,USA Africa is emerging as a rapidly growing region, still facing major challenges, but with a potential for significant progress – a transformation that necessitates vigorous efforts in research and policy thinking. This book series focuses on three intricatelyrelatedkeyaspectsofmodern-dayAfrica:economic,socialandpolitical development. Making use of recent theoretical and empirical advances, the series aims to provide fresh answers to Africa's development challenges. All the socio- political dimensions of today's Africa are incorporated as they unfold and new policy options are presented. The series aims to provide a broad and interactive forum of science at work for policymaking and to bring together African and international researchers and experts. The series welcomes monographs and contributed volumes for an academic and professional audience, as well as tightly edited conference proceedings. Relevant topics include, but are not limited to, economicpolicyandtrade,regionalintegration,labormarketpolicies,demographic development, social issues, political economy and political systems, and environmental and energy issues. More information about this series at http://www.springer.com/series/11885 Diery Seck Editor Accelerated Economic Growth in West Africa Editor DierySeck CREPOL-CenterforResearchonPoliticalEconomy Dakar,Senegal ISSN2198-7262 ISSN2198-7270 (electronic) AdvancesinAfricanEconomic,SocialandPoliticalDevelopment ISBN978-3-319-16825-8 ISBN978-3-319-16826-5 (eBook) DOI10.1007/978-3-319-16826-5 LibraryofCongressControlNumber:2015942927 SpringerChamHeidelbergNewYorkDordrechtLondon ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthis book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained hereinorforanyerrorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper Springer International Publishing AG Switzerland is part of Springer Science+Business Media (www.springer.com) Introduction AccordingtotheInternationalMonetaryFund(IMF),theworldeconomygrewin real terms by 3.4 % in 2012, 3.3 % in 2013, and 3.3 % in 2014. Over these same years, the Economic Community of West African States (ECOWAS), which includes all 15 countries of West Africa, recorded real growth of 5.1 %, 5.7 %, and 6.7 %, respectively. For 2015, the world is expected to grow at 3.8 % while West Africa’s growth is forecasted at 6.9 %.1 In other words, West Africa is currently growing faster than the rest of the world and the difference in growth ratesisontherise.However,thesubregionhasrecordedadeclineinitseconomic performanceduringthelast10years.Itsaveragerateofgrowthwas8.2%between 2004and2007,7.5%between2008and2011,and5.8%between2012and2014. Therefore, although still relatively high, the rate of growth of the economy of ECOWAS has been decelerating albeit on a rebound by about 1 % between 2012 and 2013 on the one hand and 2014 and 2015 on the other hand. The favorable picture that emerges from the recent economic evolution of West Africa suggests severallinesofinquirythatcouldhelpbetterunderstandthecurrentsituationand, moreimportantly,foreseethefuturepathoftheregion. IsthecurrentepisodeofhighgrowthuniqueinthehistoryofWestAfrica;how canitbeexplainedandhowdoesitcomparetoperiodsofhigheconomicgrowthin other regions of the world? Examination of the historical record of economic growth, first over the last few 100 years, then during the last half century when mostWestAfricancountrieswereindependent,andfinallythelast10years,could help answer these questions. Maddison (2001) gives estimates of average annual compoundgrowthratesofseveralregionsoftheworldfortheperiod1820–1998.2 The rate of growth for Africa, not just West Africa, is 1.99 %, while that of the Worldis2.21%.Incomparison,currentindustrializedcountries,includingWestern 1International Monetary Fund, World Economic and Financial Surveys, Regional Economic Outlook,Sub-SaharaAfrica:StayingtheCourse,Table1.1andTableSA1. 2AngusMaddison,TheWorldEconomy:AmillennialPerspective,OECD,2001,p.28. v vi Introduction Europe, Western Offshoots (USA, Canada, Australia, and New Zealand), and Japan, recorded 2.57 %, Latin America 3.05 %, and Asia (excluding Japan) 1.84 %. So, for nearly 200 years, Africa, presumably West Africa also, lagged behind most other world regions, which may explain its current state of relative underdevelopment,afatesharedwithAsiancountriesby1998. During thehalf century thatspans theperiod 1960–2012,the equally weighted average growthrate of GDP per capita was 0.99 %, which compared unfavorably with the average rates for the three emerging economies that are Brazil, 2.4 %, China, 6.8 %, and India, 3.2 %.3 However, the West African averages for the 10-year and 20-year periods ending in 2012 were higher than the half-century average but lower than the 5-year average for the period 2008–2012. It can be concluded that, after a long period of stagnation, West Africa’s economic growth hasbeenslowlyontheriseandsharplyacceleratingduringtheperiod2005–2014. Toacertainextent,thisevolutionexplainsthetitleofthebook.Howcanthisvery evolutionbeinterpretedinlightofotherregions’experiencewithgrowth?Obser- vationofthegrowthpatternofmostcountriesorregionswithahighgrowthepisode indicatesexistenceofashapeovertimethatcanbelikenedtoabellcurve,although notnecessarilysymmetrical.Themainfeaturetobenotedisthat,foratime,growth maintainsarelativelymodestvaluefollowedbyasignificantincreasethatreaches an apex with varying durations and a gentle decline toward the historical modest value.IfWestAfrica’sgrowthexperiencefollowsacomparablepatternovertime, based on the evidence of its 10-year boom, at which stage of the curve can it be locatedtoday?Twocorollarypolicyquestionsthatarisecanthenbeformulatedas follows:First,ifAfrica’seconomicgrowthisrising,howtoaccelerateitsothatit reachesitsmaximumlevelassoonaspossible?Second,oncetheeconomy’srateof growthisattheapexhowtomaintainthatlevelforaslongaspossibleinorderto delaytheensuingdecline? Theanalysiswillproceedfirstwithadigressionbydiscussingtherelevanceand importance of the characteristics of countries for outcomes on rates of economic growth.Characteristicsareunderstoodastraitsoverwhichpolicieshavelittleorno impact. The effect of policies on growth trajectories will follow. One of the main characteristicsthatisdiscussedinthedevelopmenteconomicsliteratureisgeogra- phy.Itisoftenproposed thatacountrylocatedinthetropicsorthatislandlocked andmoreseriouslythatis both tropical andlandlocked faces biggerchallenges to attain high levels of economic growth. Indeed, most developing countries are situated in the inter-tropical belt and have hot weather and generous flora and fauna that presumably may lead to lower productivity than in temperate climates wheremeresurvivalmayrequireahigherlevelofeffort.Whilethereseemstobe some degree of correlation between geography and rates of economic growth, causality still needs to be established more unequivocally. Furthermore, over the last few decades,world championsofeconomic growth,China, India, Brazil, and 3WorldBank,WorldDevelopmentIndicators,2015. Introduction vii the Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan), have vast portionsoftheirterritorieslocatedinthetropics. Another argumentrelatedtogeography suggeststhatdeveloping countries that are richinnaturalresourcesoften facethe challengeofdesigning growth policies thatgo beyond exploitation ofthe rentofthe naturalresources andfall victimsto some degree of resource curse. This hypothesis is also coupled with the idea that suchcountriesoftenlackstronganddemocraticinstitutions,whichresultsinweak governanceandpredatorygovernments.Finally,itissuggestedthatacountrythat, by mere lack of luck, has poor or fragile neighbors may find it more difficult to achievehighratesofeconomicgrowthbecausethefullpotentialofitscross-border trade is not exploited, and scientific and technological exchange that would be mutually beneficial is thwarted. These hypotheses have common currency in the developmentdebatebutalsohavetheircritics. Doessizematterforeconomicgrowth?OneofthecharacteristicsofsomeWest Africancountriesistheirverysmallsize.Threeofthe15ECOWAScountries,The Gambia,CapeVerde,andGuineaBissau,havepopulationsthatarelowerthantwo million inhabitants. These three countries and two more, Togo and Sierra Leone, havelandareasthatarelessthan75,000km2.Itisarguedthatsuchsmallcountries donotprovidetheirprivatesectorwithalargeenoughmarketthatwouldpromote research,innovation,andeconomiesofscale.However,itcanbenotedthat,withits strong integration agenda, ECOWAS is actively seeking to remove that obstacle andthatCapeVerde,thesubregion’scountrywiththesmallestpopulation,500,000 inhabitants,andthesmallestsurfacearea,4,050km2,hasthehighestlevelofGDP per capita and experienced one of the highest rates of economic growth in the regionoverthelast20years. The initial socioeconomic conditions of West African countries when they became independent about half a century ago can be seen as a major impediment for growth due to unsurmountable inertia. This view would run contrary to the commonly held hypothesis that over time poor countries converged toward rich countriesand,therefore,areexpectedtoexperiencehigherratesofgrowth.Indeed, the empirical evidence suggests that, over the last 50 years, West African econo- mies did not converge toward more advanced economies and may in fact have diverged and consequently fallen behind even further. A consideration that may lend credence to the view that initial conditions may hamper economic growth is thatduringthe25yearsafterindependenceWestAfricancountriesadoptedvaried development strategies and undertook markedly different policy packages. Yet, after three decades, their respective levels of GDP per capita could not be distin- guished and they were all clustered at the bottom of the ranking on the Human Development Index of the United Nations Development Program (UNDP). This seems to indicate that the similarity of initial socioeconomic conditions was stronger than the diversity of national development strategies in determining the rateofgrowthinthepostindependenceera.AlthoughtheexamplesofChina,India, Brazil, and the Asian Tigers support the convergence hypothesis, the very large majorityofdevelopingcountriesdonotseemtocatchupwithadvancedeconomies afterseveraldecades,notunlikeWestAfrica. viii Introduction Oneconsiderationthatisamatterofconjectureisrelatedtotheeffectofethnic, cultural,andreligiousdiversityoneconomicgrowth.Itisdifficulttoestablishnot only the existence of causality but also the direction of causality because the opposing views are supported by different examples. For instance, the advent of economicgrowth,thusofwealth creation,waspinnedontheProtestant workand savingsethic,whichsoughttoexplainthestatusofadvancedeconomiessuchasthe United Kingdom, USA, Nordic countries, Germany, Canada, Australia, and NewZealand.But,later,emergenceofmostlyShintoJapanandCatholicSouthern Europeancountriesputa serious challenge tothisview. Ethnic diversity was also soughttofacilitatecross-fertilizationaswasthecaseoftheAmericanmeltingpot, but a highly ethnically homogeneous society like Japan achieved equally impres- siveeconomicgrowth.Finally,ithasbeensuggestedthatsomeformsoftraditional politicalorganizationofsocietymaydiscouragedemocracyandhinderemergence ofvibrantandinnovativeleadershipmostfacilitatedbymodernpoliticalcompeti- tion.Indeed,inmostWestAfricancountries,themodernstateexistsinparallelwith traditionalformsofpoliticalauthoritythataresometimesrecognizedandnurtured by elected national governments. However, no country in West Africa faces open political competition between the two seats of power or a situation of political dualitythatcouldundermineeconomicgrowth. Insummary,theimpactoneconomicgrowthoffourkeycountrycharacteristics, namely, geography, size, initial socioeconomic conditions at independence, and ethnic, cultural, and religious peculiarities, cannot be ascertained unequivocally. While they may be of relevance in some individual West African countries, it would be difficult to establish a generalizable relationship between these charac- teristicsorsomeofthemwitheconomicgrowththroughoutECOWAS. Conversely, it is expected that policies that are implemented at the regional or national level could have a significant effect on growth outcomes, which is the focusofthepresentbook.Thebookisorganizedintothreemajorsections.Thefirst onefocusesontheanalysisofWestAfrica’seconomicgrowthandseekstoidentify its determinants and challenges. Various facets of the political economy of eco- nomic growth are addressed in the second section while the third and last section analyzesthesectoralpolicyramificationsofgrowth. In chapter “Impactof Common Currency Membership on West African Coun- tries’EnhancedEconomicGrowth,”Seckdocumentsthemodesteconomicrecord andpoorsavingsofWestAfricancountriesandshowstheirdifficultiesinsecuring externalborrowingtofinancetheirdevelopmenteffort.Withthetheoreticalmodel ofContingentClaimsAnalysis(CCA),heshowsthat,iftheybecomemembersofa commoncurrencyunion,WestAfricancountriescancombinetheirforeignreserves and through a facility of mutual insurance against adverse debt service outcomes, increasetheexpectedlevelofnetforeignassetsavailableforexternaldebtservice, andpossiblyloweritsvolatility.Thiswillresultinlowerprobabilityofdefault,thus of riskiness of their external debt, and give them higher access to private interna- tionaldebtmarkets.NdiayeandKorsuinvestigateinchapter“GrowthAccounting in ECOWAS Countries: A Panel Cointegration Approach?” whether economic growth in the ECOWAS region for the period 1980–2012 was driven by factor Introduction ix accumulationorfactorproductivity.Theyestimateaproductionfunctionwithreal capital stock and labor as arguments and real GDP as output and apply various panelunitrootandpanelcointegrationtechniquesthatyieldthefollowingresults. With the exception ofNigeria and Coˆte d’Ivoire, growthinthe region was driven morebyfactoraccumulationthanbyproductivitygrowth.Thecontributionoflabor ispositivebutlowinallcountriesandthatofcapitalisnegativeinNigeriaandCoˆte d’Ivoire but positive in other countries while total factor has a negative effect in most countries. These results suggest the need to raise productivity of factors of production,especiallylabor,andincreasethelevelofinvestmentininfrastructure. In chapter “Growth Without Development in West Africa: Is It a Paradox?,” Ekpo examines whether growth has resulted in economic development in West Africa. His panel regression estimations show that public investment and democ- racy are positively related to development while lack of access to sanitation and water has a negative relationship with economic development. Omotor tests in chapter “Group Formation and Growth Enhancing Variables: Evidence from Selected WAMZ Countries” the degree of homogeneity of countries that are membersoftheWest AfricanMonetaryZone(WAMZ)asaprerequisitefortheir poolinginthesametreatment.Theresultsshowthattheyaredissimilarandshould beexaminedindependently.Keypositivedeterminantsofeconomicgrowthinclude Foreign Direct Investment (FDI) and democracy while Official Development Assistance(ODA)hasanegativeeffect.Insomeinstances,Governmentconsump- tionhasanegativeimpactonprivatesectormarginalproductivity. AspectsofthepoliticaleconomyofeconomicgrowthinWestAfricaarestudied byAmponsah,Omosegbon,andAgu.Inchapter“RevisitingtheAfricanEconomic GrowthAgenda:FocusonPro-poorGrowth?,”Amponsahinvestigateswhetherthe recent growth trajectory in Sub-Saharan Africa (SSA) has been inclusive and pro-poor.He shows that compared tothe rest of the world’s regions, SSA experi- encednegativepercapitagrowthfrom1985to2000andthatthiswasaccompanied by a significant decline in income distribution such that by 2000, the average income of an African in the lowest quintile of economic distribution was only 90 % of the income in 1985. Furthermore, his country-specific results show that while the poorest quintile benefited from growth recorded in many East Asian economies that recorded average income growth, in SSA economies, even when growth inaverage income occurred,the incomesof the poorest Africans fell. The exceptionswereinGabonandtoasmallerextentGhana.Finally,analysesofrecent datashowthatliketherestoftheworld’sdevelopingregions,afterrealizingrising povertyratesfrom1981to1999,SSAalsosawsteadydeclinesinextremepoverty rateby10%from1999to2010.However,SSA’saggregateextremepovertygap doubled from 2005 to 2010 compared to the developing world whose gap fell by one-half.ThisunderscorestheneedforSSA’sgrowthtobemoreinclusive. Omosegbon in chapter “Freedom, Growth and Development: Evidence from West Africa” revisits ECOWAS’s record of economic growth without develop- ment.HeusesUNDP’sHumanDevelopmentIndex,theDemocracyIndex,andthe World Press Freedom Index and finds that the political and market transactional freedomsthatarelackingarethemain causeforthesubregion’scurrentsituation.
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