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Has the African Growth Miracle Already Happened?

Shanta Devarajan's picture

Most of the literature about Africa’s growth, “Africa Rising”, “Lions on the Move”, etc., refer to the present or the future.  An oft-quoted World Bank report said, “Africa could be on the brink of an economic takeoff, much like China was 30 years ago and India 20 years ago.” 

Meanwhile, Alwyn Young has recently published a paper that claims that per-capita consumption on the continent has been growing at 3.4-3.7 percent a year for the last two decades—about three to four times the growth rates documented in other studies. Instead of using national accounts data (which, as we know, suffer from several deficiencies), Alwyn adopts the Demographic and Health Surveys (DHS), which calculate the households’ ownership of assets and other indicators of well-being (ownership of a car or bicycle; material of the house floor; birth, death or illness of a child, etc.).  Employing a variety of econometric techniques (including some robustness checks and sensitivity analyses), he then calculates an asset index across the various components of the DHS.  Assuming a constant relationship among assets, educational attainment and consumption, he concludes that per capital consumption has been growing at 3.4-3.7 percent a year from 1990-2004.
 
Not so fast, say Kenneth Harttgen, Stephan Klasen and Sebastian Vollmer in a forthcoming publication in the Review of Income and Wealth. They find many reasons why growth in assets may not reflect growth in per capita consumption.  For instance, households may not get rid of old assets, so that the average age of their assets is rising and the services from the assets (which contribute to consumption) growing much more slowly.  Also, the price of some assets, such as cell phones, might have fallen sharply; increased ownership may not reflect increased consumption to the same extent.

They also question Alwyn’s use of educational attainment as a proxy for income, noting that education is also a result of public provision of schools.  Finally, they look at the relationship between assets and consumption using a number of different data sources and find no correlation.

Perhaps one way of reconciling these two positions, as suggested by Stephan in personal correspondence, is to recognize that growth in per-capita private consumption only captures part of the improvements in people’s well-being.  The increased provision of education, health and infrastructure services also contribute to welfare, but are not captured in private consumption. 

Young’s analysis tries to capture these factors in his asset index.  However, this does not mean that per-capita consumption was mis-measured.  Rather, it was only telling part of the story.  At the same time, when I look at the poor quality of the health, education and infrastructure services being provided, especially to poor people, I am not sure the asset indices are capturing real welfare gains. 

We have a lot more work to do so Africans can realize their growth miracle.

You can find the the paper by Kenneth Harttgen, Stephan Klasen and Sebastian Vollmer here and here.

 

Comments

Submitted by Clifford Winston on
Shanta, In your blog post on the discussion about Young’s paper you say: The increased provision of education, health and infrastructure services also contribute to welfare, but are not captured in private consumption. Consider a Dixit-Stiglitz model of monopolistic competition where product diversity enters utility. Surely infrastructure improvements facilitate inventory cost savings (see the attached paper) that could lead to product diversity and benefit consumers, let alone private firms. http://blogs.worldbank.org/africacan/files/africacan/firm_inventory_behavior_and_the_returns_from_highway_infrastructure_investments.pdf I agree with your main point about African growth as I can only believe that it would be greatly enhanced by some semblance of a modern transportation system.

Submitted by Tim Ward on
Dear Shanta: As you know, I'm a big fan (My first comment on your excellent blog!). Africa's rise gives the continent -and the world - the opportunity to leapfrog over the mistakes the BRICS made. They developed via consumption - including by fueling consumption in rich countries. Don't we wish the BRICS, these dynamic "engines of growth," were not contributing to climate change and spiking food prices? I hear Africans making the case that they should not worry about Climate Change and sustainability, because their needs are so great and so urgent, and they did not cause these problems to begin with. But wouldn't it be a big mistake to have the continent develop along a pathway that both BRICs and OEDC nations must abandon if we are to survive and thrive in the 21st Century? How is the Bank helping African's find a path to sustainable growth and prosperity? Tim Ward

Tim: Thanks for your comment (and compliment). On climate change, the problem with the BRICS is not that they developed via consumption, but via carbon-intensive production (mainly coal and oil). Africa's problem is not just that they have urgent needs, but theat they contribute only 4 percent of global greenhouse gas emissions. Nevertheless, Africa has the potential to grow very differently because of its large hydropower resources (most of which are still untapped). At the same time, Africa will be the continent that is hardest hit by climate change, so they need to adapt and prepare for greater fluctuations in weather. The Bank is helping our countries with both. Shanta

If a billion and a half Chinese can live and cope with Climate Change, that should be Africa's last problem, at least in the next decade or two. Africa needs a tripling of public infrastuctural budgets. Places change people - and the only way to influence people's mindsets, beliefs and ambition is to improve their basic conditions, opportunities and productive capacity. Supply infrastructure to spur demand for related services and encourage economic participation, urgently. Deliberately offer cheap credit to investors - 2% interest rates, for example, to support basic trade. From the analysis above, it is made to sound as if public provision of education is an economic bad. I still do not know the benefits of private, market driven education to a very poor society. How does mass ignorance imposed by costly schools drive Africa's progress? Some of these OECD opinions presume that we all live in Singapore or Hong Kong, yet this is the Serengeti, where we cannot buy education when we have no schools, no food, no roads, no hospitals... Africa's growth has not happened yet. Africa's deteroriation has happened since the 1960s. The World Bank should do to Africa what it did for Germany, or the US for Japan, after World War II. Invest in our people and a rapid technology transfer road-map. The returns will be much better than the few privateers are making today. While corporations earn supernormal profits, our people are dying in absolute poverty. We lose all our wealth-makers, the middle-aged men and women who can create wealth and obtain investment credit, due to cardiovascular diseases. When youthful parents die, their wealth and earning power dies with them, creating a fresh generation of poverty-stricken children with low esteem, low achievement potential and debilitating despondency. That is not growth; it is retrogression. Africa need not grow by invention and innovation - we can do with transfer of best technologies in the short term. When we have the modern human basics, we will be happy to think and innovate. Support Africa to get to the 21st Century humanity, urgently. Our material riches will flourish.

Submitted by BV Anand on
My Dear Shanta, I entirely agree with your perspective on Africa, but the dynamics of Africa is much different compared to India and China, in terms of Cultural aspects and the timing with regards to the takeoff that is happening. Especially with the trickling down of the IT and the Media Sector (Which happens without much Government intervention and Red Tapism), which has a capacity to expedite the awareness of many Governmental and Aid Agencies Programs. There has been a great Cultural coherence across India (Also constitutional reforms that happened in the Emancipation of Downtrodden in India) and much more in China and that has helped to consolidate the Governmental Intervention. Once the Road comes, the Sewer lines follows. Private Social Infrastructure like health and Education facilities doesn’t come up without critical mass of Marketable development. Land reforms/ Documentation and Extensive Transportation projects can generate great ground for implementation of many welfare program. Anand

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