Structural Change and Productivity Growth in Africa

Theme 3: Innovation, Diffusion and Economic Growth. One of the earliest and most central insights of the literature on economic development is that development entails structural change. The countries that manage to pull out of poverty are those that are able to diversify away from agriculture and other traditional products. As labor and other resources move from agriculture into modern economic activities, overall productivity rises and incomes expand. The speed with which this structural transformation takes place is the key factor that differentiates successful countries from unsuccessful ones. Developing economies are characterized by large productivity gaps between different parts of the economy. Dual economy models à la W. Arthur Lewis have typically emphasized productivity differentials between-and, as more recent research has identified, within-broad sectors of the economy such as agriculture and industry. Large productivity gaps tend to be much larger in developing countries than in advanced economies and are indicative of the allocative inefficiencies that reduce overall growth.
The upside of these allocative inefficiencies is that they can potentially be an important engine of growth. When labor and other resources move from less productive to more productive activities, the economy grows even if there is no productivity growth within sectors. This kind of growth-enhancing structural change can be an important contributor to overall economic growth. High-growth countries are typically those that have experienced substantial growth-enhancing structural change. These productivity gaps are particularly pronounced in Sub-Saharan Africa. Comparing value added per employee across different sectors, Gollin et al (2011) find that productivity in the rest of the economy exceeds productivity in agriculture by a factor of four and that for the very poor countries the factor often exceeds eight. Using more detailed sectoral data, McMillan and Rodrik (2011) show that besides agriculture, other sectors with lower-than-average productivity are community, personal, government services and wholesale and retail trade-two sectors which are characterized by substantial informality. Structural change that shifts labor from one of these sectors to manufacturing or any of the other high-productivity sectors would provide a significant boost to real incomes.
The first phase of our project is primarily descriptive. Using newly available data for Sub-Saharan Africa that will be collected as part of this project, we will document the contribution of broad patterns of structural change to overall economic growth and poverty reduction in a cross-section of countries. Our focus is not on productivity gains achieved through the reallocation of resources within manufacturing, a topic on which a number of important and interesting studies have appeared of late (e.g., Hsieh and Klenow 2009). As insightful as these studies are, they may also be misleading to the extent that they leave out of the analysis the dynamics of labor flows in and out of manufacturing-for example, productivity gains in manufacturing coming at the expense of labor flowing out of manufacturing into less productive sectors.
The second phase, analytically more substantial, applies the newly available data to a number of separate projects that will explain patterns of structural change and the ways in which specific policies or events are likely to impact structural change. In particular, we will examine the role played by comparative advantage, industrial policy and globalization in determining the nature of structural change. We will also examine the links between urbanization, food prices and structural change by using a combination of quantitative and qualitative methods including in-depth case studies. The research program will take approximately two years from inception, including publication and dissemination. Table 2 presents a timeline of proposed activities.

We recognize that national governments, the domestic and international private sector, international development organizations and donors, and the wider academic community will each be able to uniquely benefit from our research. As McMillan and Rodrik (2011) have stated, structural change that shifts labor from sectors with lower-than-average productivity to manufacturing or other high-productivity sectors would provide a significant boost to real incomes. As it is crucial that our research results reach a range of audiences, stakeholders, and actors that can impact development policy, we have thus designed our research agenda with primary consideration for the potential to reach a wide variety of actors in the development sphere. For government audiences, our research will provide a better understanding of the determinants of structural change and productivity growth, allowing governments the ability to design and implement more effective policy that is directed addressed by our research questions. Domestic and international private sector actors will also be able to benefit due to our primary data sources in the business community. International development organizations and donors focused on growth and poverty reduction will have full access to our results as tools for refining their programs and practices. The wider academic community is another important audience for this research. They have a strong influence on the national policy debate and can serve as collaborators and partners in our research.
We will ensure the maximum opportunity to benefit from our research by producing several types of outputs and utilizing a range of communication tools and environments. Seminars, conferences, workshops, published materials, websites, and social media will all be critical to reach this goal. Eleven percent of our total budget has been allocated for these efforts. To promote initial awareness of the research and its implications, our first planned conference communication will be at the annual conference organized by the African Center for Economic Transformation (ACET), a project partner, involving authors of ACET case studies the principal investigator and the co-investigators, which will take place in the Spring of 2012 in Ghana in conjunction with ACET's launch of its African Economic Transformation Report. We have workshops planned for the country case studies that will allow us to present our approach and results throughout the duration of the project. We will promote the potential impact on the private sector through dissemination of our policy briefs and encouraging private sector participation in our conferences and workshops.
We have a multi-pronged approach to maximizing the potential of the internet for collaboration and dissemination of results. First, we will take advantage of blogs run by our co-investigators, partner networks and websites such as ReSSAKS and Project Syndicate that are established sources for policymakers and researchers, as well as various new media tools to communicate to our target audiences before, during, and after the research term.In order to further communicate our research and results, several steps have been planned to produce and distribute materials for journals, institutions, and media organizations. From each research question outlined in Section 3, a paper for top-tier publication will be produced with corresponding policy briefs that will allow for dissemination to wider audiences. The resulting country case studies will provide a basis for specific policy recommendations for each country, and corresponding firm-level studies will be combined with these country studies for special-issue online journal publication and for use as classroom material. Finally, we understand the important role that media organizations play in policymaking, and we will proactively communicate with these organizations via press releases and invitations to conferences and interviews with researchers.