Abstract
Some countries have become richer, wealthier, and have higher living standards than
others over time. Although there is no single answer that explains development, development
economists have come up with several theories or perspectives to explain why some
countries are more developed than others and why countries at lower levels of development
have to catch up. One of such answers is the structuralist perspective on catch-up,
which is particularly relevant to African countries because they are at lower levels of
development and generally less industrialized.
This thesis adopts the structuralists’ view of growth to analyze the importance of
structural change for development and catch-up for African countries. This thesis also
establishes that manufacturing is important for structural change and development in
African countries and highlights the concern about deindustrialization in African countries.
Furthermore, while concerns continue to arise regarding how African countries can
catch up with the developed world, research on structural change in African countries is
sparse. This thesis attempts to contribute to filling this gap.
Four distinct essays are found in the thesis, along with an introductory chapter and
conclusion chapter preceding and ending the thesis.
The first essay, presented in Chapter 2, focuses on technology-based manufacturing
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as a possible option for structural change, and a new pathway to sustainable development.
That is to say, technological upgrading is crucial to industrial development and
catch-up of developing countries. While there is an established literature identifying the
factors that influence industrialization and long-term growth path of countries, not much
empirical evidence exists on the determinants of technology intensity in manufacturing,
especially in developing economies. Using data for 33 African economies from 1990 to
2018 and estimating a standard probit model, this essay contributes to the literature by
examining and identifying the key factors that influence the relative success of mediumand
high-technology manufacturing value added in Africa. Thus, the essay extends the
set of determinants for the growth of manufacturing value added and technology-intensive
manufacturing in African countries. The essay concludes with a discussion of the policy
implications of these findings in the context of the technology-led structural change
debate and the challenges to the competitiveness of manufacturing in African countries.
The second essay, presented in Chapter 3, further explores technology-based manufacturing
as a pathway for African developing countries by looking at how technologyand
resource-based trade influences the balance-of-payment-constrained growth of highperforming
African countries. This essay fits both the simple and multi-sectoral versions
of the balance-of-payments-constrained (BPC) growth model. It uses data on technologyand
resource-based trade from 1980 to 2017 for two African countries – Morocco and
Tunisia. The results show that both the simple and multi-sectoral versions of the BPC
growth model accurately predict the long-term growth of both countries. Compared to
the simple version, the multi-sectoral version of the BPC growth model gives insights
into which sectors contribute the most to the long-term growth in each country, based on
the differences between sectoral income elasticities of demand for exports and imports.
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This finding provides evidence on where resources should be concentrated in order to
raise their long-term growth – insights that the simple version does not provide because
it relies on aggregate trade data. The essay concludes by discussing the implications of
the findings in relation to the scope for structural change in Morocco and Tunisia.
The third essay, in Chapter 4, examines whether certain policies and governance measures
enhance growth effect of manufacturing exports in African countries. Although
several studies examine the growth-effect of exports generally, a few studies show the
contribution of policy and governance measures to the export-growth relationship in
developing countries, especially those in Africa, who are less developed and less industrialized.
This essay contributes to the literature by showing that manufacturing exports
have a significant growth effect when accompanied by supportive policies and governance
measures. The essay uses an augmented version of the Solow (1956) model and panel
data for 37 African countries from 1994 to 2017. After applying panel econometric techniques,
the main findings support the hypothesis that certain policies and governance
measures and manufacturing exports have a positive growth effect in African countries,
when interacted. The results suggest that the positive growth effect of manufacturing
exports depends on governance and policies in African countries. The results also show
that higher shares of primary exports do not influence growth, even when there are supportive
policies. Furthermore, the results suggest that the independent effect of some
governance measures on growth is negative. The essay argues that the negative influence
of such governance policies may result from the measures being subjectively compiled
based on countries’ implementation of market-based reforms. Thus, the governance and
policy measures may capture more market-oriented policy reforms, which may not be
conducive to growth.
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The final essay is presented in Chapter 5. This essay focuses on the extent to which
foreign aid influences manufacturing sector output in African countries. The general
perception is that foreign aid inflows can cause the Dutch disease in the manufacturing
sector in developing countries, which can affect the competitiveness and profitability of
the sector and lead to deindustrialization. However, this perception is one-sided because
foreign aid can also be used to boost infrastructure in developing countries. So, further
empirical research can help unearth the dominant effect of foreign aid on the manufacturing
sector in developing countries, especially those in Africa, who are less developed
and generally less industrialized. Using data for 27 African countries from 1990 to 2018,
and the panel vector autoregression technique, our findings first show that aid does not
cause the Dutch disease in African countries. This is despite the short-lived, negative
and independent effect of foreign aid on manufacturing in African countries. Instead,
the results show that foreign aid stimulates manufacturing, through a depreciation of
the real exchange rate. We hypothesize that this results when aid is used to invest in
infrastructure, which increases supply and, therefore, reduces the price of non-tradables
relative to tradables. This raises the profitability and output capacity of manufacturing.
Further disaggregation of the findings is done according to development levels of countries.
Impulse response functions are generated to analyze the persistence of aid and the
real exchange rate, which earlier studies do not do. The results also show that the real
exchange has a persistent and independent effect on manufacturing in African countries,
unlike aid.
Overall, the thesis concludes that key policies may create avenues for growth-enhancing
structural change and industrialization in African countries. For instance, certain policies
and governance measures can enhance the relationship between manufacturing exports
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and growth. Furthermore, foreign aid in African countries can have positive growth
effects on manufacturing in African countries, if targeted at improving manufacturing
infrastructure and not consumption. Also, technology-based manufacturing can be a
productive pathway for African countries pursuing sustainable growth and catch up with
the developed world. The thesis shows that in pursuing this path, certain key macroeconomic,
social, institutional and political factors need to be considered while making
sure that trade in technology-based manufacturing consistently generates more export
revenue than import costs.