The results for Africa, shown in table A5.1, suggest further that as income per capita increases, there is a tendency for African economies to experience improvement in their diversification processes. This is a very significant result and it is in line with other empirical evidence, (see Imbs and Wacziarg 2003), which shows that poor countries tend to diversify at first as their incomes rise, before they later begin to become more specialized. African countries also fit into this theory of the U-shaped stages of diversification.
The results in table A5.1 related to income provide some evidence that African countries have shown consistency with the two stages of diversification. The first stage is one of increased diversification and is explained in the same way portfolio theories in finance are used to explain the character of investors, who diversify their portfolio holdings in order to minimize risk exposure (Acemoglu and Zilibotti 1997). In the same way, economies through the first stage of diversification would be expected to minimize the effects of possible shocks to the economy by avoiding over-reliance on one particular sector. For this first stage to be beneficial to the economy in the long run, it must result in deep diversification. Only after attainment of deep diversification would the second stage that tends towards specialization not lock an economy into a low-income equilibrium.
Unfortunately, the transition point between the two stages for African countries has been at a low per capita income equilibrium. Other studies (e.g. Imbs and Wacziarg 2003) report the turning points of other countries. These points are all higher than the one estimated for Africa. For example, Singapore’s occurred at $2,500 per capita income, while for Cyprus it occured at $5,800. Ireland on the other hand experienced this turning point at a per capita income of $7,000. All these countries are now considered developed countries. Indeed, for meaningful results, the benchmark per capita income is approximately $9,000 if the two-stage diversification process is to yield lasting and positive development results.
It is not surprising then that the turning point for Africa at a mere $ 1,667 did not occur at a point when deep diversification had been achieved. If the diversification process in Africa is to lead to sustainable development, sustained high levels of economic growth that shift the U-curve downwards and to the right must be achieved.
In making this argument, it is also recognized that the causal relationship between per capita income and diversification goes both ways.
To learn more about this author, visit United Nations Economic Commission for Africa's Website.
Like this article? Share it with your friends
|
|
United Nations Economic Commission for Africa's
Complete
List Of
African-Accounts
Articles
|
|
If you enjoyed this article, get United Nations Economic Commission for Africa's Complete List of African-Accounts Articles For FREE!
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
