5.1 Faster economic growth could assist in diversification efforts: Economic Report on Africa 2007
5.1 Faster economic growth could assist in diversification efforts: Economic Report on Africa 2007
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.
51 Faster economic growth could assist in diversification efforts Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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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.
51 Faster economic growth could assist in diversification efforts Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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