5.2 Economic growth and diversification: Economic Report on Africa 2007
5.2 Economic growth and diversification: Economic Report on Africa 2007
motivation is the proposition that diversification could influence economic growth
through one of two links if not both at the same time. These links highlighted earlier
are via increasing risk or by risk minimization through spreading of investment
portfolios. The focus of this section is on the TFP link, while recognizing that the
standard neoclassical growth model and its competing endogenous growth model
are one and the same, to some extent, in that the latter attempts to disaggregate
the potential components of TFP. Risk minimization and its influence on growth,
leading to diversified exports, could reasonably be captured through the influence
on TFP.
Whether there is a significant link between diversification and the factors or variables
that affect TFP had to be investigated. The variables that were investigated
included diversification, human capital, and selected policy and institutional variables
such as openness, financial development and conflict. The level of diversification
was expected to have a significant influence on the productivity of capital and labour
in an economy. As for human capital, in the literature on endogenous growth, it is
assumed to be different from other forms of capital. As a result, the level of investment
in human capital in a country is expected to have a bearing on the productivity
of both labour and capital in the economy. The level of enrolment in secondary
schools can be used to measure human capital.
Openness is thought to have an influence on TFP through external effects such as
exposure to foreign competition, transfer of technology, economies of scale, and also
to some extent, an increased speed of convergence towards richer countries. As has
been discussed so far, it is obvious that the level of openness depends on the kind of
trade policy a country pursues. Different countries apply different weights to the
significance of trade liberalization in promoting growth.
Financial development may influence growth positively in two ways. First, a more
developed financial structure allows for better mobilization of savings and thus supports
more investment. Second, within a more developed financial sector, available
information on investment projects is treated more efficiently to boost investments
in productive sectors. The lack of access to credit has been identified as one of the
impediments to investment and growth in Africa. The arguments in favour of financial
markets liberalization are mainly based on the premise that the binding capital
constraint to African economies can be undone by liberalizing not just the money
markets but also the financial markets, in a broad sense. Thus, the full potential
of the banking, insurance, development finance, stock and bond markets need to
be unleashed by dismantling the restrictive controls that hamper development and
deepening of the financial sector. It was instructive to find out that financial deepening
has a significant influence on TFP in the case of African countries.
Economic growth in Africa has been variously linked to the presence or absence of
conflict. Significant work has been undertaken on the economics of conflict and
post-conflict countries. Indeed, in recent times, most studies have been considered
incomplete if they fail to take account of conflict. Weak growth can be attributed to
the presence of conflict in a country. Conflict can influence this growth performance
either directly or indirectly. In the more direct route, adverse effects on populations
(hence on the labour force) and capital destruction undermine the obvious sources
of growth through factor accumulation. In the more indirect route, conflict affects
TFP, leading to its decline and inability to contribute to growth.
What did the investigation of these factors in determining TFP in Africa reveal?
Essentially, that an increasing level of diversification leads to higher TFP. It was
also found that as an economy moves from a high level of specialization to becoming
more diversified the total productivity of both labour and capital rises. Diversification
was found to drive growth significantly in terms of TFP. In other words,
a significant link between diversification and growth does indeed exist in African
economies via the TFP. Table A5.3 shows the results of the different specifications
that were used to examine this link.
52 Economic growth and diversification Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
Like this article? Share it with your friends
 |
Free Download - 6.3 Financial sector links between investment and diversification: Economic Report on Africa 2007 By United Nations Economic Commission for Africa |
In this section, the link between TFP and diversification is explored further. The
motivation is the proposition that diversification could influence economic growth
through one of two links if not both at the same time. These links highlighted earlier
are via increasing risk or by risk minimization through spreading of investment
portfolios. The focus of this section is on the TFP link, while recognizing that the
standard neoclassical growth model and its competing endogenous growth model
are one and the same, to some extent, in that the latter attempts to disaggregate
the potential components of TFP. Risk minimization and its influence on growth,
leading to diversified exports, could reasonably be captured through the influence
on TFP.
Whether there is a significant link between diversification and the factors or variables
that affect TFP had to be investigated. The variables that were investigated
included diversification, human capital, and selected policy and institutional variables
such as openness, financial development and conflict. The level of diversification
was expected to have a significant influence on the productivity of capital and labour
in an economy. As for human capital, in the literature on endogenous growth, it is
assumed to be different from other forms of capital. As a result, the level of investment
in human capital in a country is expected to have a bearing on the productivity
of both labour and capital in the economy. The level of enrolment in secondary
schools can be used to measure human capital.
Openness is thought to have an influence on TFP through external effects such as
exposure to foreign competition, transfer of technology, economies of scale, and also
to some extent, an increased speed of convergence towards richer countries. As has
been discussed so far, it is obvious that the level of openness depends on the kind of
trade policy a country pursues. Different countries apply different weights to the
significance of trade liberalization in promoting growth.
Financial development may influence growth positively in two ways. First, a more
developed financial structure allows for better mobilization of savings and thus supports
more investment. Second, within a more developed financial sector, available
information on investment projects is treated more efficiently to boost investments
in productive sectors. The lack of access to credit has been identified as one of the
impediments to investment and growth in Africa. The arguments in favour of financial
markets liberalization are mainly based on the premise that the binding capital
constraint to African economies can be undone by liberalizing not just the money
markets but also the financial markets, in a broad sense. Thus, the full potential
of the banking, insurance, development finance, stock and bond markets need to
be unleashed by dismantling the restrictive controls that hamper development and
deepening of the financial sector. It was instructive to find out that financial deepening
has a significant influence on TFP in the case of African countries.
Economic growth in Africa has been variously linked to the presence or absence of
conflict. Significant work has been undertaken on the economics of conflict and
post-conflict countries. Indeed, in recent times, most studies have been considered
incomplete if they fail to take account of conflict. Weak growth can be attributed to
the presence of conflict in a country. Conflict can influence this growth performance
either directly or indirectly. In the more direct route, adverse effects on populations
(hence on the labour force) and capital destruction undermine the obvious sources
of growth through factor accumulation. In the more indirect route, conflict affects
TFP, leading to its decline and inability to contribute to growth.
What did the investigation of these factors in determining TFP in Africa reveal?
Essentially, that an increasing level of diversification leads to higher TFP. It was
also found that as an economy moves from a high level of specialization to becoming
more diversified the total productivity of both labour and capital rises. Diversification
was found to drive growth significantly in terms of TFP. In other words,
a significant link between diversification and growth does indeed exist in African
economies via the TFP. Table A5.3 shows the results of the different specifications
that were used to examine this link.
52 Economic growth and diversification Economic Report on Africa 2007 - To learn more about this author, visit United Nations Economic Commission for Africa's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
Jeff FosterWebBizIdeas.com is a Minneapolis website design company founded to help people start an internet business by providing them with website, business, and internet resources that help foster the growth of successful online businesses and develop innovative Internet business ideas. We specialize in internet consulting & internet marketing. - Visit Jeff Foster's Website |
|||
|
To learn more about the Evan Elite Author Program please contact us. | |||
 | |
|  |
Subscribe to United Nations's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Emotions Drive Behavior Radical Green Business Home Party Plan Mistakes FREE Business Plan Template Innovative Thinking |
|
 | ||
 |
Top Social Business Blogs
Top Social Entrepreneur Blogs | |
 |
Top 50 Franchising Blogs
Top 50 Franchising Blogs | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
