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5.2 Growth, productivity and diversification: Economic Report on Africa 2007

Guest post by: United Nations Economic Commission for Africa

Article Overview: There is abundant literature that suggests that there is a two-way relationship between exports and growth. However, an important aspect of this evidence is that it is not just the level of exports that leads to growth but also the level of diversified exports or products.

5.2 Growth, productivity and diversification: Economic Report on Africa 2007

There is abundant literature that suggests that there is a two-way relationship between
exports and growth. However, an important aspect of this evidence is that it is not
just the level of exports that leads to growth but also the level of diversified exports
or products. There are two important channels of how diversification may influence
growth or income. First, diversification may be considered as an input (a production
factor) that increases the productivity of the other factors of production (Romer
1990). The second route is that diversification may increase income by expanding
the possibilities to spread investment risks over a wider portfolio of economic sectors
(Acemoglu and Zilibotti 1997). This argument suggests that diversification is pivotal
to sustaining high economic growth rates and to reducing growth volatility.

In the remainder of this chapter, the relationships between economic growth, productivity
and diversification in Africa that form the second piece of the puzzle mentioned
in the introduction are discussed. First, the sources of growth in Africa are
examined. Some growth accounting exercise results are discussed to indicate the
relative contribution of capital, labour and TFP in the economic growth of African
countries. Then, there is actual discussion of the relationship between the TFP and
diversification, on the basis of the first route suggested, that diversification contributes
to economic growth.

Related Articles
  4.0 Diversification trends in Africa: Economic Report on Africa 2007
  5.0 Diversification and Growth: Economic Report on Africa 2007
  Overview VIII: Economic Report on Africa 2007
  4.4 References: Economic Report on Africa 2007
  5.4 References: Economic Report on Africa 2007

Article Tags: accounting, acemoglu, african countries, diversification, economic growth rates, economic sectors, exercise results, factors of production, investment risks, labour, literature, piece of the puzzle, possibilities, productivity, relationship, relationships, relative contribution, remainder, tfp, volatility



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