Is investment in Africa too low or too high : macro and micro evidence

About

Countries

Data & Research

Learning

News

Projects & Operations

Publications

Topics

Home > Data & Research > Document Search > Report Details

Is investment in Africa too low or too high : macro and micro evidence, Volume 1

Author:	Devarajan, Shantayanan; Easterley, William R.; Pack, Howard;	Collection Title:	Policy, Research working papers ; no. WPS 2519
Country:	Africa; Botswana; Tanzania;	Date Stored:	2001/02/10
Document Date:	2001/01/31	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	Public Administration, Law, and Justice
Region:	Africa	Report Number:	WPS2519
Sub Sectors:	Other Public Sector Management	SubTopics:	Achieving Shared Growth; Environmental Economics & Policies; Economic Theory & Research; Economic Growth; Trade and Regional Integration
Volume No:	1

Summary: The authors investigate the relationship between weak growth performance and low investment rates in Africa. The cross-country evidence suggests no direct relationship. The positive and significant coefficient on private investment appears to be driven by Botswana's presence in the sample. Allowing for the endogeneity of private investment, controlling for policy, and positing a nonlinear relationship make no difference to the conclusion. Higher investment in Africa would not by itself produce faster GDP growth. Africa's low investment and growth rates seem to be symptoms of underlying factors. To investigate those factors and to correct for some of the problems with cross-country analysis, the authors undertook a case study of manufacturing investment in Tanzania. They tried to identify why output per worker declined while capital per worker increased. Some of the usual suspects--such as shifts from high- to low-productivity subsectors, the presence of state-owned enterprises, or poor polices--did not play a significant role in this decline. Instead, low capacity utilization (possibly the by-product of poor policies) and constraints on absorptive capacity for skill acquisition seem to be critical factors. If Tanzania is not atypical, the low productivity of investment in Africa was the result of a combination of factors that occurred simultaneously, not any single factor. What does this tell us? First, we should be more careful about calling for an investment boom so that Africa can resume growth. Unless some or all of the underlying problems are addressed, the results may be disappointing. We should also be more circumspect about Africa's low savings rate; it may be low because returns to investment were so low. The relatively high level of capital flight from Africa may have been a level rational response to the lack of investment oportunities at home. Second, there is probably no single key to unlocking investment and GDP growth in Africa. All of the factors contributing to low productivity should be addressed simultaneously.


Official Documents Official, scanned versions of documents (may include signatures, etc.)
File Type		Description	File Size (mb)

	PDF 42 pages	Official version*	2.94 (approx.)
	Text	Text version**


Light-Weight Documents Lighter (less MB) documents which may or may not be the final, official version
File Type		Description	File Size (mb)

	PDF 36 pages	WPS2519	0.16

* The official version is derived from scanning the final, paper copy of the document and is the official,
archived version including all signatures, charts, etc.

** The text version is the OCR text of the final scanned version and is not an accurate representation of the final text.
It is provided solely to benefit users with slow connectivity.

Permanent URL for this page: http://go.worldbank.org/XDIHIXGRK0