Is Investment in Africa Too Low or Too High? Macro and Micro Evidence
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 dr...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/01/888056/investment-africa-too-low-or-too-high-macro-micro-evidence http://hdl.handle.net/10986/19725 |
| 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. |
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