Dickson Turyareeba1, Joseph Muvawala2, Joyce Abaliwano1

(1. Makerere University Business School, Kampala, Uganda, 2. National Planning Authority, Kampala, Uganda)

 

 

Abstract: Given the concern of the widespread cross-country rates and patterns of income growth in Africa, the objective of this paper is to investigate the contribution of country-specific variations in Total Factor Productivity (TFP) in explaining the sources of these enormous growth differentials. A panel of 10 “fast growing” and 10 “slow growing” African countries are studied over the period 2001-2012. The study adopts non-parametric growth accounting methodology and estimates TFP as a measure of technical change using the Solow residual. The Divisia Index weighting system is used to calculate the factor elasticities from the estimated coefficients of the translog production functions. Two types of estimators are used to estimate each country-group regression equation: the OLS estimator — applied on a set of stacked data, and the preferred fixed-effects estimator — applied on a set of unstacked (panel) data. The estimates of the translog production functions show that the relative share of capital per worker in total output per worker is approximately 83 percent for the “fast growing” and approximately 69 percent for the “slow growing” African economies. Results from the regression models show that for both country groups, TFP growth per worker is an important predictor of growth in output per worker. The marginal causal effect of TFP per worker on output per worker is however larger and stronger for the “fast growing economies” than for “slow growing African economies” — a result that provides a partial, but not a sufficient explanation for the sources of existing widespread growth differences in Africa. The study results provide an empirical support on the prominence of TFP in influencing African countries’ potential to create more of their economic wealth, and add on existing empirical literature on growth in African with focus on the role of variations in TFP. Our study results further highlight the importance of technical changes associated with production input usage and shade light for the need by governments to nurture the country-specific determinants of TFP for enhanced wealth creation.

 

Key words: total factor productivity; Solow residual; growth disparities; Africa

JEL codes: O4, O11, O47