Tag Archives: industrial policy

Is Ethiopia in the midst of a green revolution?

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This is from Bachewe and co-authors in World Development:

Screen Shot 2018-03-14 at 8.34.44 AMDespite significant efforts, Africa has struggled to imitate the rapid agricultural growth that took place in Asia in the 1960s and 1970s. As a rare but important exception, Ethiopia’s agriculture sector recorded remarkable rapid growth during 2004–14. This paper explores this rapid change in the agriculture sector of this important country – the second most populous in Africa. We review the evidence on agricultural growth and decompose the contributions of modern inputs to growth using an adjusted Solow decomposition model.Screen Shot 2018-03-14 at 8.35.03 AM We also highlight the key pathways Ethiopia followed to achieve its agricultural growth. We find that land and labor use expanded significantly and total factor productivity grew by about 2.3% per year over the study period. Moreover, modern input use more than doubled, explaining some of this growth. The expansion in modern input use appears to have been driven by high government expenditures on the agriculture sector, including agricultural extension, but also by an improved road network, higher rural education levels, and favorable international and local price incentives.

The improvement in agricultural productivity was driven, in part, by deliberate state investment in agriculture:

Ethiopia is one of only four African countries to have implemented the CAADP agreement of a 10% target of annual government expenditures going to agriculture over the 2003–2013 period.

… The GoE has for a long time put agriculture at the center of its national policy priorities. The Agriculture Development Led Industrialization (ADLI) strategy was formulated in the mid-1990s to serve as a roadmap to transform smallholder agriculture in the country. Rural education and health, infrastructure, extension services, and strengthening of public agricultural research were among its top priorities.

These gains are remarkable (if we can trust the state statistical agency data used in the analysis). They are also likely not replicable in other countries across the Continent on account of the high variance in state capacity in the region.

For instance:

[while the] Comprehensive Africa Agriculture Development Programme (CAADP) proposed that African countries allocate 10 percent of their total annual budgets toward boosting agricultural productivity…, only 13 countries [have] signed the CAADP compact (Benin, Burundi, Cape Verde, Ethiopia, The Gambia, Ghana, Liberia, Mali, Niger, Nigeria, Rwanda, Sierra Leone, and Togo).

And out of these 13 only Cape Verde, Ethiopia, Ghana, and Rwanda seem like they have the capacity to translate state fiscal outlays into real productivity gains in agriculture.

Read the whole paper here.

No shortcuts to sustained economic growth

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Dani Rodrik keeps reminding us that one of the factors slowing down the anti-poverty fight in Africa is the slow growth in manufacturing which comes with the risk of “premature” de-industrialization. Economic histories of several countries over the last two centuries tells us that rapid and sustained growth only occurred on the back of industrialization. In Africa on the other hand manufacturing is still a paltry 10.1% of annual output on average (and ranges between 10-14%, which is bad for a developing region). Compare this to 34% in Thailand, 31% in South Korea and 24% in Malaysia. Furthermore, productivity in the manufacturing sector in Africa has actually declined over the last 40 years (see figure below).

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Productivity in Manufacturing (USA=100)

Now, starry-eyed technophile African leaders can talk about leapfrogging the historical stages of economic growth until the cows come home but there is no hiding from the fact that sustained growth and reduction of poverty will only come once Africa’s poor (up to 70% of whom still depend on subsistence agriculture in SSA) have access to well paying jobs. Yes, the types of jobs and products will be different, from say steam powered 18-19th century northwestern Europe or even 20th century East Asia, but there will have to be jobs for the masses. M-apps won’t do, as they will only benefit those who are already well off (mainly the creators), once they are sufficiently monetized. Asking poor people to be “entrepreneurial” with high interest micro-loans and grow themselves out of poverty as a matter of national development policy will also not work.

To quote Chris Blattman:

The difference between a country with $1,500 and $15,000 of income a head is simple: industry. All the microfinance and microenterprise programs in the world are not going to build large firms and import technology and provide most people with what they really want: a stable job, regular wages, and a decent work environment.

The good thing is that in quite a few countries on the Continent structural conditions favorable to mass job creation are beginning to congeal. Hopefully sooner, rather than later, PRSPs will start focusing less on pro-poverty “pro-poor” initiatives and more on strategies for mass job creation. Remember, “making the lives of poor people better is not the same thing as fighting poverty.” Over to you Development Economists and African policymakers.

Does female empowerment promote economic development?

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The conventional interpretation of the observed gender expenditure patterns re- lies on women and men having different preferences.4 And indeed, if all women highly valued children’s human capital whereas all men just wanted to consume, putting women in charge of allocating resources would probably be a good idea. However, we show that the facts can also be explained without assuming that women and men have different preferences. We develop a model in which women and men value private and public goods (such as children’s human capital) in the same way, but that nevertheless is consistent with the empirical observation that an increase in female resources leads to more spending on children.

Our theory does not lead to clear-cut implications for economic development. In particular, we find that empowering women is likely to accelerate growth in advanced economies that rely mostly on human capital, but may actually hurt growth in economies where physical capital accumulation is the main engine of growth.

…… Given that the human capital share tends to in- crease in the course of development, our results imply that mandated transfers to women may be beneficial in advanced, human capital-intensive countries, but are unlikely to promote growth in less developed economies.

That is Doepke and Tertilt in an NBER working paper (HT Marc F. B.)

This paper reminded me of of the BIG vs Small Development dichotomy, and why we should not take cash transfers (despite recent glowing reviews) to be a panacea to poverty and underdevelopment. Cash transfers (whether targeting poor men or women) should be seen as short-term relief whose development impact are, at the very best, highly contingent and long-term (especially if the transfers are used to increase the quality of human capital through schooling for kids). I could be totally wrong, but I think that the promise for real and lasting rapid development lies in creation of mass employment. And on this front the shoots are beginning to show on the Continent.

I wish more development economists were thinking of ways of growing African SMEs into mass employers, even if it meant flirting with the idea of Industrial Policy.

On Industrial Policy (In which I concur with Blattman 1001%)

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I have made the case before here, here and here.

For more here’s Blattman, commenting on Industrial policy:

“You can’t pick winners” is the knee-jerk retort to the mention of anything that even rhymes with industrial policy. I would call it the triumph of ideology over evidence, except that even “ideology” feels like a generous term. Lazy thinking might be a more accurate description. Some have given the question a great deal of thought, but most have not.

I’m not suggesting that the paper above has the right answer (odds are, like most papers, it does not). I’m also not suggesting that governments can pick winners (probably they can’t). Nor am I forgetting that industrial policy is easily politicized and distorted (as surely it is). So what am I talking about?

More on this here.