Deindustrialization in Africa

Economic growth in Sub-Saharan Africa has been characterized by deindustrialization. Conventional economists argue that this is due to a bad environment for business decision making. This paper provides a classical explanation for deindustrialization, the failure to solve the food problem. That is, food staple prices have risen rapidly resulting in labor becoming costly, although physically abundant. This has prevented the evolution of a comparative advantage in labor intensive manufacturing. Structural change is an important element of the process of economic development, especially in the early stages. Productivity grows by shifting labor out of agriculture where productivity is low, and into industry or manufacturing where labor productivity is high. However, there is not just a comparative static productivity gain from structural change. It also seems that there is a dynamic gain as well. Unconditional convergence in labor productivity does tend to occur in manufacturing. That is, once a manufacturing sector is established in a less developed region, labor productivity in that sector tends to converge to that found in that same sector in developed countries. Thus, aggregate (economy wide) convergence generally fails to occur in many low income countries because manufacturing remains much too small a share in the overall economy. There is a dynamic gain in labor productivity that results from successful structural change. Indeed the process described above seems to be a very good description of the development process in East and Southeast Asia. These countries managed to shift labor into labor intensive manufacturing and industry, a large part of which was produced for export. This led to dramatic increases in the rate of growth of per capita income as well as a dramatic reduction in overall levels of poverty.