Does Market Liberalisation Increase Total Factor Productivity? Evidence from the Manufacturing Sector in Zimbabwe

Abstract

In this article, we analyse whether Zimbabwe's structural adjustment programme (ESAP), implemented from 1991 to 1995, contributed to an increase in total factor productivity in the manufacturing sector. To evaluate productivity, we first estimate indexes of total factor productivity for 31 manufacturing sub-sectors for the period 1980–1995. We then use econometric methods to test for the effects of trade reform and other variables related to ESAP. In general the growth rates vary greatly both over time and across sectors. The overall impression is that there was no growth in total factor productivity on average during the whole period of ESAP, although during the last two years most sub-sectors experienced increases in total factor productivity. The main result of the econometric analysis is that none of the variables used as direct measures of trade liberalisation influenced productivity growth, but import growth had some influence. An interesting finding is that foreign aid inflows had a strong, positive impact on productivity growth.