Abstract
This paper examines the determinants of multifactor productivity in a cross-country study of 33 African countries. Among others, we specifically focus on the role of economic freedom, and its sub-components, as defined by the Heritage Foundation/Wall Street Journal Economic Freedom Index (EFI). The empirical results show that the economic freedom index (and most of its components) has a positive and statistically significant impact on the productivity of African nations. The components of economic freedom that are critically important to enhancing productivity of African countries are: Business freedom, investment freedom, financial freedom, property rights freedom and freedom from corruption. We also investigate ‘bivariate granger-causality’ between economic freedom and total productivity. The results show that economic freedom granger-causes total factor productivity in most of these countries, but the other way around is not true. Key words: Africa, economic freedom, granger-causality, productivity.
Highlights
Productivity analysis has received a considerable attention among development and agricultural economists over the course of the last five decades
The objectives of the present paper are twofold; firstly, we investigate the presence of statistical relationship between economic freedom and productivity
The economic freedom index comes from the Heritage Foundation (HFI) Economic Freedom database
Summary
Productivity analysis has received a considerable attention among development and agricultural economists over the course of the last five decades. Coelli and Rao (2003) study the determinants of agricultural total factor productivity growth among 93 countries of the world, including 26 African countries (Appendix 1), and some 40 other developing countries from Asia and South-Central America. The focus of much of this body of growing literature is on uncovering the sources of productivity growth, with the ultimate aim of explaining the differences in productivity across countries and regions of the world (Fare et al, 1994; Coelli and Rao, 2003). These studies and others have found evidence in support of convergence of productivity growth of developing countries to the level of developed countries.. Nothing contributes more to the reduction of poverty, to increases in leisure, and to the country's ability to finance education and public health " (Blinder and Baumol 1993:778)
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