Industrial policy and labour productivity growth in Africa: does the technology choice matter?

Abstract

The persistent gaps in African sectoral labour productivity and the disappointing growth in the manufacturing and service sectors have revived interest among academics and policymakers. In search of ways to boost labour productivity, this study explores how the technology choice as a proxy for industrial policy can affect labour productivity growth. First, I identify the different sources of growth with the decomposition method of shift–share analysis and a recent dataset from 1960 to 2017 of nine sectors. Then I investigate the impact of comparative advantage development strategy on growth components (within effects and structural effects). The shift and share decomposition analysis results suggest a changing role of growth components. While the structural change effect is driven by the “static gains” which still plays an important role, the within effect has been more prevalent during the MDGs and SDGs period. The empirical results indicate that defying comparative advantage hinders the within effect component mitigated by a weak and positive dynamic effect component. The evidence emphasises the design of industrial development based on the comparative advantage in SSA, complemented with policies and strategies aiming at increasing labour productivity in the agriculture sector due to its large employment share.