Sector Growth and the Dual Economy Model: Evidence from Côte d'Ivoire, Ghana, and Zimbabwe

Abstract

The authors analyze and compare sectoral growth in three African economies - Cote d'Ivoire, Ghana and Zimbabwe - since 1965. They extend the classic dual economy - the agriculture and industry sectors - by adding the services sector. For all the three countries, they find at least one statistically significant long-run relationship for sectoral GDP. This indicates a large degree of interdependence in long-run growth among the three sectors. This also provides evidence against the basic dual economy model, which implies that a long-run relationship cannot exist between agricultural and industrial output. Analysis of the impulse response and analysis of short-run sectoral growth support the results on the interdependence of sectoral growth. Both imply that a positive link exists between growth in industry and growth in agriculture. Their findings contradict the literature on the dual economy - and suggest that more attention should be paid to inter-sectoral dynamics and dependencies in Sub-Saharan Africa. Why? Because an adverse shock in, say, agriculture after a drought is likely to have an adverse impact on the other economic sectors. Policymakers should try to accommodate not only the initial shock in agriculture but also its adverse effects in other sector. They find that focusing mainly on industry was not optimal policy in Cote d'Ivoire, Ghana, and Zimbabwe. For maximum economy-wide growth, it would have been better to balance policies to include all three sectors: agriculture, industry, and services.