Sectoral Employment Shares Shape Economic Complexity: Empirical Evidence from African Countries

Abstract

Since the physiocrats, agriculture has been seen as a panacea for economic development. However, studies suggest that manufacturing and, recently, advanced service industries are the engine of economic growth. This study analyzes how employment structure contributes to economic complexity (EC) in African countries. To achieve this objective, it uses data spanning 1996–2017 on 27 African countries and applies the ordinary least squares, fixed effects, and system generalized method of moments estimators. Results suggest that due to its inability to admit many divisions or develop production linkages, agriculture’s employment growth is negatively associated with EC. Thus, there are better fits for enhancing complex output in Africa than a more significant share of agricultural employment. On the contrary, employment growth in industry and services enhances the production of sophisticated goods. These findings are robust after several sensitivity checks. Among policy implications from these findings, agriculture should shift from subsistence to mechanized farming, allowing excess workers to reallocate to more productive sectors of industry and advanced services. JEL Classification C26, J21, O1, O55