Abstract
Structural transformation is one of the processes of productivity growth urgently needed in Sub-Saharan Africa (SSA). This study uses the catch-up mechanism to analyze how international contacts and domestic absorptive capacity constraints are shaping the pattern of structural transformation in SSA. Using a two-step Generalized Method of Moments on 2000–2015 data for 29 SSA countries, the paper finds that SSA is undergoing a non-classical structural transformation led by the service sector instead of manufacturing. Import penetration, a key variable of international contact, has negative coefficients for both the agricultural and manufacturing shares of gross domestic product (GDP) but is positively associated with both the services shares of employment and GDP. A test of Kaldor’s third law finds that if growth in employment outside manufacturing is in services, it can also increase economy-wide productivity. Hence, it is the international constraints, such as import penetration and foreign direct investment, that are making the structural transformation of SSA non-classical. Services that involve transfer of skills and technology, such as international tourism and information and communications technology services exports, provide opportunities for structural change and productivity growth.
Highlights
The non-classical structural transformation unfolding in Sub-Saharan Africa (SSA) is engendering a lot of policy debates, and raising questions about the sustainability of the recent rapid economic growth rates
We have used the catch-up growth theory to identify the determinants of the non-classical structural transformation unfolding in SSA
The theory hinges on contact with innovating economies and the absorptive capacity of the developing economies
Summary
The non-classical structural transformation unfolding in Sub-Saharan Africa (SSA) is engendering a lot of policy debates, and raising questions about the sustainability of the recent rapid economic growth rates. Some studies have focused on whether the rapid growth rates have been accompanied by structural change (Busse et al 2019; McMillan et al 2014; De Vries et al 2015). Others, such as Harchaoui and Üngör (2018), have probed the potential relationship between rapid growth rates and convergence to the U.S level of income per capita. The goal of this paper is to apply the theory of catch-up growth to understand the determinants of the non-classical pattern of structural change unfolding in SSA, and its effects on productivity growth
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