the future in SSA that the gap between countries in SSA and LA may narrow. It may also mean that countries in SSA perform better on the social front as do countries in LAC.
Conclusions
Despite a greater emerging correlation with growth rates of the world economy and major players like the US and China, SSA is far from realising the true extent of its economic potential, with the least average annual per capita GDP growth of 0.7% over the past half a century. With liberalisation and increased financial integration with the world markets over the decades (1965–2016), the African economies are influenced more significantly by international factors than before, and this brings with itself a fair share of both advantages and pitfalls.
SSA’s share of exports in GDP (XGS), while high, has increased the slowest out of all regions and the burgeoning importance of remittances has failed to prevent the deterioration of the current account balance. The savings rate in SSA remains lower than the level attained in the 1970s, leaving the region vulnerable to the vagaries of the current account balance; however, the growth projections of 5%, if the current levels of the investment ratio and ICOR hold, lend credence to the expectation that the effective damage to economic growth can be limited.
When it comes to deconstructing the poor performance of the Sub-Saharan African region, an analysis of export orientation indicates that the inability of the manufactures-exporting economies to be competitive in the world market (specifically, the presence of several small suppliers as opposed to single large suppliers like China and India) could be a potential reason for their lacklustre growth. While the exporters of agricultural commodities and ores have managed to maintain a favourable position, there is still a gap vis-à-vis Latin American countries with comparable export baskets. Given the general evidence of a greater increase in share of XGS and GFCF for SSA, it is reasonable to expect that this gap can be bridged to an extent. For ser vices, groups other than manufactures and ores exporters do poorly both in the share of service exports in GDP and in the share of IT-related exports in ser vice exports.
The growth patterns of SSA and Latin American economies are closely tied to the state of the world economy and as such the time is opportune to work for the overall recovery of the latter with specific focus on the requirements of the former. Re-establishing the importance of constructive aid, opening channels for larger private financial flows and strengthening the negotiating power of such regions within international organisations such as the World Bank and IMF are necessary to bolster the lagging growth. Furthermore, provision of greater soft aid would help to raise investment rates and subsequently increase growth without a need for prior increase in domestic savings. Actions by the G20 that would increase world growth provide more appropriate balance of payments financing without onerous conditionality and more soft aid would help increase growth rates in SSA which would further the achievement of the goals of sustainable development.
References
Agarwal, M. and Pirzada, N. (2015). Sub-Saharan Experience of Growth: The Role of the least Developed and Fragile States, G. Kararach, H. Besada, and T. Shaw (eds.), Bristol: policy Press.
Barro, R. J. and Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, Vol. 100, No. 2, pp. 223–251.
Easterly, W. and Levine, R. (1997). Africa’s Growth Tragedy: Policies and Ethnic Divisions, The Quarterly Journal of Economics, Vol. 112, No. 4, pp. 1203–1250.
Whitfield, L. (2012). How Countries Become Rich and Reduce Poverty: A Review of Heterodox Explanations of Economic Development, Development Policy Review, Vol. 30, No. 3, pp. 239–260.
1Several studies have been undertaken by the World Bank to analyse the region’s performance.
2For instance, Easterly and Levine (1997) ascribe the poor performance of SSA to ethnic divisions, which leads to poor governance, conflict and also fragility.
3The list of LDCs is reviewed once in every 3 years by the United Nations Economic and Social Council (ECOSOC), based on recommendations of the Committee for Development Policy (CDP). The UN classifies countries as “least developed” in terms of their low gross national income (GNI), their weak human assets and their high degree of economic vulnerability. See http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf.
4Since we are analysing growth of per capita income, demographics has nothing to do with the analysis. There is no theory or empirical evidence that ties rate of growth of per capita income with rate of population growth.
5For an analysis of convergence, see Barro and Sala-i-Martin (1992). See also Whitfield (2012).
6The increase in the share of trade in GDP is also because of the increase in trade in intermediate goods. Intermediate goods are traded a number of times before they are incorporated in the final product. As a consequence, trade grows much faster than output.
7As we know in a two-good model, a reduction in import duties raises both exports and imports.
8As the performance of EAP shows, there is no particular number at which the share of XGS in GDP should remain. If exports grow rapidly, then income and employment in the export sector grow and this has a spillover effect on the rest of the economy. What is important is the change in the share and not the level of the share. The effect of exports can again perhaps be illustrated by the experience of India. India had periodic balance of payments problems with crises in 1966–1967, 1979–1980 and 1990–1991 because of poor export performance — the share of XGS in GDP was constant at about 5%. These crises disrupted the economic situation thereby lowering the growth rate. This has changed since the liberalisation started in 1991.
9A number of large-aid recipients are likely to graduate from IDA in the next few years. If the funds with IDA do not show a proportionate decrease, then more soft aid might be available for countries in SSA.
10But this hope seems to be belied as growth rates in LAC and SSA remain low.
11Calculated by the authors from data available in the World Bank Data Bank on Development Indicators.
12The growth projections for the period 2011–2014 of the World Bank (2012) have LAC growing at 4% a year and SSA at 5% a year.
13This of course implies that for most groups performance in exports of goods is better than that for XGS. But it also implies that exports of manufactures themselves by the manufacturing exporting countries are very poor.
Chapter 3
Latin America’s Economic Performance: What Ails It?
Manmohan Agarwal
Centre for Development Studies Thiruvananthapuram, India [email protected]
Amrita Brahmo
Research and Information Systems for Developing Countries, New Delhi, India [email protected]
Abstract
This
