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EastAsiaandAfricagrowthexperience:whydivergence?
AndreaPresbitero
Introduction
TheeconomicperformanceofEastAsiancountriesfromthe1960stothe1990s
was so exceptional that it is generally called the East Asian Miracle. In the same
years, the African countries experienced a period characterized by an astonishing
lack of growth, that induced Easterly and Levine [1997] to speak of the Africas
Growth Tragedy. This contrast is dramatic because the two regions started both
from similar level of per capita income, economic structure and, to some extent,
humandevelopment.Theresultsofthiswideninggapinthegrowthprocessarenow
reflectedindramaticdifferencesinpercapitaGDP,aswellasinmanyothersocio
economicindicators.
Theimplicationsandtheeffectsofa40yearslongperiodofgrowth(orlackof
growth) are much more than the simple divergence in income: differences in the
extent of poverty, inequality, health and education are just some of the aspects
affectedbythegrowthprocess.However,theaimofthisessayisfocusedexclusively
onthedeterminantsofgrowth,withouttakingintoaccounttheeffects:theobjective
istotrytoidentifythevariablesthathascausedthehugegapinpercapitaincome
betweenAfricaandEastAsia.
In the following sections I will present the variables which are generally
consideredthekeydeterminantsinthegrowthprocess,theexplanationsgivenbythe
literaturefortheEastAsianMiracleandthepossiblecausesoftheAfricastragedy.
Because of a generally less attention given to African topics, I prefer to dedicate a
greaterattentionontheAfricastragedy,whichalsoseemstobemoredebatedand
ambiguous that the East Asian Miracle. Even if there is a general agreement about
the adoption of bad policies as cause of the African lack of growth and about the
causalrelationshipbetweenthequalityofinstitutionsandthequalityofthepolicies,
thereisstillagaptofillinthediscoverofthemainreasonsbehindthelowqualityof
Africaninstitutions.
Finally, I will try to infer some lessons that SubSaharan Africa could learn
fromtheEastAsiansuccessstory,lookingalsoattheexperienceofBotswana.
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East Asia and Africa growth experience: why divergence?
SomedataaboutEAandSSAeconomicgrowth
Looking at the economic performance 1 of East Asia (EA) and SubSaharan
Africa(SSA)(datafromthePennWorldTables(PWT),[Heston,SummerandAten,
2002]) it is clear that in the last 50 years the two regions grew following different
paths.StartingfromaquitesmalldifferenceinpercapitaGDP(EAGDPin1960was
0.3timestheSSAGDP),theyendedwithanamazingdifference:themeanEastAsian
GDPin2000was13.500$,whiletheAfricanGDPwasonly2439$.Thedifferencehas
risen to a factor of 4.6, and this is reflected in the annual difference of the rate of
growth(19502000),whichwas0.6%intheAfricancaseand4.4%inthecaseofEA.
Thefigurebelowshowsthisamazinggap 2 .
Inabroaderview,between1960and2000,theaverageworldgrowthrate of
realpercapitaGDPwas1.8%peryear,varyingfromamaximumof6.4%forTaiwan
to a minimum of
Divergence
3.2% for the
Democratic Republic
of Congo. The real 14000
economicperformance 8000
1 HereIlookonlyatthedateaboutpercapitaGDP,butitisimportanttokeepinmindthatthisisonly
oneoftheindicatorofthedevelopmentofacountryoraregion.Nonetheless,alsoforothermeasures,
aseducationandhealth,thegapbetweenthetworegionincreasedinthelastdecades.
2Thedatausedarereferredto40SSAand10EastAsiancountries,includingChina,andtotheperiod
19602000,exceptforsomecountriesforwhichareusedthemostrecentdataavailable.TheRealGDP
isexpressedinconstantprices.SeePWT[Hestonet.al.,2002]forfurtherdetails.
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East Asia and Africa growth experience: why divergence?
Lawrence and Thirtle [2001b] claim that East Asia and Africa has not shown
any convergence trend along the last 40 years, instead, the gap between the two
regionsbecamewiderandwider.Lookingateightcountries(fourAfricanandfour
from East Asia) that were in similar condition in 1960 they underline the striking
differencesthatoriginatedinfourdecades:theAsianAfricandivergence[isoutlined
notonlybythedifferencesinpercapitaGDP,butalsobyotherindicators,]especially
in manufacturing growth and exports, and in human capital indicators [Lawrence and
Thirtle,2001b,page3].
Thedeterminantsofeconomicgrowth
Theliteraturehasusedanincrediblequantityofvariables,approximately60
70, to explain the economic growth, starting from the most obvious linked to
investmentandsavingtoothersrelatedtoreligion,ethnicityandsociety.Following
SalaiMartin[1997]andBarroandSalaiMartin[2003],Iwillsummarizetheeffectof
themostusedandsignificantvariablesonthegrowthprocess 3 .
Amongallthepossiblevariablesthatonecouldincludeinaregression 4 ,some
ofthemappeartobesignificant(21on59,accordingtoSalaiMartin[1997])andfew
othersarestronglyorrobustlyrelatedtogrowth:theEastAsiandummy,theprimary
schoolenrolmentratein1960,theaverageinvestmentrate,theinitiallevelofGDP,
lifeexpectancyin1960.
The theory of economic growth predicts a conditional convergence and
specifiessomevariablesasthekeydeterminantsforthegrowthprocess.Totestfor
conditionalconvergence,theGDPattheinitialperiodisincludedintheregression,
as wellasits squaredvalue:theresults generally supportthetheoretical prediction
and the magnitude of this effect seems to be large. Educational attainment and life
expectancyarepositivelycorrelatedwithgrowth,whilefertilityrateandtheratioof
government consumption on national GDP are negative linked. The index for the
rule of law has a positive effect, as well the measure of openness, the domestic
investmentandthetermsoftrade.Thedemocracyvariable,whichcapturethedegree
of democracy of a nation, shows a nonlinear relationship with growth: its effect
increasesstartingfromanegativelevelasthedegreeofdemocracyrises,thenreaches
3 A brief and clear summary of the most important determinants of the growth process is also in
Rodrick[2003,ch.1],SachsandWarner[1997]andCrafts[2000,sectionII].Aninterestingcritictothe
significance of some of these variables for the SSA experience, like education and geography, is in
FreemanandLindauer[1999].
4 The basic regression of real per capita GDP (Y) for a group of countries on a set of explanatory
variables (X) is in the classical form: Yt = + 1 X 1 + 2 X 2 + ... + n X n + t and cover the period
19601995or,morerecently,theperiod19602000.Thisisthereasonwhymanyvariablearereferredto
1960
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East Asia and Africa growth experience: why divergence?
a peak and starts to decline, slowing growth for countries which have already
achieved a substantial amount of democracy. Finally, the inflation rate has a little
negativeeffect,whichismarginallysignificant.
Savvides[1995]providessupporttothisevidencefortheAfricanexperience,
finding in particular a positive relation between political freedom and growth 5 .
Nonetheless,heunderlinesthelackofrobustnessofthisresultsandthefactthatthey
remainhighlycontroversialintheliterature.
TheEastAsianMiracle
TheveryhugeliteraturethathasinvestigatedtheEAmiracle 6 ,lookingbothat
theregion as awhole andatthe single countryexperience,hasoriginatedadebate
about the factors that mostly contributed to the economic growth. Here I reassume
brieflythemainpositions 7 ,emphasizingthedeterminantsoftheAsiansuccesswith
theaimofcomparingthemwiththeAfricanexperience.
TheWorldBank[1993]neoclassicalthesisputsalotonemphasisonthehigh
rateofinvestments(alsoprivate),bothinphysicalandhumancapital,whichaccount
forroughlytwothirdsoftheEAeconomicperformance.Themarketfriendlyview
underlinesthegreatimportanceoflimitedgovernmentintervention,macroeconomic
stability,highopennesstointernationaltrade,strongcompetitionbetweenfirmsand
heavily investment in human capital. Finally, the other key source of development
was the rapid productivity growth: one third of the East Asia growth could be
explainedbyincreasedefficiency(TFP).
ThislastpointiscontestedbyYoung[1993]andKrugman[1994],whoclaim
thattheriseinEAproductivitywasnotsoextraordinaryhightojustifythebeliefin
thedynamicgainsfromanoutwardorientation.TheeconomicperformanceofEast
Asia is due to an incredible accumulation of inputs, labour and capital, and re
allocation of resources, rather than by gain in efficiency. This contrarian view is
somehowpessimistic,becauseincorporatetheideaofthedecreasingreturnsandso
ofanaturalslowdown 8 .
Sarel [1996] reviews the literature and finds that the growth in TFP is an
important determinant of the miracle. However, he points out other possible
explanations, related especially to trade openness, massive investments and the
5 He finds not significant the education coefficient, but this could be due to the poor quality of the
enrolmentdata.
6ThespectaculareconomicgrowthinEastAsiafacilitatedalsoareductioninpovertyandinequality
andanimprovementinlifeexpectancy.
7AclearandsyntheticexpositionofthedebateabouttheEAmiracleisinHastings[1998].
8Evenifthisisnotthesubjectofthisessay,couldbeinterestingtolookatthedifferencereactionsthat
theadvocatesofthesetwoapproacheshadaftertheAsiancrisis.
4
East Asia and Africa growth experience: why divergence?
initial conditions of the East Asian countries, which were significant better off than
other countries in terms of education, equality of land and income, fertility and
mortalityrate.
The free market approach is not the only one: other authors has shown that
the government choices were not totally conform to the neoclassical model. The
revisionist argue that in EA there was a development state that played a
fundamental role in the resource allocation, the construction of infrastructures, the
developmentofanefficientschoolsystemandtheassuranceofhighprofitabilityto
the investments through low interest rate. There were many forms of policy
intervention, from the subsidized credit, to public investment in research and the
developmentofexportmarketinginstitutions.
Finally, Sarel mentions also the agnostic approach which outlines the great
heterogeneity of East Asian economics, that experienced intervention strategies in
somecountriesandafreemarketapproachinothers,oralsoredistributiveversus
neutral policies. This approach points out also that the relationship between policy
andgrowthisnotsoclearbecausethedirectionofcausalityissometimesambiguous.
TheAfricasTragedy
The literature, starting from Barro [1991], has originally found that being
locatedinSubSaharanAfricacouldhaveanadverseeffectongrowth.Thepercapita
GDPgrowthrate,evencontrollingforeducation,lifeexpectancy,termoftrade,rule
of law andother variablegenerally thoughtto be significant seems to be explained
also by a dummy created ad hoc for Africa, which enter in the regression with a
significantnegativecoefficientof0.11%.
However, in subsequent works (Barro, [1997] and Barro and SalaiMartin,
[2003]), the author, using panel data instead of cross sections, found the Africa
dummy no more significant. Nevertheless, other studies, as reported by Englebert
[2000] and Savvides [1995], kept on including the Africa Dummy in the regression
and found it statistically significant and with a strong magnitude. Easterly and
Levine [1997] observe that, even controlling for the ethnic differences, the Africa
dummy is still significant and its negative effect on growth varies from 1.4% to
1.2%.
Barro and SalaiMartin [2003, page 555], looking at the robustness of the
variables included in the growth regressions, argue that the dummy for SSA is
negativelyrelatedtoincomegrowth[]implyingthat[]subSaharanAfricancountries
had income per capita growth rates between 1960 and 1996 that were [] 1.28 percentage
points[]belowthelevelthatwouldbepredictedbythecountriesothercharacteristics.
In many studies, the Africa dummy has yielded a negative and significant
coefficient, but some authors are able to explain the economic performance of the
5
East Asia and Africa growth experience: why divergence?
9Theyincludeintheregressionadummyforalandlockedcountryandanotherfortropicalclimate
(both with negative sign), and control for natural resource abundance (this is negative related with
growth,becauseofthesocalledDutchdisease).
10 State legitimacy is a dummy variable [that] takes the value 1 when a state is historically determined, 0
otherwise. It tries to capture either the historical continuity of state institutions (noncolonized areas), the
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East Asia and Africa growth experience: why divergence?
impact of the policy index is strongly reduced, suggesting that state legitimacy
affectingpolicychoicesisarobustdeterminantofeconomicgrowth:itseffectcould
accountfor40%oftheaveragegrowthgapbetweenAfricaandEastAsia.
Nonetheless, there are also other possible explanations suggested by the
literature. One of the most debated topic is the linguistic and ethnic division
suggested by Easterly and Levine. The authors find an answer in the selection of
growthretarding policies in the greater African ethnic diversity. This variable
(ETHNIC) is a good indicator of ethnic conflicts and wars and points out the
countries where the struggle for power was so absorbing that everything else, including
development, was marginalized [Ake, cited in Easterly and Levine, page 1241].
ETHNICisstronglyandnegativelycorrelatedwithgrowthanditsinclusionweakens
the effect of the other policy indicators, suggesting that the ethnic diversity could
affect growth also in an indirect way through its influence on policy decisions.
Nevertheless, the Africa dummy is still significant and this arises many critics
because, even if the aim of the authors is to show that ETHNIC affects public
policies, the results are not completely satisfactory. In other words, the second
problem (what influence policy) might be partially solved, but the mystery of the
Africandummyisstillthere.
Englebert[2000]andSachsandWarner[1997]arguethatethnicheterogeneity
doesnothaveanyfurtherexplanatorypowertotheirregressions.SachsandWarner
look also at the relationship between ethnic diversity and poor policies: they argue
thatevenifETHNICiscorrelatedwithopennessandinstitutionalquality,itcouldbe
thatotherfactors(thecolonialismheritage)explaintheSSAspolicychoicesandalso
that the ethnolinguistic fractionalisation might itself be caused by poor economic and
geographicconditions[SachsandWarner,page20].Acemoglu,JohnsonandRobinson
[2001, page 1395] claim that difference in institutions are the root of the large cross
countryincomegapandinvestigatethedeterminantsofthisdiversity:theyconclude
that differences in colonial experience could be a source of exogenous differences in
institutions.
WhatSubSaharanAfricacouldlearnfromEastAsianmiracle?
There is no general agreement about the determinants of growth, especially
for the African experience, but there might be some lessons that Africa could learn
from the East Asia performance. Hastings [1998] looks at the Namibia case, that,
because of relatively recent independence, could and should look at the Asian
experiencetoavoidtorepeatthesameerrorsofotherSSA.TheEAsuccessdelivers
some lessons: the importance of education and human capital, the need for a
embeddedness of the post colonial state into precolonial relations of authority, or, more generally, the lack of
clashbetweenprecolonialandpostcolonialpoliticalinstitutions[Englebert,1995,page1827].
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East Asia and Africa growth experience: why divergence?
Asalongallthisessay,thefocusisontheeconomicperformanceofacountry,thereforehereIwill
11
not discuss other aspectsof Botswanaexperience, even ifit isimportant to remember that there are
manyproblemsaboutinequalityand,especially,HIV/AIDS.
8
East Asia and Africa growth experience: why divergence?
nationalityandgoodinstitutions;butalsointheadoptionoftheEastAsianpolicies,
especially for what concerns the international trade. According to Acemoglu,
JohnsonandRobinson[2003,page113],Botswanawasandisstillabletomanagethe
wealth deriving from its abundant resources thanks to its good institutions, but
these institutions emerged in part as a result of a unique juxtaposition of historical
conditionsandpoliticalfactors,whichobviouslycannotbeduplicated.Thisisnotafully
optimistic conclusion,anywaytheBotswana experience isnot isolatedandoutlines
thatsomestructuralfactorsarenotsodeterminant:therearesomeAfricancountries
withalotofnaturalresourcesthatcouldlookatthisexperience.
Concludingremarks
IntheprevioussectionsIhavesummarizedthemostimportantdeterminants
of economic growth, with a particular interest on the East Asian and SubSaharan
Africa experience. It is not actually clear which are the real causes of the African
tragedy: there is a large agreement on the lack of growth and market oriented
policies, due mainly to the poor institutional quality. However, there is a great
debate on the relative importance of such policies: should be given more weight to
investmentinhumancapital,toatradeopennesspolicyortothebasicinvestmentin
infrastructure?Maybetheanswerisinabalancedchoice,alsolookingatthepositive
EAexperience.
The optimistic message derived from the recent literature is that SSA is not
destinedtothispoorperformance:thestructuralconstrainthascertainlytheeffect
of slowing the development process, but they could be overcome by sensible
economicpoliciesimplementedbygoodinstitutions.Ontheotherhand,evenifthe
mystery of the Africa dummy seems to be solved, there is not a general agreement
about the determinants of the low quality of African institutions. There is still
another source of ignorance that should be filled, whether one wants to find more
detailedpolicyrecommendationsandsolutionsfortheAfricancontinent.
FreemanandLindauer[1999]statethatAfricahasfailedtogrowthbecauseof
its institutional environment, which resulted in political turmoil, wars, corruption
andunstableregimes.Thisiscertainlytrue,butstillthisisnottheapriorisourceof
SSA tragedy: economic growth has been stifled by bad policies, which are due to
poor institutions: the main problem is to understand the key determinants of
institution quality. State legitimacy, colonial experience and ethnic diversity are
probablyrelatedtothisissue,butitseemstobefarawayfromadefiniteanswer.
9
East Asia and Africa growth experience: why divergence?
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