Technological Capability, Inclusive Growth and Structural Transformation in Africa

Abstract

ABSTRACTSome studies have shown that economic growth in Africa has not been sustainable, transformative, nor inclusive. This is very perplexing, considering that resource-poor East Asian countries have not only achieved high growth rates but have done so while alleviating poverty and becoming major players in the global economy. Despite the recognition that technology was instrumental in the success story of East Asian countries, there have been few empirical studies that focus on how technology drives economic growth in Africa. Based on a sample of forty-one African countries (2005–2020), this article uses the Generalized Method of Moments (GMM) estimation technique to investigate the extent to which technological capability plays an important role on economic growth of African countries. The results from the empirical analysis suggest, inter alia, that technology, investment in physical capital, macroeconomic and political stability are important determinants of growth in Africa. The article suggests that African countries should intentionally strengthen their technological capabilities, to leverage new opportunities in emerging frontier industries, foster inclusive growth, and be adequately prepared for the fourth industrial revolution.KEYWORDS: Africafrontier industrieshuman capitalinclusive growthstructural transformationtechnology AcknowledgmentsThis paper was completed when Steve Onyeiwu was a Fulbright Visiting Professor in the Department of Economics & Development Studies, Covenant University, Ota, Nigeria (February–August 2022). We thank Oluwatosin Edafe and Grace Okedele, postgraduate students at Covenant University, for their valuable research assistance. We also appreciate the suggestions by the participants in the Fulbright Seminar at Covenant University that was held in August 2022.Disclosure statementNo potential conflict of interest was reported by the authors.Notes1 IMF World Economic Outlook database, April 2022.2 World Development Indicators (WDI) database, World Bank.3 Acute foreign exchange scarcity has made it difficult for many African countries to import food, energy and other essential commodities. This has been compounded by the war in Ukraine, which has resulted in the supply of grains to Africa, thus exacerbating food inflation in the region and making more Africans to be vulnerable to hunger and malnutrition.4 Alice Amsden, Next Giant: South Korea and Late Industrialisation (New York: Oxford University Press, 1989).5 F. M. Scherer, Innovation and Growth (Cambridge, MA: MIT, 1986).6 We recognize the variations in the structure and performance of African countries. Our analysis is meant to provide a general overview, while also noting there are outliers.7 IMF World Economic Outlook database, April 2022.8 Frontier industries refer to those that are producing or operating cutting-edge products like drones, robots, big data, Internet of Things (IOI), 5G, 3D Printing, and Solar PV. Frontier skills include data analytics, robotics, nanotechnology, bioinformatics, gene editing, digital animation, and design, among others.9 B. Herrendorf, et al., “Two Perspectives on Preferences and Structural Transformation,” American Economic Review 103 (2013): 2752–89.10 N. Adeleye, et. al., “Agro-Industrialisation and Financial Industrialisation in Nigeria,” African Journal of Economic and Management Studies 11, no. 3: 453–56.11 It should be noted that official statistics tend to underestimate unemployment rates in developing countries. One reason is that many people are engaged in informal sector activities, mainly because they are unable to obtain employment in the formal sector. These people are not regarded as unemployed, though many of them are grossly underemployment in low productivity and very low-income activities.12 R. Osabohien, et al., “Population-Poverty-Inequality Nexus and Social Protection in Africa,” Social Indicators Research 151 (2020): 575–98.13 S. Karimu, “Structural Transformation, Openness, and Productivity Growth in Sub-Saharan Africa,” WIDER Working Paper 109 (2019).14 See, for instance, Robert Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70 (1956): 65–94.15 Anke Hoeffler, “Openness, Investment and Growth,” Journal of African Economies 10 (2002), 470–97.16 S. Devarajan, et al., “Low Investment Is Not the Constraint on African Development,” Economic Development and Cultural Change 51 (2003): 547–71.17 Augustin Fosu, “Understanding the African Growth Record: The Importance of Policy Syndromes and Governance,” WIDER Discussion Paper 2, www.wider.unu.edu/sites/default/files/dp2009–02.pdf.18 J. Sachs and M. Warner, “Sources of Slow Growth in African Economies,” Journal of African Economies l6 (1999): 335–76.19 Paul Romer, “Endogenous Technological Change,” Journal of Political Economy 98 (1990): S71 – S102.20 David Audretsch, “The Knowledge Spillover Theory of Entrepreneurship and Economic Growth,” in The Emergence of Entrepreneurial Economics (Research on Technological, Innovation, Management and Policy, ed. G. T. Vinig. and R. C. W. Van Der Voort (Bingley: Emerald Group Publishing Limited), 37–54.21 Ibid.22 M. Lai, et al., “Technology Spillovers, Absorptive Capacity, and Economic Growth,” China Economic Review 17 (2006): 300–20.23 Robert E. Lucas, “On the Mechanics of Economic Development,” Journal of Monetary Economics 22 (1988): 3–42.24 See F. Gault, “Science, Technology and Innovation Indicators: Opportunities for Africa,” African Statistical Journal 6 (2008): 141–161.25 Of the 54 African countries, the following were not included because of incomplete data: Cape Verde, Chad, Djibouti, Eritrea, Equatorial Guinea, Lesotho, Liberia, Seychelles, Sao Tome & Principe, Somalia, Uganda, Zambia, and Zimbabwe.26 The GMM is a method of estimating the coefficients or parameters in statistical models. This estimation enables the researcher to determine the effects of explanatory variables on a dependent variable.27 This should be interpreted as a 17 percent increase, not percentage point increase.28 This is a 7 percent increase, not a percentage point increase.29 E. Paus, Foreign Investment, Development, and Globalization (New York: Palgrave Macmillan, 2005).30 We refer to SSA because North African countries are classified under Middle East & North Africa (MENA) region.31 https://unctad.org/page/technology-and-innovation-report-2021.32 From UNCTAD, Technology and Innovation Report, 2021, https://unctad.org/page/technology-and-innovation-report-2021.33 See UNECA, “Towards Achieving the African Union’s recommendation of expenditure of 1% of GDP on research and development,” https://repository.uneca.org/handle/10855/24306.Additional informationFundingResearch for this study was funded, in part, by a 2022 research grant from the Association for the Study of the Middle East and Africa (ASMEA).Notes on contributorsSteve OnyeiwuSteve Onyeiwu is a tenured Professor of Business & Economics and former Chair of Department at Allegheny College, Pennsylvania. He taught previously at Wesleyan University, Trinity College, Union College, Rensselaer Polytechnic Institute, and State University of New York at Albany. His book, Issues in Contemporary African Economies (Palgrave Macmillan, 2015), is widely used in many undergraduate and graduate economic development classes. Professor Onyeiwu is a regular contributor to the popular media. His articles have appeared on CNN, US News and World Report, Yahoo News, Business Insider, CNBC Africa, The Conversation, and several media outlets in Africa and the United States.Evans OsabuohienEvans Osabuohien is a Professor of Economics at Covenant University and the Founding Chair at DePECOS Institutions and Development Research (DIaDeRC), Nigeria. He is the author of five books and over 200 scholarly articles. He has consulted on many projects for international agencies such as AERC, CODESRIA, IFPRI, J-PAL, UN Agencies, among others. He was the Pioneer Chair at the Centre for Economic Policy and Development Research and Regional Centre of Expertise, Ogun State. He is a fellow of the Alexander von Humboldt Foundation and Swedish Institute. He is also a visiting professor at universities within and outside Africa.