Structural transformation and its relevance for economic growth in Sub‐Saharan Africa

• Date: 01 February 2019
• DOI: http://doi.org/10.1111/rode.12543
• Author: Matthias Busse,Ceren Erdogan,Henning Mühlen
• Published date: 01 February 2019

REGULAR ARTICLE

Structural transformation and its relevance for

economic growth in Sub‐Saharan Africa

Matthias Busse

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Ceren Erdogan

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Henning Mühlen

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Ruhr-University, Bochum, Germany

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University of Hohenheim, Stuttgart,

Germany

Correspondence

Henning Mühlen, University of

Hohenheim, Institute of Economics

(520E), Schloss, Museumsflügel, 70593

Stuttgart, Germany.

Email: LHenning.Muehlen@uni-

hohenheim.de

Abstract

In this paper, we analyze the role of structural transforma-

tion in view of the remarkable growth performance of

Sub‐Saharan African countries since the late 1990s. Our

analysis covers 41 African countries over the period 1980

to 2014 and accounts for structural transformation by

employing the analytical frameworks of (1) growth

decomposition and (2) growth regression. Even though

the low‐productive agricultural sector continues to employ

most of the African workforce, our results reveal that

structural transformation has taken place and that it has

contributed significantly to African growth in the period

1980-2014.

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INTRODUCTION

Since the time of independence, Sub‐Saharan African countries have seen a rather fluctuating per-

formance in terms of economic growth.

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From the 1960s until the mid‐1970s Africa experienced

moderate growth achieving average annual gross domestic product (GDP) per capita growth of

around 2% (Figure 1). While African growth rates were still below those of East Asian tiger

economies, they were close to the world average and to those achieved by many other developing

regions. In the late 1970s and early 1980s, economic growth deteriorated rapidly. For some 20

years until the mid‐1990s, average African per capita growth was even negative. Since then, Africa

has seen a considerable improvement in its growth performance with positive rates of around 2%

that was clearly above the world average in the early 2000s.

Following the region's impressive growth take‐off, the perception of Africa in the media has

changed remarkably. In the 1980s and 1990s, Africa was associated with high poverty levels,

autocracy, diseases, wars, and corruption. In the early 2000s, it has been viewed as a booming

continent with decreasing poverty, an emerging middle class, democratization, urbanization, a con-

struction boom, a strongly expanding services sector, and ever‐increasing exports of raw materials

because of a strong increase in commodity prices.

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DOI: 10.1111/rode.12543

Rev Dev Econ. 2019;23:33–53. wileyonlinelibrary.com/journal/rode © 2018 John Wiley & Sons Ltd

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In addition, enhanced political stability, economic liberalization, education and infrastructure,

and less conflicts and macroeconomic distortions were also relevant for the improved economic

performance of many African countries (OECD, AfDB, UNDP, and UNECA, 2013). With these

improved “fundamental”capabilities African economies were able to lower distortions, boost (do-

mestic and foreign) investment and significantly increase their growth rates. These developments

are in line with the standard macroeconomic growth approach based on the Solow growth model.

The approach emphasizes that all factors that stimulate capital accumulation or foster improve-

ments in technology, such as education, better institutions and openness to trade and foreign

investment, are “fundamental”determinants of economic growth.

While the macroeconomic approach dominated much of empirical growth research between

1990 and 2010, the role of structural transformation has reemerged since 2010 (Herrendorf, Roger-

son, & Valentinyi, 2014; Rodrik, 2014). According to the growth approach in development eco-

nomics that is based on the dual economy model, economic growth (also) depends on the rate of

structural transformation, defined as the shift in labor (and other resources) from traditional low‐

productivity to modern high‐productivity sectors (Kuznets, 1966; Lewis, 1954). In fact, since the

growth take‐off most African countries have also experienced some degree of structural transfor-

mation. However, there is significant variation in the speed and type of structural transformation

among African countries. While European and Asian countries typically experienced structural

transformation through a move from agriculture to manufacturing, many African countries have

deindustrialized (Rodrik, 2016), and may rather transform through either a shift to services or pro-

ductivity increases in their agricultural sectors (IMF, 2012a). So far, there is little empirical evi-

dence that structural transformation played a significant role for the growth performance in Africa

between 1980 and 2014 (De Vries, Timmer, & De Vries, 2015). Thus, the main objective of our

paper is to investigate the drivers of African economic growth paying special attention to the role of

structural transformation.

Prior research on structural transformation and growth in Africa is restricted to a small number

of countries mainly owing to limited data availability at the sectoral level (De Vries et al., 2015;

FIGURE 1 Growth rates in Africa, 1961–2014 (5‐year averages)

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