Hunting for leopards. Long-run country income dynamics in Africa

Jorge Arbache and John Page

Introduction

After stagnating for much of its post-colonial history, economic performance in sub-Saharan Africa (SSA) has markedly improved. Since 1995, mean economic growth has been close to 5 per cent per year. Countries with at least 4 per cent gross domestic product (GDP) growth now constitute about 70 per cent of the region’s total population and 80 per cent of its GDP. Per capita income grew by 1.6 per cent a year in the late 1990s and by 2-3 per cent in each year since 2000.

Recent popular and academic writing has suggested that Africa may be at a turning point in its long economic decline (see Commission for Africa 2005; Ndulu et al. 2007). But predictions of Africa’s imminent economic recovery or demise have proved wrong on numerous occasions in the past 40 years. Growth in Africa since 1975 has been lower and more volatile than in any other region of the world - developed or developing (Table 8.1). And, unlike East and (more recently) South Asia, it has had few regional ‘champions’ to serve as models of successful, rapidly growing economies.¹

Using the most recent purchasing power parity (PPP) data for 44 SSA countries, this chapter examines country-level dynamics of long-run growth in Africa between 1975 and 2005. The next section describes our data and the characteristics of Africa’s long-run growth. Here we confirm previous findings that the major characteristics of growth in Africa are its low long-run trend and its extreme volatility at the country level. We find no persuasive evidence of growth persistence within countries and only weak evidence of persistence at the regional level since 1990.

‘Rich country, poor country’ examines how growth recovery has affected the distribution of income among countries in the region. We describe the country- level distribution of income in Africa and test for convergence in per capita income levels between richer and poorer countries. We find no evidence that poorer countries in Africa are converging to the income levels of their richer neighbours. We find persuasive evidence of inertia in per capita incomes for economies in Africa. Where countries began in terms of relative income in 1975 is an excellent predictor of where they ended up in 2005. Because the rich economies are growing faster than their poorer neighbours, we also find that intercountry distribution of income has become less equal over time.

Table 8.1 Gross domestic product (GDP) per capita and growth by region (weighted data)

Source: Authors’ computations.

Note: All sub-Saharan African countries are included in calculations.

In the section entitled Hunting for leopards, we discuss how one indication that Africa has indeed reached a turning point, would be evidence that a group of African economies with high and accelerating long-run growth - ‘leopards’, the regional equivalent of Asia’s ‘tigers’ - is beginning to emerge. We first identify four groups of countries according to their income levels and growth experiences, and we look for some common characteristics that are associated with these groups. Two distinct and stable income groups or ‘clubs’, rich and poor, are identifiable in the data. Our most striking finding is that transitions from low-income to higher-income levels have been rare in the last 30 years. Only two countries, both oil exporters, made the transition.

We then use the approach to growth accelerations and decelerations developed by Arbache and Page (2007), to see if a subset of countries with a high frequency of rapid growth accelerations emerges during 1995-2005. Based on our results for income transitions, growth thresholds and growth accelerations, we identify six economies that show the potential to be Africa’s growth leaders. The final section is the conclusion.