STRUCTURAL CHANGE AND ECONOMIC GROWTH IN AFRICA

Since the late 1950s and mid 1960s which is known to be the period of African independence,<br> Africa’s growth performance and structural change, as indicated by the growth of the secondary<br> sector, have shown a fluctuating pattern. The period between the 1950s and the mid-1970s was<br> relatively of good economic performance and expansion of the manufacturing sector while the<br> period after the mid-1970s to the mid-1990s is characterized by poor economic performance and<br> contraction of the secondary sector. The period since the late 1990s is a period of rapid<br> economic growth but declining share of the secondary sector which implies negative structural<br> change in the context of this study. Given this pattern of economic growth and structural change,<br> previous studies focus on the effect of structural change on economic growth of Africa.<br> Accordingly, this study aims at analyzing the effect of economic growth on structural change in<br> Africa.Other drivers of structural change in Africa are also studied by considering the Natural<br> resource endowment hypothesis, Geography hypothesis, exchange rate policy hypothesis and<br> human capital hypothesis. The effect of openness on structural change is also analyzed by<br> considering the effect of trade on sectorial value added share.Secondary data for a set of 43<br> African countries for the period between 1980 to 2020 is collected from the World Bank’s World<br> Development Indicators Database. The countries and years of study are selected based on the<br> availability of data. The fixed Generalized Least Squares (FGLS) estimation is employed to<br> estimate the parameters as it addresses the problems of heterosckedasticity, autocorrelation and<br> Cross-sectional dependence existing within the data. The Durbin-Hausman-Wu endogenity test<br> is applied and the variables are found to be strictly exogenous. The result of the study shows that<br> Economic growth has a significant negative effect on Structural change. This is consistent with<br> the reality faced by African economies in the past decades for which economic growth and<br> structural change move in opposite directions to each other. Particularly after the mid-1990s,<br> the economy is growing faster but the industry sector’s share in output which represents<br> structural change, is declining. Exchange rate depreciation has also a negative effect on<br> structural change in Africa for the last four decades. On the other hand, Human Capital and<br> Openness has a positive effect on structural change that more improved human capital and more<br> open economy results in an increasing share of Industry Value Added thereby facilitating<br> structural change. Natural resource endowment and Geography are found to be insignificant<br> variables in the model estimation. Based on the result, the study recommends those policy<br> designs focused on: driving the fruits of economic growth towards the expansion of the industry<br> sector,increasing investment in human capital, following more liberal trade policies and well<br> managed exchange rate system.