Mr. Stanley Fischer, Mr. Ernesto Hernández-Catá, and Mohsin S. Khan
This paper examines the experience of Sub-Saharan Africa (SSA) to answer the question of whether the region is at a turning point in its economic fortunes. The improvement in growth reflects in part a rise in the utilization of existing capacity. To be sustained, however, a high rate of growth will require an increase in investment rates and/or an increase in total factor productivity—i.e., an improvement in the technological, political, administrative and economic factors that raise the rate of return on both capital and labor. The close link between investment and growth in developing countries over the long term is evident in the empirical growth literature. For developing countries in general, the elasticity of growth with respect to the investment/GDP ratio has been found to lie within the range of 0.3–0.5. Although increasing investment is crucial, action is also needed in many complementary areas in order to raise productivity and growth.
Improving market access in industrial countries and retaining preferences have been Africa's two key objectives in the Doha Round trade negotiations. This paper argues that African negotiators may have overlooked the potential market access gains in developing countries, where trade barriers remain relatively high and demand for African imports has expanded substantially over the past decades. As reductions in most-favored-nation tariffs in industrial countries will inevitably lead to preference erosion, African countries need to ensure that the Doha Round leads to liberalization in all sectors by all World Trade Organization (WTO) members, so that the resulting gains will offset any losses. Such an outcome is more likely if African countries also offer to liberalize their own trade regimes and focus on reciprocal liberalization as a negotiation strategy rather on preferential and differential treatment.
Agriculture remains the dominant sector in the economies of most Sub-Saharan African countries. However, the experience of agricultural growth in the region stands in sharp contrast to the robust performance of agriculture in many Asian countries, particularly China. In a number of African countries, labor productivity has fallen and land productivity has not risen significantly. In China, on the other hand, land and labor productivities have increased steadily over the past two decades. An examination of factors underlying the contrasting experiences of China and countries in Sub-Saharan Africa reveals important differences in the institutional and policy environments affecting the use of new and profitable technologies to raise land and labor productivities.
The preponderance of evidence from the empirical literature on aid effectiveness suggests that development aid has not had a significant impact on growth in recipient countries. However, there is some evidence that aid has had positive effects when the policy environment has been conducive to growth. Regarding the relationship between aid and the main channels through which its impact on growth could flow—investment and domestic saving—the evidence is mixed, with some indication that aid has had a positive impact where adjustment efforts have been sustained.