Republic of Congo: Selected Issues and Statistical Appendix
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International Monetary Fund
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Publication Date:
02 Aug 2004
eISBN:
9781451808520
Language:
English
Keywords:
ISCR; CR; oil sector; government; sector; growth accounting exercise; real GDP growth; CFA franc; growth-accounting perspective; perpetual inventory accumulation framework; Total factor productivity; Sub-Saharan Africa
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This Selected Issues and Statistical Appendix paper outlines the recent developments in the political and security situation in Congo. It reviews economic performance during 1970–2003, including in the context of IMF-supported programs. The paper also reviews recent developments in public finance management, and examines the constraints on growth and poverty reduction. The sources of economic growth during 1970–2003 are analyzed. The paper also discusses the feasibility of an oil fiscal rule, and notes some key lessons and challenges for the Congo.

Abstract

This Selected Issues and Statistical Appendix paper outlines the recent developments in the political and security situation in Congo. It reviews economic performance during 1970–2003, including in the context of IMF-supported programs. The paper also reviews recent developments in public finance management, and examines the constraints on growth and poverty reduction. The sources of economic growth during 1970–2003 are analyzed. The paper also discusses the feasibility of an oil fiscal rule, and notes some key lessons and challenges for the Congo.

VI. Sources of Economic Growth, 1970–200312

48. The analysis of the sources of growth, using the growth-accounting framework, has received considerable attention for the countries in East Asia. 13 The related debate has centered on whether the “East Asian miracle” was driven primarily by factor accumulation (capital and labor) or total factor productivity (TFP). For sub-Saharan Africa, while a number of papers have looked at the determinants of economic growth in the region, 14 more recently, few have analyzed the sources of growth from a growth-accounting perspective. The bulk of the analysis points to factor accumulation as the main source of growth in sub-Saharan Africa, with the contribution of TFP growth playing a limited role. 15 This section examines the sources of growth in the Congo over the period 1970-2003, using the growth-accounting framework.

49. Bosworth and Collins (2003) have argued that the growth-accounting framework is a useful tool to understand growth experiences across countries. The same authors have, however, noted the limitations of this methodology. A key weakness relates to the interpretation that the measured residual from the growth accounting exercise represents TFP growth. In practice, in addition to providing a measure of gains in economic efficiency, the residual may also reflect a number of other factors, including political disturbances and conflicts, institutional changes, droughts, external shocks, changes in government policies, and measurement errors. This limitation is particularly important for sub-Saharan African countries, such as the Congo, mired in conflicts and subject to significant drought-related and external shocks. Also, the results from a growth-accounting exercise should not be misconstrued as providing the fundamental causes of growth (rather than the proximate sources of growth).

50. The growth-accounting framework used for the analysis of the sources of growth is based on the following production function:

Y = A L 0.6 K 0.4 ,

where Y is real GDP, A is total factor productivity (TFP), L is labor, and K is physical capital. The capital stock series was constructed by using the perpetual inventory accumulation framework, and assuming a constant depreciation rate of 6 percent and a capital-output ratio of 1.5 in 1960. The share of capital of 0.4 is in line with the empirical finding by Senhadji (2000) for sub-Saharan Africa.

51. The main results of the analysis are provided in Table VI.1 and Figure VI.1. It should be noted up-front that there are a number of weaknesses to this exercise, most notably the lack of data on the capacity utilization and the unemployment rate, which are needed to adjust the capital stock and labor force series, respectively. Hence, the results need to be viewed as indicative. They are summarized as follows:

  • 1970–2003. Factor accumulation explained the bulk of output growth during this period, with TFP playing a limited role.

  • 1970–74. The high output growth rate is explained by the significant expansion in oil production and the initial boost in productivity.

  • 1980–84. The boost in non-oil real GDP is explained primary by government intervention to prop up output, including by significantly raising producer prices for agricultural crops and by boosting public investment. The increase in the “Solow residual” represented partly the change in government marketing policies for agricultural products (see Section III).

  • 1985–89. Starting in the second half of the 1980s, the decline in non-oil real GDP growth appears to have been caused by a loss in competitiveness and to have been accompanied by an acceleration of rural-to-urban migration. The loss of competitiveness in the non-oil sector was due to the overvaluation of the CFA franc—while the terms of trade declined significantly on a secular basis between the first half of the 1980s and the second half, the real effective exchange rate remained virtually unchanged. The acceleration of the rural- to-urban migration may have been due to the (i) existence of oil-related rents, including in the form of public services, in urban areas; and (ii) the dismantling of inefficient, loss-making agricultural marking agencies in the areas of coffee, cocoa, and food crops.

  • 1990–99. Non-oil real GDP growth was adversely affected by the civil conflicts, which took a severe toll on physical and human capital. The expected benefits from the 1994 devaluation of the CFA franc were overshadowed by the devastation from the conflicts. Government efforts to prop up capital expenditure in the second half of the 1990s had a limited impact, owing to the lack of security and other constraints on growth.

  • 2000–03. The pickup in non-oil real GDP growth—following the transition period to a democracy and the signing of peace agreements—has been accompanied by a boost in government investment. The increase in the “Solow residual” represented partly a “catch-up” to more normal economic activities following the return of more normal living conditions.

Figure VI.1.
Figure VI.1.

Republic of Congo: Sources of Economic Growth, 1975-2003

(Five-year moving average; in percentage change)

Citation: IMF Staff Country Reports 2004, 231; 10.5089/9781451808520.002.A006

Sources: World Bank Social Indicators; Congolese authorities; and Fund staff calculations.
Table VI.1.

Republic of Congo: Sources of Economic Growth, 1970-2003

(In percentage change; unless otherwise indicated)

article image
Sources: Congolese authorities; and staff calculations.

Accumulation of capital and labor, using 0.4 and 0.6 as factor shares, respectively.

Index, 1990=100.

In percent of total population.

References

  • Bosworth, Barry, and Susan M. Collins, 2003, “The Empirics of Growth: An Update,” Brookings Institution, pp. 113–266. Brookings Papers on Economic Activity: 2.

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  • Collins, Susan, M. and Barry Bosworth, 1996, “Economic Growth in East Asia: Accumulation versus Assimilation,” Brookings Papers on Economic Activity: 2, pp. 135–203.

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  • Fosu, Augustin Kwasi, 2001, “The Global Setting and African Economic Growth,” Journal of African Economies, Vol. 10, (September), pp. 282–310.

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  • Krugman, Paul, 1994, “The Myth of Asia’s Miracle,” Foreign Affairs, Vol. 73 (November-December), pp. 62–78.

  • McPherson, Malcolm F., and Tzvetana Rakovski, 2001, “Understanding the Growth Process in Sub-Saharan Africa: Some Empirical Estimates,” African Economic Policy Discussion Paper No. 54 (Washington: United States Agency for International Development).

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  • Senhadji, Abdelhak, 2000, “Sources of Economic Growth: An Extensive Growth Accounting Exercise,” Staff Papers, International Monetary Fund, Vol. 47, (January-April), pp. 129–57.

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  • Tahari, Amor, and others, 2004, “Sources of Growth in Sub-Saharan Africa” (unpublished; Washington: International Monetary Fund).

12

This section was prepared by Dhaneshwar Ghura.

14

For recent surveys on this subject, see Fosu (2001) and McPherson and Rakovski (2001).

15

See, for example, the paper by Tahari and others (2004).

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Cover IMF Staff Country Reports
Republic of Congo: Selected Issues and Statistical Appendix
Author:
International Monetary Fund
Volume/Issue:
Volume 2004: Issue 231
Publisher:
International Monetary Fund
ISBN:
9781451808520
ISSN:
1934-7685
Pages:
99
DOI:
https://doi.org/10.5089/9781451808520.002
  • Figure VI.1.
    View in gallery
    Figure VI.1.

    Republic of Congo: Sources of Economic Growth, 1975-2003

    (Five-year moving average; in percentage change)

Figure VI.1.

Republic of Congo: Sources of Economic Growth, 1975-2003

(Five-year moving average; in percentage change)