Abstract
In both its 2012–15 and 2016–20 National Development Plans (NDP), Côte d’Ivoire stated as its overarching goal the transformation of the country into an emerging economy.2 Prior to the COVID-19 pandemic, the country had achieved eight years of continuous strong growth performance, raising per capita income by more than 50 percent over 2011–19. The Covid-19 pandemic has brought to a halt the very strong growth trend. Nonetheless, the relative resilience of the economic and the resumption of most activities bode well for a return to strong growth in 2021. The authorities are finalizing their 2021–25 (NDP) and have expressed interest in an analysis of the determinants of sustained growth. Indeed, to achieve emerging market status, the country will have to maintain strong growth for many years to come. To help identify what this will require, this note benchmarks the characteristics of Côte d’Ivoire’s recent pre-COVID growth spell against the experience of other countries that have managed to achieve sustained growth episodes since 1950, and econometrically investigates the drivers of such growth episodes. It finds that Côte d’Ivoire’s recent growth spell shares some of the early features of sustained growth episodes observed elsewhere. To continue its growth spell, however, it will be critical for the country to: a) maintain a conducive macroeconomic environment; b) turn around its declining productivity trend including by accelerating structural transformation; and c) enhance the human capital of its workforce.
Sustaining Côte D’Ivoire’s Growth Spell: What will it Take?1
In both its 2012–15 and 2016–20
A. Introduction
1. Côte d’Ivoire was one of the fastest growing economies worldwide in the eight years preceding the Covid-19 pandemic. Growth had reached on average 8.2 percent per year over 2012–19. As a result, real GDP per capita growth averaged 5.5 percent over 2012–19, translating into a roughly 41 percent rise in average income levels over the period.3
2. The authorities’ policy agenda has been geared towards reaching emerging market status. Their economic program has been focused on creating a stable and growth-enabling macroeconomic environment and improving the business climate. More recently, the government has also ramped up policies to make growth more inclusive. The country has gained international recognition for its efforts and has regularly tapped international financial markets as a frontier economy.
3. It will take decades of continuous growth to reach the ranks of emerging countries. It took success stories like Thailand and Malaysia 30 years to triple their income from Côte d’Ivoire’s current level of GDP per capita of $2,271 USD (Figure 1). During this time, both countries experienced negative shocks, notably the Asian and Global Financial Crises of 1997 and 2008, but managed to recover relatively quickly. Thailand last had Côte d’Ivoire’s current level of GDP per capita in 1988; in 2018, 30 years later, its GDP per capita had grown roughly threefold in real terms, to $6,500 USD. Malaysia began its growth spurt even earlier, surpassing Côte d’Ivoire’s current income level in 1966 reaching Thailand’s current income level 28 years later in 1999, and posting GDP per capita of $12,486USD in 2019, comparable to the income level of Brazil and above that of China.
Evolution of GDP Per Capita in Côte d’Ivoire and Comparators
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Note: Years in brackets indicate the year when a country’s GDP/capita last equaled Côte d’Ivoire’s 2012 GDP per capita of around $1,680 (constant 2010 USD). 1/ Arrows indicate that growth continued beyond the years displayed. 2/ Since the Ivorian authorities have rebased GDP for 2015 onwards, but the rebased data is not yet available for 2012, the figure of $1,680 constant 2010 USD is derived by multiplying the pre-rebasing figure by the magnitude of the revision in the new base year (2015).Source: World Development Indicators, Ivorian authorities, and staff estimates.Evolution of GDP Per Capita in Côte d’Ivoire and Comparators
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Note: Years in brackets indicate the year when a country’s GDP/capita last equaled Côte d’Ivoire’s 2012 GDP per capita of around $1,680 (constant 2010 USD). 1/ Arrows indicate that growth continued beyond the years displayed. 2/ Since the Ivorian authorities have rebased GDP for 2015 onwards, but the rebased data is not yet available for 2012, the figure of $1,680 constant 2010 USD is derived by multiplying the pre-rebasing figure by the magnitude of the revision in the new base year (2015).Source: World Development Indicators, Ivorian authorities, and staff estimates.Evolution of GDP Per Capita in Côte d’Ivoire and Comparators
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Note: Years in brackets indicate the year when a country’s GDP/capita last equaled Côte d’Ivoire’s 2012 GDP per capita of around $1,680 (constant 2010 USD). 1/ Arrows indicate that growth continued beyond the years displayed. 2/ Since the Ivorian authorities have rebased GDP for 2015 onwards, but the rebased data is not yet available for 2012, the figure of $1,680 constant 2010 USD is derived by multiplying the pre-rebasing figure by the magnitude of the revision in the new base year (2015).Source: World Development Indicators, Ivorian authorities, and staff estimates.4. The experience of comparator success stories highlights the necessity to sustain growth at high rates to reach upper middle-income status within one to two generations. Thailand has averaged GDP per capita growth of 4.1 percent since 1988, while Malaysia has averaged 3.9 percent since 1971. The experience of China and the Asian Tigers (Hong Kong, Taiwan, Singapore, South Korea) were similar, with higher average growth rates sustained for even longer periods.
5. East-Asian growth experiences also support the proposition that growth can initially be driven by factor accumulation but must eventually be carried by increases in productivity. Krugman (1994) termed this phenomenon “perspiration” vs. “inspiration”, where perspiration refers to factor accumulation through investments in physical and human capital, while inspiration represents productivity gains. Achieving sustained productivity growth is generally more difficult, which on a global scale makes long episodes of sustained growth less frequent than shorter ones. Diao et al. (2019) highlight the importance of structural change (such as the movement of resources from low- to high-productivity sectors) for many countries in the early stages of development, while in the long-term, productivity growth is usually driven by technological change (Helpman 2009).
6. Against this background, this paper investigates the characteristics of the recent growth episode in Côte d’Ivoire and compares them to the experience of countries that have managed to achieve sustained periods of growth in the past. The first section presents a set of stylized facts about Côte d’Ivoire’s recent growth spell relative to comparator growth episodes that lasted for 10 years or longer (labeled as “sustained growth episodes”). The second section econometrically investigates the drivers of growth spell duration on a global sample of spells lasting a minimum of 5 years, with a view to identifying what distinguishes sustained growth episodes from the more common shorter-lived growth spells. From this analysis, the last section draws policy recommendations as to how Côte d’Ivoire can sustain growth going forward.
7. The paper finds that while Côte d’Ivoire’s recent growth spell shares some of the early features of sustained growth episodes elsewhere, it urgently needs to boost productivity and invest in human capital. The economy so far exhibits limited structural change and is starting at a lower level of human capital than most comparators—both elements that the analysis highlights as important drivers of growth in the medium-run. It is therefore imperative that the country accelerates progress in these areas to sustain growth and eventually reach emerging market status.
B. Benchmarking Côte d’Ivoire’s Recent Growth Spell
8. To benchmark Côte d’Ivoire’s recent growth episode, “sustained growth episodes” are identified from a global sample spanning 1950–2018. Specifically, a country is classified as experiencing a “sustained growth episode” when the following criteria are met:
(i) The country exhibits at least 10 consecutive years of positive real per capita growth;
(ii) Average annual per capita growth during that period exceeds 2 percent;
(iii) No subsequent reversal of GDP per capita has occurred.
To further tailor the list of comparators to Côte d’Ivoire’s experience, the sample of countries is restricted to non-fuel exporters whose GDP per capita at the start of the growth episode is below $3,996 in 2018 US dollars.4
9. Compared to other work on growth spells, the criteria do not require growth to have accelerated in the initial year. Moreover, instead of the common threshold of 2 percent per capita growth in each consecutive year, we impose the less stringent conditions of maintaining positive per capita growth and an average per capita growth rate of 2 percent or higher. This choice is motivated by our focus on explaining long sustained growth episodes rather than unusually high growth episodes—which are often relatively short (Hausman et al. 2005, Berg et al. 2012, IMF 2017). Our more flexible algorithm can also capture prolonged growth episodes that are temporarily slowed by exogenous shocks such as global economic crises, as long as they do not lead to income reversals.
10. 52 sustained comparator growth episodes are identified via this algorithm, with median duration of 16 years and median average annual per capita growth rate of 4.6 percent. This sample is split into two groups (dubbed “high growth” and “low growth”) based on the magnitude of growth during the spell (above/below the group median of 4.6 percent), which allows the comparison of Côte d’Ivoire’s recent growth experience to countries that experienced periods of relatively higher and lower sustained growth. Countries such as Singapore, South Korea, Thailand, Malaysia, and Indonesia are captured in the “high growth” group, as are growth spells in China (starting in 1977), Vietnam (starting in1981), and India (starting in 1992). The algorithm also captures perhaps lesser known, but equally impressive long growth episodes in Bhutan, Bulgaria, and Laos. Annex Table 1 provides the full list of countries and years included in each group.
11. Côte d’Ivoire’s experience over 2012–19 is benchmarked in four key areas: the composition of growth, macroeconomic environment, production structure, and social inclusiveness. For both Côte d’Ivoire and the two comparator groups, the period of observation is divided into the first seven years of the growth spell and the rest of the spell.5 This makes it possible to compare Côte d’Ivoire’s recent growth episode to the early years of comparator countries’ growth spells and simultaneously explore which characteristics are associated with sustained growth of high and low magnitudes in the longer term.6
Composition of Growth
12. Total Factor Productivity (TFP) growth drove a large part of Côte d’Ivoire’s growth since 2012 but is slowing down, while the contribution of physical capital accumulation is growing (Figure 2). A similar pattern is observed across the early and later parts of the comparator growth episodes, which goes somewhat against the argument that TFP growth should over time become the main driver of growth.7 The decline in Côte d’Ivoire’s TFP growth over time is probably in part associated with the rebound in early 2010s from the poor performance during the 2000s.8 However, it is a somewhat worrisome finding given the central importance of TFP in driving long-term growth and also when comparing the more recent TFP contribution to growth in Côte d’Ivoire’s (about 1 percent in 2019) with the average TFP growth rates of 2½ percent sustained by high growth comparators in the later years of their sustained growth spells.
Composition of Growth
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Composition of Growth
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Composition of Growth
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.13. On the demand side, private investment growth is playing an important role in sustaining growth. This is true both for the high-growth comparators, where private investment grew particularly in later growth spell years, and Côte d’Ivoire, where private investment has been consistently high at about 2V2 percent real growth annually. Meanwhile, the contribution of public investment to growth has been less important in Côte d’Ivoire in recent years, particularly in 2018–19 when public investment growth was curtailed as part of the authorities’ fiscal consolidation efforts. Maintaining strong private investment growth and creating space for public investments will be key to generating productivity gains and maintaining high growth rates.
Macroeconomic Environment
14. Côte d’Ivoire’s fiscal deficit has been comparable to that of other growth episodes, but with a significantly weaker revenue-to-GDP ratio (Figure 3). The fiscal consolidation efforts over 2017–19 kept Côte d’Ivoire’s deficit in line with that of both comparator groups, which averaged budget deficits below 3 percent of GDP in the later years of their growth episode. However, Côte d’Ivoire lags significantly behind both comparator groups on revenue mobilization. Furthermore, the tax-to-GDP ratio has remained virtually unchanged over the last 8 years, constraining the country’s ability to finance the upgrade in public goods and services that have characterized sustained growth episodes.
Macroenvironment – Fiscal
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Macroenvironment – Fiscal
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Macroenvironment – Fiscal
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.15. Côte d’Ivoire currently compares favorably on its debt-to-GDP ratio, but the trend is upward, unlike among comparators. Côte d’Ivoire benefited from external debt relief under HIPC over 2009–12, which provided the space to jumpstart much-needed infrastructure investment and address pressing development needs. Debt ratios have since remained below the long-term levels observed in high-growth comparators. However, this must be weighed against the equally lower levels of revenue in Côte d’Ivoire, which exacerbate debt service-to-revenue ratios.9 In addition, the upward trend of recent years stands in sharp contrast to the experience of comparators, where strong growth allowed for both fiscal space to invest and a downward trend in debt.
16. Côte d’Ivoire’s domestic savings rate compares well to that of comparators (Figure 4). The savings rate has been significantly above the rates observed in the early years of comparator growth spells and roughly in line with high-growth comparators’ long-term saving rates. However, the country’s savings rate is showing signs of declining since 2015, whereas both comparator groups significantly raised their savings rates over time to finance higher investment.
Macroenvironment – General
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Macroenvironment – General
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Macroenvironment – General
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.17. Côte d’Ivoire’s expansion has been accompanied by a relatively small current account deficit, linked in large part to its idiosyncratic trade surplus. However, the country’s small current account deficit is also connected to its relatively lower level of domestic investment, which is contributed to by still limited FDI inflows. Both groups of comparators had higher average FDI inflows than Côte d’Ivoire in the early years of their spells and saw these inflows increase to on average 3.5 percent of GDP in later years, while FDI to Côte d’Ivoire shows little upward trend.
18. Côte d’Ivoire’s growth spell has been accompanied by very low inflation and a relatively competitive real exchange rate (relative to trend).10 Membership in the West African Monetary Union and its currency’s peg to the euro has allowed for unusually low inflation in Côte d’Ivoire relative to comparators. Moreover, as in comparator countries, Côte d’Ivoire’s growth spell has been accompanied by a negative deviation in the real effective exchange rate from its long-run trend, although this deviation was relatively small until 2019. This suggests that Côte d’Ivoire’s exchange rate has been relatively competitive in recent years.
Structure of Production
19. The Ivorian economy is showing only tentative signs of structural transformation (Figure 5). It is starting out with a significantly lower share of agriculture and a higher share of services than the selected comparator economies. While high-growth comparator economies saw a marked increase in the share of the industrial sector over time (confirming the importance of structural transformation), there has been only modest growth in the relative size of the Ivorian industrial sector since 2012 and a contraction in manufacturing.11 Nurturing the growth of industry and particularly manufacturing thus remains one of the main challenges facing the Ivorian economy.
Structure of Production
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Structure of Production
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Structure of Production
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.20. While Côte d’Ivoire’s exports are relatively diversified, they consist primarily of non-processed agricultural products and, if anything, have become less diversified over the last eight years. Manufactured goods made up only 10 percent of total merchandise exports in 2019, a decline compared to previous years. Meanwhile, comparator countries that experienced sustained growth episodes generally started out with almost double the share of manufactures in exports and continued growing this share over time.
Social Inclusion and Human Capital
21. Côte d’Ivoire scores somewhat lower than comparators on measures of equal distribution of income and opportunity, but higher on access to electricity (Figure 6). The country has both a higher Gini index and a lower ratio of female to male school enrollment than high-growth comparators in the early and later years and low-growth comparators in later years. On the other hand, access to electricity is much more widespread in Côte d’Ivoire today than it was during comparator countries’ growth spells in the early years. The implementation of the social program (PSGouv) by the government contributed to the strong improvement in access to electricity in Côte d’Ivoire, mainly in rural areas.
Social Inclusion and Human Capital
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Social Inclusion and Human Capital
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.Social Inclusion and Human Capital
Citation: IMF Staff Country Reports 2021, 171; 10.5089/9781513592275.002.A002
Sources: World Bank, World Development Indicators; IMF, Word Economic Outlook; and IMF staff estimates.22. Notwithstanding recent improvements in school enrollment, Côte d’Ivoire also appears to lag comparators on education outcomes. Its adult literacy rate stood at 47 percent in 2018, revealing a substantial gap compared to the level from which both groups of comparators started their sustained growth spells (around 60 to 70 percent). Côte d’Ivoire compares more favorably on primary and secondary school enrollment rates as well as on infant mortality, while overall life expectancy remains below that observed in comparator growth spells in later years. However, recent PASEC scores show that the quality of primary schooling remains weak (See SIP on spending efficiency).
Takeaways of the Benchmarking Exercise
23. Overall, Côte d’Ivoire’s recent growth spell shares some promising features of the early years of growth in comparator countries that went on to experience sustained growth spells. Côte d’Ivoire’s growth was kickstarted by strong TFP growth and has been accompanied by buoyant private sector investment. In addition, over 2012–18, Côte d’Ivoire ran smaller budget and current account deficits, exhibited a stronger savings rate and had lower inflation and debt ratios than the identified comparators in the first seven years of their growth spell.
24. Nonetheless, some important differences emerge that could pose headwinds to growth going forward. TFP growth is showing signs of slowdown compared to comparators while FDI and the overall investment have remained relatively low. Meanwhile, low literacy (a proxy for human capital) and limited signs of structural transformation may impact long-term growth prospects, given that they are highlighted by the literature as key drivers of labor productivity gains. Finally, the low revenue-to-GDP ratio is likely to constrain the government’s ability to sustainably finance much-needed public goods and services. Economies that grew for long periods of time at high growth rates generally ran limited deficits, reduced their debt burdens, achieved strong health and education levels, attracted investment and had a high share of exports and production coming from manufacturing in later years. Côte d’Ivoire will need to expend considerable effort to reach their level.
C. What Matters for Sustaining Growth? An Econometric Approach
25. To further investigate the findings of the benchmarking exercise, this section conducts econometric analysis to identify what matters most for achieving sustained growth. More specifically, it investigates to which extent the factors examined in the preceding descriptive analysis plus some additional variables predict the occurrence of sustained growth episodes in a global sample of countries covering 1950–2018.
Methodology
26. A distinction is made between growth episodes that ended before their tenth anniversaries and longer ones. We continue to define sustained growth episodes as in the previous section (as elaborated in paragraph 8) but expand the sample by dropping the initial income criterion, so as to improve the statistical power of the regressions to follow. As a counterfactual to the “sustained growth episodes” (lasting 10 years or longer), we define “non-sustained growth spells” as shorter episodes of continuous, positive real per capita growth, again averaging above 2 percent annually, but lasting only for 5 to 9 years.12,13 This then allows us to investigate what characteristics distinguish “sustained growth episodes” from “non-sustained growth spells” and draw implications for Côte d’Ivoire, which prior to the Covid-19 pandemic had seen eight years of continuous growth.14
27. The probability of the growth spell extending beyond 10 years (versus lasting only 5 to 9 years) is estimated based on various economic characteristics. To that effect, we run several versions of the following regression, estimated as a linear probability model:
Pr(Durations ≥ 10) = β0 + β1Xs,t1 + β2ΔXs,t2 + μs
Where s subscript denotes the spell, X is a vector of variables we expect might predict the sustainability of a growth spell, t1 contains years 1 to 5 following the start of the spell, and t2 contains years 6 to 9. μs is the error term. A given variable xs,t1 in Xs,t1 is measured as the average value of xs over years 1 to 5, whereas a given ΔXs,t2 in ΔXs,t2 is the difference between the average value of xs in years 6 to 9 and xs,t1. In the instances where x represents a flow variable already measured as a percent change, we simply include the average over years 6 to 9 without subtracting the average in years 1 to 5. β1 is meant to identify what early characteristics of growth spells (realized in the first five years) predict a sustained growth episode (i.e. a growth spell lasting 10 years or longer), whereas β2 identifies what additional changes occurring in years 6 to 9 are associated with sustained growth duration.
28. One important caveat is the potential for reverse causality in interpreting β2. As by construction, sustained growth spells generally have higher growth rates in years 5 to 9 than non-sustained spells, changes in explanatory variables during these years may be driven by higher growth rather than the other way around. This must be paid particular attention when the explanatory variable of interest is measured as a percent of GDP.
29. Within this framework, we test the role of the external and domestic macroenvironment, the structure of production, social inclusion, and the business environment in sustaining growth. The set of explanatory variables considered is expanded from those in the descriptive section to capture characteristics in the external environment, governance and institutions, and infrastructure. Annex Table 2 lists all variables used in the analysis. Given the limited sample size, we estimate relatively parsimonious models, and follow Berg et al. (2012) in controlling only for initial GDP per capita and external shocks. It is thus possible that some of the regressions suffer from omitted variable bias.
30. Compared to prior studies, the contribution of this paper is its specific focus on distinguishing between the characteristics of growth in the early versus the later years of a sustained growth spell. Moreover, by assigning each identified growth spell equal weight in the estimations, our method is less prone to capturing primarily the characteristics of outlier growth successes such as China. China’s uninterrupted growth spell since 1977 is assigned the same weight as Ethiopia’s growth spell that started more recently in 2004.
Results
External Environment
31. Growth spells that begin at a time when global growth is strong are less likely to last (Table 1). Conversely, stronger global growth in years 5–9 helps extend the life of a spell. This suggests that global economic conditions can both kick-start and extend growth episodes, but that a growth spell initiated by strong external demand is, ceteris paribus, less likely to last. Conversely, neither global financial conditions (proxied by the initial level and subsequent changes in the US interest rate) nor terms of trade influence the probability of achieving sustained growth. Overall, these results suggest that sustained growth is unlikely to be attained simply as a result of benign global conditions.
The Effect of External Conditions on the Probability of a Sustained Growth Spell
The Effect of External Conditions on the Probability of a Sustained Growth Spell
| Initial GDP per capita | -0.001 |
| (0.002) | |
| Δ Terms of trade, t1 | 0.007 |
| (0.006) | |
| Global real growth, t1 | -0.171*** |
| (0.038) | |
| US interest rate, t1 | 0.008 |
| (0.012) | |
| Δ Terms of trade, t2 | 0.007 |
| (0.006) | |
| Global real growth, t2 | 0.194*** |
| (0.037) | |
| Δ US interest rate, t2 | 0.011 |
| (0.014) | |
| Constant | 0.327~ |
| (0.211) | |
| Adjusted R-squared | 0.102 |
| Observations | 243 |
The Effect of External Conditions on the Probability of a Sustained Growth Spell
| Initial GDP per capita | -0.001 |
| (0.002) | |
| Δ Terms of trade, t1 | 0.007 |
| (0.006) | |
| Global real growth, t1 | -0.171*** |
| (0.038) | |
| US interest rate, t1 | 0.008 |
| (0.012) | |
| Δ Terms of trade, t2 | 0.007 |
| (0.006) | |
| Global real growth, t2 | 0.194*** |
| (0.037) | |
| Δ US interest rate, t2 | 0.011 |
| (0.014) | |
| Constant | 0.327~ |
| (0.211) | |
| Adjusted R-squared | 0.102 |
| Observations | 243 |
32. Following Berg et al. (2012), we control for external economic conditions in all subsequent regressions. Since terms-of-trade shocks and the US interest rate are insignificant, we control only for real world economic growth. In addition, we always control for initial GDP per capita, which generally enters with a negative sign and is significant depending on the other variables included in the model, indicating that countries starting from a lower income level are more likely to experience sustained growth episodes, conditional on having had a five-year growth spell already.
Domestic Macroenvironment
33. Sustained growth episodes are associated with declining fiscal deficits and debt ratios and higher public savings rates (Table 2). Although a higher deficit in the first five years does not affect the chances of a growth spell lasting beyond 10 years, countries that continued growing to year 10 or longer were more likely to lower their deficits in years 6 to 9 than countries that did not. This result is consistent with the practice of prudent and countercyclical fiscal policy in later years and suggests that accumulation of fiscal imbalances is particularly detrimental in the later part of the growth spells—presumably because the compounding effects of lax fiscal policy eventually start to weigh on the economy and affect overall confidence. These results suggest that Côte d’Ivoire should aim to rely on higher tax revenues to finance more productive and inclusive spending, rather than altering fiscal deficit targets. The analysis moreover reveals that countries whose governments save more are more likely to grow for over a decade.
The Effect of Public Finances on the Probability of a Sustained Growth Spell
The Effect of Public Finances on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | |
|---|---|---|---|---|---|
| Fiscal balance, t1 | -0.476 | ||||
| (1.169) | |||||
| A Fiscal balance, t2 | 2.940*** | ||||
| (0.974) | |||||
| Public saving, t1 | 1.056** | ||||
| (0.526) | |||||
| Public consumption, t1 | -0.588 | ||||
| (0.674) | |||||
| Public investment, t1 | 0.168 | ||||
| (0.739) | |||||
| Δ Public saving, t2 | 2.476** | ||||
| (1.054) | |||||
| Δ Public consumption, t2 | -1.083 | ||||
| (1.440) | |||||
| Δ Public investment, t2 | 1.198 | ||||
| (0.843) | |||||
| Debt, t1 | -0.098 | ||||
| (0.145) | |||||
| Δ Debt, t2 | -0.383** | ||||
| (0.150) | |||||
| External debt, t1 | -0.194** | ||||
| (0.075) | |||||
| Δ External debt, t2 | -0.346*** | ||||
| (0.095) | |||||
| Government Revenue, t1 | -0.217 | ||||
| (0.370) | |||||
| Δ Government Revenue, t2 | 1.243 | ||||
| (1.052) | |||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes |
| Adjusted R-squared | 0.132 | 0.142 | 0.137 | 0.159 | 0.097 |
| Observations | 165 | 168 | 142 | 180 | 169 |
The Effect of Public Finances on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | |
|---|---|---|---|---|---|
| Fiscal balance, t1 | -0.476 | ||||
| (1.169) | |||||
| A Fiscal balance, t2 | 2.940*** | ||||
| (0.974) | |||||
| Public saving, t1 | 1.056** | ||||
| (0.526) | |||||
| Public consumption, t1 | -0.588 | ||||
| (0.674) | |||||
| Public investment, t1 | 0.168 | ||||
| (0.739) | |||||
| Δ Public saving, t2 | 2.476** | ||||
| (1.054) | |||||
| Δ Public consumption, t2 | -1.083 | ||||
| (1.440) | |||||
| Δ Public investment, t2 | 1.198 | ||||
| (0.843) | |||||
| Debt, t1 | -0.098 | ||||
| (0.145) | |||||
| Δ Debt, t2 | -0.383** | ||||
| (0.150) | |||||
| External debt, t1 | -0.194** | ||||
| (0.075) | |||||
| Δ External debt, t2 | -0.346*** | ||||
| (0.095) | |||||
| Government Revenue, t1 | -0.217 | ||||
| (0.370) | |||||
| Δ Government Revenue, t2 | 1.243 | ||||
| (1.052) | |||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes |
| Adjusted R-squared | 0.132 | 0.142 | 0.137 | 0.159 | 0.097 |
| Observations | 165 | 168 | 142 | 180 | 169 |
34. Furthermore, spells that start out with relatively high levels of external debt are less likely to last. While initial overall debt ratios do not come out significantly for the probability of sustained growth episodes, the level of external debt does seem to matter, both initially and in years 5 to 9. Indeed, a 1 percentage point higher external debt-to-GDP ratio during the first five years of a spell reduces the likelihood of growing for 10 years or longer by roughly 5 percent.
35. The revenue-to-GDP ratio is not significant in predicting sustained growth episodes, even though its change over years 5 to 9 enters with a positive coefficient. The insignificance of the revenue ratio combined with the negative significance of fiscal imbalances later in the growth spell suggests that a high level of government expenditure is not critical to achieving sustained growth. This would be explained if countries that achieved sustained growth with relatively low revenue-to-GDP ratios were particularly effective at leveraging private sector investment or if these countries had high public expenditure efficiency. Given the still significant development needs and low education levels in Côte d’Ivoire and its sub-optimal public spending efficiency, particularly in health and education,15 the country will likely need a combination of higher revenue, greater private investment, and spending efficiency gains to support growth going forward.
36. Other domestic macroeconomic variables also seem to predict growth sustainability (Table 3).
Higher domestic savings rates and increasing investment are common characteristics of sustained growth episodes. While the initial level of investment does not come out significant, sustained growth episodes are associated with a growing share of investment in GDP, including private investment16. The domestic savings rate matters initially and even more so over time.
Exchange rate overvaluation (relative to trend) and high initial inflation appear harmful to achieving sustained growth. While the level of inflation in years 6 to 9 enters with a positive sign, it is not significant. Meanwhile, positive deviations from an HP-filtered time trend in the real effective exchange rate have significant negative effects on growth sustainability, both in the early and later years, confirming that external competitiveness can play an important role in supporting long-term growth (as argued by e.g. Rodrik (2008)).
Trade openness, financial openness, and the private credit to GDP ratio do not predict the length of growth episodes. Both the initial levels and subsequent growth of all three variables enter insignificantly.
The Effect of the General Macroenvironment on the Probability of a Sustained Growth Spell
The Effect of the General Macroenvironment on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | |
|---|---|---|---|---|---|---|
| Log of inflation, t1 | -0.046~ | |||||
| (0.036) | ||||||
| Log of inflation, t2 | 0.050 | |||||
| (0.038) | ||||||
| REER trend deviation, t1 | -0.065** | |||||
| (0.025) | ||||||
| Δ REER trend deviation, t2 | -0.046** | |||||
| (0.019) | ||||||
| Domestic Saving, t1 | 0.353~ | |||||
| (0.222) | ||||||
| Investment, t1 | 0.034 | |||||
| (0.505) | ||||||
| Δ Domestic Saving, t2 | 1.324*** | |||||
| (0.426) | ||||||
| Δ Investment, t2 | 1.124* | |||||
| (0.709) | ||||||
| Trade openness, t1 | 0.032 | |||||
| (0.091) | ||||||
| Δ Trade openness, t2 | 0.127 | |||||
| (0.219) | ||||||
| Financial openness, t1 | -0.002 | |||||
| (0.011) | ||||||
| Δ Financial openness, t2 | -0.009 | |||||
| (0.011) | ||||||
| Private investment, t1 | -0.012 | |||||
| (0.569) | ||||||
| Δ Private investment, t2 | 1.202~ | |||||
| (0.792) | ||||||
| Private credit, t1 | -0.021 | |||||
| (0.154) | ||||||
| Δ Private credit, t2 | -0.203 | |||||
| (0.349) | ||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes Yes | Yes | Yes |
| adj_R-squared | 0.083 | 0.109 | 0.126 | 0.096 0.237 | 0.140 | 0.197 |
| N | 277 | 203 | 248 | 220 83 | 186 | 113 |
The Effect of the General Macroenvironment on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | |
|---|---|---|---|---|---|---|
| Log of inflation, t1 | -0.046~ | |||||
| (0.036) | ||||||
| Log of inflation, t2 | 0.050 | |||||
| (0.038) | ||||||
| REER trend deviation, t1 | -0.065** | |||||
| (0.025) | ||||||
| Δ REER trend deviation, t2 | -0.046** | |||||
| (0.019) | ||||||
| Domestic Saving, t1 | 0.353~ | |||||
| (0.222) | ||||||
| Investment, t1 | 0.034 | |||||
| (0.505) | ||||||
| Δ Domestic Saving, t2 | 1.324*** | |||||
| (0.426) | ||||||
| Δ Investment, t2 | 1.124* | |||||
| (0.709) | ||||||
| Trade openness, t1 | 0.032 | |||||
| (0.091) | ||||||
| Δ Trade openness, t2 | 0.127 | |||||
| (0.219) | ||||||
| Financial openness, t1 | -0.002 | |||||
| (0.011) | ||||||
| Δ Financial openness, t2 | -0.009 | |||||
| (0.011) | ||||||
| Private investment, t1 | -0.012 | |||||
| (0.569) | ||||||
| Δ Private investment, t2 | 1.202~ | |||||
| (0.792) | ||||||
| Private credit, t1 | -0.021 | |||||
| (0.154) | ||||||
| Δ Private credit, t2 | -0.203 | |||||
| (0.349) | ||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes Yes | Yes | Yes |
| adj_R-squared | 0.083 | 0.109 | 0.126 | 0.096 0.237 | 0.140 | 0.197 |
| N | 277 | 203 | 248 | 220 83 | 186 | 113 |
Structure of Production
37. The analysis unambiguously shows that the structure of production and its evolution over time are important predictors of sustained growth episodes.
An increasing share of manufacturing in GDP and more diversified exports predict more sustained growth. Both the initial share of manufacturing in GDP and its change over time are significant predictors of a sustained growth spell. While the share of manufacturing in exports does not come out significant, diversification of exports does.
Countries that manage to sustain their growth spells, do so through both capital accumulation and TFP growth (Table 4). While initially higher rates of TFP growth and capital accumulation do not predict longer growth spell duration and initial TFP growth even enters negatively, both variables are highly significant and positive in later years, with a particularly strong role of capital accumulation.17 The growing significance of capital accumulation in years 5 to 9 confirms the findings from section B and suggests that capital accumulation, at least in the medium-term and particularly when driven by the private sector, plays a key role in sustaining growth.
Greater initial FDI inflows also predict sustained growth, while neither ICT imports nor patents per capita are significant. This may reflect the stage of development of most of the countries in the sample, who are, at the time of observation, still far from the innovation frontier, and thus better positioned to adopt existing technologies, including through FDI.
The Effect of Production Structure on the Probability of a Sustained Growth Spell
The Effect of Production Structure on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | |
|---|---|---|---|---|---|---|---|
| 0.001 | |||||||
| Manufactured exports, t1 | (0.001) | ||||||
| 0.002 | |||||||
| Δ Manufactured exports, t2 | (0.003) | ||||||
| Export diversification, t1 | 0.584** | ||||||
| (0.234) | |||||||
| A Export diversification, t2 | 0.332 | ||||||
| (0.795) | |||||||
| TFP growth, t1 | -0.025* | ||||||
| (0.015) | |||||||
| Capital growth, t1 | -0.047 | ||||||
| (0.042) | |||||||
| TFP growth, t2 | 0.095*** | ||||||
| (0.016) | |||||||
| Capital growth, t2 | 0.160*** | ||||||
| (0.045) | |||||||
| Manufacturing VA, t1 | 0.009* | ||||||
| (0.005) | |||||||
| Δ Manufacturing VA, t2 | 0.050*** | ||||||
| (0.013) | |||||||
| FDI, t1 | 1.347* | ||||||
| (0.701) | |||||||
| Δ FDI, t2 | 0.595 | ||||||
| (0.751) | |||||||
| ICT imports, t1 | -0.052 | ||||||
| (0.538) | |||||||
| Δ ICT imports, t2 | 0.863 | ||||||
| (1.997) | |||||||
| Patents per capita, t1 | 0.130 | ||||||
| (0.094) | |||||||
| A Patents per capita, t2 | -0.009 | ||||||
| (0.144) | |||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.119 | 0.102 | 0.280 | 0.132 | 0.124 | 0.192 | 0.117 |
| N | 245 | 251 | 237 | 223 | 174 | 85 | 132 |
The Effect of Production Structure on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | |
|---|---|---|---|---|---|---|---|
| 0.001 | |||||||
| Manufactured exports, t1 | (0.001) | ||||||
| 0.002 | |||||||
| Δ Manufactured exports, t2 | (0.003) | ||||||
| Export diversification, t1 | 0.584** | ||||||
| (0.234) | |||||||
| A Export diversification, t2 | 0.332 | ||||||
| (0.795) | |||||||
| TFP growth, t1 | -0.025* | ||||||
| (0.015) | |||||||
| Capital growth, t1 | -0.047 | ||||||
| (0.042) | |||||||
| TFP growth, t2 | 0.095*** | ||||||
| (0.016) | |||||||
| Capital growth, t2 | 0.160*** | ||||||
| (0.045) | |||||||
| Manufacturing VA, t1 | 0.009* | ||||||
| (0.005) | |||||||
| Δ Manufacturing VA, t2 | 0.050*** | ||||||
| (0.013) | |||||||
| FDI, t1 | 1.347* | ||||||
| (0.701) | |||||||
| Δ FDI, t2 | 0.595 | ||||||
| (0.751) | |||||||
| ICT imports, t1 | -0.052 | ||||||
| (0.538) | |||||||
| Δ ICT imports, t2 | 0.863 | ||||||
| (1.997) | |||||||
| Patents per capita, t1 | 0.130 | ||||||
| (0.094) | |||||||
| A Patents per capita, t2 | -0.009 | ||||||
| (0.144) | |||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.119 | 0.102 | 0.280 | 0.132 | 0.124 | 0.192 | 0.117 |
| N | 245 | 251 | 237 | 223 | 174 | 85 | 132 |
Business Environment and Infrastructure
38. Of the limited indicators available to measure infrastructure, an increase in fixed telephone lines per capita is the only significant predictor of sustained growth (Table 5). To the extent that telephone subscriptions are a good proxy for infrastructure development, this suggests that sustained growth spells are associated with improving infrastructure.18 The percent of the population with electricity access, on the other hand, does not enter significantly. The insignificance of overall electricity access should, however, not be taken to mean that energy infrastructure, particularly for the industrial sector, does not matter for sustaining growth.
The Effect of Infrastructure and Business Environment on the Probability of a Sustained Growth Spell
The Effect of Infrastructure and Business Environment on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | |
| Electricity access, t1 | -0.001 | |||
| (0.002) | ||||
| Δ Electricity access, t2 | -0.007 | |||
| (0.012) | ||||
| Fixed telephone lines, t1 | -0.003 | |||
| (0.003) | ||||
| Δ Fixed telephone lines, t2 | 0.016** | |||
| (0.007) | ||||
| Polity2 score, t1 | 0.001 | |||
| (0.005) | ||||
| Δ Policy2 score, t2 | 0.003 | |||
| (0.014) | ||||
| WGI, t1 | -0.066 | |||
| (0.077) | ||||
| Δ WGI, t2 | 0.298 | |||
| (0.255) | ||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.082 | 0.104 | 0.129 | 0.083 |
| N | 136 | 272 | 243 | 126 |
The Effect of Infrastructure and Business Environment on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | |
| Electricity access, t1 | -0.001 | |||
| (0.002) | ||||
| Δ Electricity access, t2 | -0.007 | |||
| (0.012) | ||||
| Fixed telephone lines, t1 | -0.003 | |||
| (0.003) | ||||
| Δ Fixed telephone lines, t2 | 0.016** | |||
| (0.007) | ||||
| Polity2 score, t1 | 0.001 | |||
| (0.005) | ||||
| Δ Policy2 score, t2 | 0.003 | |||
| (0.014) | ||||
| WGI, t1 | -0.066 | |||
| (0.077) | ||||
| Δ WGI, t2 | 0.298 | |||
| (0.255) | ||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.082 | 0.104 | 0.129 | 0.083 |
| N | 136 | 272 | 243 | 126 |
39. Two different measures of governance are insignificant, contrasting a large literature which suggests that economic governance matters for long-term growth. Both the polity2 index and the first principal component of the Worldwide Governance Indicators (WGI) fail to predict sustained growth, although changes in the WGI during years 5 to 9 enter with a positive coefficient.19 The insignificance of the polity2 index may be driven by its focus on political (as opposed to economic) governance, while the imprecisely estimated coefficient on the change in the WGI could be explained by the relatively low sample size and lack of variations (this data series is available only starting in 1996). By contrast, several recent works find an important association between economic governance and long-term growth (see Hammadi et al. 2019, IMF 2019, Berg et al. 2012).
Human Development and Inclusion
40. The analysis further reveals a critical role of health, education and economic inclusion in growth sustainability (Table 6).
High inequality hampers growth sustainability. The initial Gini index enters with a particularly strong negative coefficient, while the change is also negative but not significant, which may have to do with high persistence in this indicator. The ratio of female to male school enrollment enters with relatively large and positive but imprecisely estimated coefficients. Meanwhile, initially higher civil liberties (a measure of individual rights and freedom) positively predict sustained growth episodes (further improvements appear to go in the opposite direction, but carry poor significance).20
Lower infant mortality and improvements in basic education outcomes are strongly associated with sustained growth (see also SIP on spending efficiency). Both the initial level and subsequent change in infant mortality enter with the expected negative sign, while for literacy and primary school enrollment, changes over time seem to matter more than initial levels. The coefficient on changes in literacy over the growth spell is particularly strong, while neither secondary nor tertiary enrollment rates enter significantly. Given the initial low level of development of the average country in the sample, literacy and primary school completion likely proxy most effectively for the average skill level of the labor force, underlining the importance of human capital in sustaining growth.
Takeaways of the Econometric Exercise
41. Results from the econometric analysis further underscore the vital importance of structural transformation, human capital and social inclusion in achieving sustained growth. Compared to growth spells that lasted 5 to 9 years, spells that went on to year 10 and beyond were fueled by a rising share of manufacturing, greater export diversification, low inequality and improvements in health and education over time. These remain key challenges for Côte d’Ivoire.
The Effect of Human Capital and Social Inclusion on the Probability of a Sustained Growth Spell
The Effect of Human Capital and Social Inclusion on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
|---|---|---|---|---|---|---|---|---|
| Civil liberties, t1 | 0.046* | |||||||
| (0.024) | ||||||||
| Δ Civil liberties, t2 | -0.080~ | |||||||
| (0.054) | ||||||||
| Gini index, t1 | -0.015*** | |||||||
| (0.005) | ||||||||
| Δ Gini index, t2 | -0.024 | |||||||
| (0.018) | ||||||||
| Infant mortality, t1 | -0.003*** | |||||||
| (0.001) | ||||||||
| Δ Infant mortality, t2 | -0.014** | |||||||
| (0.006) | ||||||||
| Literacy, t1 | 0.206 | |||||||
| (0.219) | ||||||||
| Δ Literacy, t2 | 5.533*** | |||||||
| (1.854) | ||||||||
| Primary enrolment, t1 | 0.260 | |||||||
| (0.185) | ||||||||
| Δ Primary enrolment, t2 | 0.721* | |||||||
| (0.379) | ||||||||
| Secondary enrolment, t1 | 0.124 | |||||||
| (0.131) | ||||||||
| Δ Secondary enrolment, t2 | 0.026 | |||||||
| (0.512) | ||||||||
| Tertiary enrolment, t1 | -0.277 | |||||||
| (0.224) | ||||||||
| Δ Tertiary enrolment, t2 | 0.084 | |||||||
| (0.634) | ||||||||
| Female to male enrolment | 0.373 | |||||||
| ratio, t1 | (0.276) | |||||||
| A Female to male | 1.765 | |||||||
| enrolment ratio, t2 | (1.399) | |||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.110 | 0.160 | 0.096 | 0.142 | 0.118 | 0.115 | 0.118 | 0.104 |
| N | 232 | 151 | 278 | 143 | 223 | 206 | 188 | 196 |
The Effect of Human Capital and Social Inclusion on the Probability of a Sustained Growth Spell
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | |
|---|---|---|---|---|---|---|---|---|
| Civil liberties, t1 | 0.046* | |||||||
| (0.024) | ||||||||
| Δ Civil liberties, t2 | -0.080~ | |||||||
| (0.054) | ||||||||
| Gini index, t1 | -0.015*** | |||||||
| (0.005) | ||||||||
| Δ Gini index, t2 | -0.024 | |||||||
| (0.018) | ||||||||
| Infant mortality, t1 | -0.003*** | |||||||
| (0.001) | ||||||||
| Δ Infant mortality, t2 | -0.014** | |||||||
| (0.006) | ||||||||
| Literacy, t1 | 0.206 | |||||||
| (0.219) | ||||||||
| Δ Literacy, t2 | 5.533*** | |||||||
| (1.854) | ||||||||
| Primary enrolment, t1 | 0.260 | |||||||
| (0.185) | ||||||||
| Δ Primary enrolment, t2 | 0.721* | |||||||
| (0.379) | ||||||||
| Secondary enrolment, t1 | 0.124 | |||||||
| (0.131) | ||||||||
| Δ Secondary enrolment, t2 | 0.026 | |||||||
| (0.512) | ||||||||
| Tertiary enrolment, t1 | -0.277 | |||||||
| (0.224) | ||||||||
| Δ Tertiary enrolment, t2 | 0.084 | |||||||
| (0.634) | ||||||||
| Female to male enrolment | 0.373 | |||||||
| ratio, t1 | (0.276) | |||||||
| A Female to male | 1.765 | |||||||
| enrolment ratio, t2 | (1.399) | |||||||
| Controls for initial GDP and global growth | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| adj_R-squared | 0.110 | 0.160 | 0.096 | 0.142 | 0.118 | 0.115 | 0.118 | 0.104 |
| N | 232 | 151 | 278 | 143 | 223 | 206 | 188 | 196 |
42. Moreover, the analysis confirms the significant role that prudent fiscal policy and increasing involvement of the private sector play in prolonging growth spells. Sustained growth episodes were more likely to be accompanied by improving budget balances, falling debt ratios, and increasing private investment than non-sustained growth spells. As the descriptive analysis highlights, Côte d’Ivoire is well-positioned to emulate these trends, but must exercise strong fiscal discipline, while working to both increase domestic revenue mobilization and create a business environment conducive to private investment.
43. By contrast, global conditions cannot be relied upon to sustain long-term growth. While strong global growth can both kick-start and prolong the length of a growth spell temporarily, spells that start out during global booms are, ceteris paribus, less likely to last. Notwithstanding potential (temporary) tailwinds from global conditions, it is only through sound macroeconomic and structural policies that Côte d’Ivoire will be able to generate the right conditions for long and sustained growth.
D. Policy Implications
44. The new National Development Plan (NDP) 2021–25 is an opportunity to jumpstart structural reforms to reach emerging market status. Côte d’Ivoire needs to maintain sound macroeconomic policies, accelerate structural transformation, and make high-quality investments in human capital. In particular, the weak TFP performance most recently should be a wake-up call to reinforce the reform agenda momentum as the country emerges from the pandemic.
45. Following the necessary fiscal relaxation to fend off the health and economic effects of the COVID-19 pandemic, it will be essential to gradually consolidate the fiscal position. This will ensure public debt sustainability, avoid crowding out the private sector as the recovery takes hold and restore buffers to address future potential shocks. At the WAEMU level, it will also preserve regional external stability.
46. Meanwhile, stronger domestic revenue mobilization is key to create fiscal space for much-needed investments in public goods and services and enhancing inclusiveness. While additional room exists to improve revenue administration and widen the tax net by reducing informality, the authorities should also reform tax policy to level the playing field across businesses and encourage competitiveness. Stepping up efforts to collect tax revenue, including through the reduction of tax exemption, broadening of the tax base, and strengthening of tax administration, will be crucial to finance development projects outlined in the new national development plan 2021–25.
47. Further improving the business environment will help attract private investment and accelerate structural transformation. Côte d’Ivoire has made important progress on upgrading the business climate, but significant room for improvement remains. Specific areas to focus on include making it easier to trade across borders, obtain construction permits, fostering digitalization of public services and access electricity, as well as improving protection of minority investors. Moreover, given the central role of economic governance in creating a fair and conducive business climate, in which competition can flourish and resources are channeled into productive uses, reforms to strengthen governance should be accelerated.21 Moreover, fostering development of the financial sector and improving access to financial services for small and medium enterprises and low-income households will help finance much needed private investment, which is expected to be a key driver of growth under the NDP 2021–25. Policies to boost domestic savings will also be essential.
48. Vertical policies, geared towards specific sectors, can also be useful, provided they are targeted, transparent and minimize budgetary costs. Côte d’Ivoire’s focus on agrobusiness and transformation of cocoa and cashew aligns well with the country’s existing comparative advantages in the raw production of these commodities. However, the current approach to promoting these sectors relies too heavily on tax incentives, which should be reviewed regularly to ensure they are in line with best practices.22
49. Export diversification towards higher value-added products will be key and can only be achieved through greater competitiveness. Export diversification and a growing share of manufactured products in exports have been important components of sustained growth episodes. However, Côte d’Ivoire lags significantly behind on this front and recent efforts to accelerate the transformation of cocoa and cashew have failed to materialize in a pickup in the manufacturing sector, including because of strong global competition. Identifying the structural bottlenecks faced by businesses in these sectors and implementing a coherent strategy to alleviate them, while encouraging intra-industry competition, are critical tasks. Further diversification away from cocoa and cashew is also of high priority, while reduction of non-tariff trade barriers, including through the implementation of the African Continental Trade Agreement, would aid regional trade integration and expand export markets.
50. Côte d’Ivoire urgently needs to upgrade the human capital of its workforce, as it consistently falls short in measures of education and health outcomes.23 Without a concerted effort to fill these gaps as quickly as possible, human capital will be a major constraint to growth, as the labor force will lack the basic skills required to support the growth of high-value added industries. Rebalancing the spending mix towards primary education and exploiting the substantial room that exists on spending efficiency both in health and education are promising avenues in this regard. Higher, but above all, better spending on basic education and health will also help narrow social inequalities and boost the population’s resilience in the face of shocks such as the COVID-19 pandemic. The government’s social program (PSGouv) has been instrumental in the improvement of social indicators in recent years, and the authorities can build on this experience to continue implementing social policies necessary to increase human capital and promote inclusive growth.
References
Berg, A., Ostry, J. D., & Zettelmeyer, J. (2012). What makes growth sustained? Journal of Development Economics, 98(2), 149–166.
Cadot, O., Carrere, C., & Strauss-Kahn, V. (2011). Export diversification: what’s behind the hump?. Review of Economics and Statistics, 93 (2), 590–605.
Diao, X., McMillan, M., & Rodrik, D. (2019). The recent growth boom in developing economies: A structural-change perspective. In The Palgrave Handbook of Development Economics (pp. 281–334). Palgrave Macmillan, Cham.
Hausmann, R., Pritchett, L., & Rodrik, D. (2005). Growth accelerations. Journal of economic growth, 70 (4), 303–329.
Hammadi, A., Mills, M., Sobrinho, N., Thakoor, V., Velloso, R. (2019), “A Governance Dividend for Sub-Saharan Africa?”, IMF Working Paper No. 19/1.
Helpman, E. (2009). The mystery of economic growth. Harvard University Press.
Rodrik, D. (2008). The real exchange rate and economic growth. Brookings papers on economic activity, 2008(2), 365–412.
International Monetary Fund (IMF) (2017). Regional Economic Outlook. Washington, May.
International Monetary Fund (IMF) (2019). Fiscal Monitor. Washington, April.
International Monetary Fund (IMF) (2015). Options for LIC Effective and Efficient Use of Tax Incentives for Investment. IMF Policy Paper. Washington, October.
Krugman, P. (1994). The myth of Asia’s miracle. Foreign affairs, 62–78.
World Bank (2019). Doing Business 2020: Comparing Business Regulation in 790 Economies-Economy Profile of Côte d’Ivoire. Doing Business 2020. Washington, D.C. : World Bank Group.
Annex I. Growth Episodes Used in the Benchmarking Exercise
Group 7 is “high growth”, group 2 is “lowgrowth”
| Group | Country | Start Year | End Year | Duration | Mean Annual Growth PC |
|---|---|---|---|---|---|
| 1 | Armenia | 1994 | 2008 | 15 | 9.8 |
| 1 | Tonga | 1977 | 1987 | 11 | 9.6 |
| 1 | Botswana | 1966 | 1991 | 26 | 8.8 |
| 1 | Georgia | 1995 | 2008 | 14 | 8.5 |
| 1 | Ethiopia | 2004 | 2018 | 15 | 8.4 |
| 1 | China | 1977 | 2018 | 42 | 8.3 |
| 1 | Myanmar | 1999 | 2018 | 20 | 8.2 |
| 1 | Korea | 1963 | 1979 | 17 | 7.7 |
| 1 | Singapore | 1965 | 1984 | 20 | 7.6 |
| 1 | Grenada | 1964 | 1980 | 17 | 6.4 |
| 1 | Brazil | 1971 | 1980 | 10 | 6.2 |
| 1 | Sierra Leone | 2000 | 2014 | 15 | 5.9 |
| 1 | Bulgaria | 1951 | 1988 | 38 | 5.8 |
| 1 | Cambodia | 1991 | 2008 | 18 | 5.4 |
| 1 | St. Lucia | 1969 | 1979 | 11 | 5.3 |
| 1 | Rwanda | 2004 | 2018 | 15 | 5.3 |
| 1 | Bhutan | 1976 | 2018 | 43 | 5.2 |
| 1 | Cabo Verde | 1992 | 2008 | 17 | 5.2 |
| 1 | India | 1992 | 2018 | 27 | 5.2 |
| 1 | Indonesia | 1968 | 1997 | 30 | 5.1 |
| 1 | Vietnam | 1981 | 2018 | 38 | 5.1 |
| 1 | Thailand | 1958 | 1996 | 39 | 5.1 |
| 1 | Paraguay | 1969 | 1981 | 13 | 4.9 |
| 1 | Lao P.D.R. | 1989 | 2018 | 30 | 4.9 |
| 1 | Tajikistan | 1997 | 2018 | 22 | 4.8 |
| 1 | Uzbekistan | 1997 | 2018 | 22 | 4.8 |
| 1 | Malaysia | 1963 | 1974 | 12 | 4.4 |
| 2 | Panama | 1959 | 1973 | 15 | 4.3 |
| 2 | Mozambique | 2001 | 2018 | 18 | 4.1 |
| 2 | Ghana | 2001 | 2014 | 14 | 4.1 |
| 2 | Bangladesh | 1989 | 2018 | 30 | 4.0 |
| 2 | Liberia | 2004 | 2013 | 10 | 4.0 |
| 2 | Grenada | 1982 | 1991 | 10 | 3.9 |
| 2 | Turkey | 1962 | 1978 | 17 | 3.9 |
| 2 | Uganda | 1992 | 2011 | 20 | 3.7 |
| 2 | Guyana | 2006 | 2018 | 13 | 3.7 |
| 2 | Zambia | 1999 | 2014 | 16 | 3.7 |
| 2 | Nepal | 2003 | 2015 | 13 | 3.6 |
| 2 | Sri Lanka | 1972 | 1991 | 20 | 3.6 |
| 2 | St. Vincent and the Grenadines | 1964 | 1986 | 23 | 3.5 |
| 2 | India | 1980 | 1990 | 11 | 3.3 |
| 2 | Pakistan | 1978 | 1992 | 15 | 3.3 |
| 2 | Lesotho | 1996 | 2016 | 21 | 3.3 |
| 2 | Tanzania | 1997 | 2018 | 22 | 3.3 |
| 2 | Kosovo | 2005 | 2018 | 14 | 3.2 |
| 2 | Eswatini | 1964 | 1974 | 11 | 3.0 |
| 2 | Togo | 2008 | 2018 | 11 | 2.9 |
| 2 | Kenya | 2009 | 2018 | 10 | 2.8 |
| 2 | Nepal | 1988 | 2001 | 14 | 2.8 |
| 2 | Philippines | 1965 | 1981 | 17 | 2.6 |
| 2 | Lao P.D.R. | 1966 | 1976 | 11 | 2.6 |
| 2 | Ghana | 1984 | 1999 | 16 | 2.5 |
| Group | Country | Start Year | End Year | Duration | Mean Annual Growth PC |
|---|---|---|---|---|---|
| 1 | Armenia | 1994 | 2008 | 15 | 9.8 |
| 1 | Tonga | 1977 | 1987 | 11 | 9.6 |
| 1 | Botswana | 1966 | 1991 | 26 | 8.8 |
| 1 | Georgia | 1995 | 2008 | 14 | 8.5 |
| 1 | Ethiopia | 2004 | 2018 | 15 | 8.4 |
| 1 | China | 1977 | 2018 | 42 | 8.3 |
| 1 | Myanmar | 1999 | 2018 | 20 | 8.2 |
| 1 | Korea | 1963 | 1979 | 17 | 7.7 |
| 1 | Singapore | 1965 | 1984 | 20 | 7.6 |
| 1 | Grenada | 1964 | 1980 | 17 | 6.4 |
| 1 | Brazil | 1971 | 1980 | 10 | 6.2 |
| 1 | Sierra Leone | 2000 | 2014 | 15 | 5.9 |
| 1 | Bulgaria | 1951 | 1988 | 38 | 5.8 |
| 1 | Cambodia | 1991 | 2008 | 18 | 5.4 |
| 1 | St. Lucia | 1969 | 1979 | 11 | 5.3 |
| 1 | Rwanda | 2004 | 2018 | 15 | 5.3 |
| 1 | Bhutan | 1976 | 2018 | 43 | 5.2 |
| 1 | Cabo Verde | 1992 | 2008 | 17 | 5.2 |
| 1 | India | 1992 | 2018 | 27 | 5.2 |
| 1 | Indonesia | 1968 | 1997 | 30 | 5.1 |
| 1 | Vietnam | 1981 | 2018 | 38 | 5.1 |
| 1 | Thailand | 1958 | 1996 | 39 | 5.1 |
| 1 | Paraguay | 1969 | 1981 | 13 | 4.9 |
| 1 | Lao P.D.R. | 1989 | 2018 | 30 | 4.9 |
| 1 | Tajikistan | 1997 | 2018 | 22 | 4.8 |
| 1 | Uzbekistan | 1997 | 2018 | 22 | 4.8 |
| 1 | Malaysia | 1963 | 1974 | 12 | 4.4 |
| 2 | Panama | 1959 | 1973 | 15 | 4.3 |
| 2 | Mozambique | 2001 | 2018 | 18 | 4.1 |
| 2 | Ghana | 2001 | 2014 | 14 | 4.1 |
| 2 | Bangladesh | 1989 | 2018 | 30 | 4.0 |
| 2 | Liberia | 2004 | 2013 | 10 | 4.0 |
| 2 | Grenada | 1982 | 1991 | 10 | 3.9 |
| 2 | Turkey | 1962 | 1978 | 17 | 3.9 |
| 2 | Uganda | 1992 | 2011 | 20 | 3.7 |
| 2 | Guyana | 2006 | 2018 | 13 | 3.7 |
| 2 | Zambia | 1999 | 2014 | 16 | 3.7 |
| 2 | Nepal | 2003 | 2015 | 13 | 3.6 |
| 2 | Sri Lanka | 1972 | 1991 | 20 | 3.6 |
| 2 | St. Vincent and the Grenadines | 1964 | 1986 | 23 | 3.5 |
| 2 | India | 1980 | 1990 | 11 | 3.3 |
| 2 | Pakistan | 1978 | 1992 | 15 | 3.3 |
| 2 | Lesotho | 1996 | 2016 | 21 | 3.3 |
| 2 | Tanzania | 1997 | 2018 | 22 | 3.3 |
| 2 | Kosovo | 2005 | 2018 | 14 | 3.2 |
| 2 | Eswatini | 1964 | 1974 | 11 | 3.0 |
| 2 | Togo | 2008 | 2018 | 11 | 2.9 |
| 2 | Kenya | 2009 | 2018 | 10 | 2.8 |
| 2 | Nepal | 1988 | 2001 | 14 | 2.8 |
| 2 | Philippines | 1965 | 1981 | 17 | 2.6 |
| 2 | Lao P.D.R. | 1966 | 1976 | 11 | 2.6 |
| 2 | Ghana | 1984 | 1999 | 16 | 2.5 |
Annex II. Variables Used in the Benchmarking and Econometric Analyses
| Variable | Definition | Source |
|---|---|---|
| GDP per capita | Real GDP per capita, constant national currency or USD | WEO; WDI; Maddison Project |
| Real capital growth | Real growth of gross capital formation (in percent), percent | WEO; staff estimates |
| Real TFP growth | Residual from decomposition of real GDP growth into physical capital, human capital, working-age population, using a standard constant-returns-to-scale Cobb-Douglas production function (in percent), percent | WEO; staff estimates |
| Real Public Investment growth | Real growth of public gross fixed capital formation, percent | WEO; staff estimates |
| Real Private Investment growth | Real growth of private gross fixed capital formation, percent | WEO; staff estimates |
| Investment | Nominal investment, percent of GDP | PWT |
| Public Investment | Public gross fixed capital formation, percent of GDP | WEO |
| Private Investment | Private gross fixed capital formation, percent of GDP | WEO |
| Fiscal Balance | General government net lending/borrowing, percent of fiscal year GDP | WEO |
| Government Revenue | General government revenue, percent of fiscal year GDP | WEO |
| Government Gross Debt | General government gross debt, percent of fiscal year GDP | WEO |
| External Debt | Total external debt, percent of GDP | WEO |
| Debt Service | Total debt service paid in percent of GDP | WEO |
| Domestic Savings | Gross domestic savings, percent of GDP | WDI |
| Public Saving | Gross public national savings, percent of GDP | WEO Public |
| Consumption | Public consumption expenditure, percent of GDP | WEO |
| Current Account Balance | Balance of Payments, Current Account, Total, Net (BPM6), percent of GDP | WEO |
| CPI Inflation | Consumer Prices, period average, percent change | WEO |
| HP-filtered REER | Deviation of real effective exchange rate (based on CPI) from standard HP-filtered trend, percent | Information Notice System, staff estimates |
| Trade Openness | Sum of exports and imports, percent of GDP | WEO |
| Financial Openness | Sum of global financial assets and liabilities, percent of GDP | WEO |
| Private Credit | Credit to the Private Sector, percent of GDP | IFS |
| ICT imports | Information and communication technology goods imports (percent of total goods imports) | WDI |
| Patents per capita | Sum of patent applications by residents and nonresidents (per 1000 people) | WDI, WEO |
| Electricity access | Percentage of population with access to electricity | WDI |
| Fixed telephone lines | Fixed telephone subscriptions (per 100 people) | WDI |
| Polity2 | Quality of executive recruitment, constraints on executive authority and political competition, measured on a scale of -10 to +10, where -10 represents the lowest extreme (i.e. hereditary monarchy) and +10 the highest extreme (i.e. consolidated democracy). | Polity IV Project – Center for Systemic Peace |
| WGI (Worldwide Governance Indicators) | Standardized first principal component of scores on six dimensions of governance (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, Control of Corruption) | The Worldwide Governance Indicators (WGI) project, by the Natural Resource Governance Institute, Brooking Institute, and World Bank |
| Civil liberties | The sum of scores on fifteen civil liberties indicators (scale of 1–60) | Freedom House |
| Value-added of Agriculture | Agriculture, value added, percent of GDP | WDI |
| Value-added of Manufacturing | Manufacturing, value added, percent of GDP | WDI; staff estimates |
| Value-added of Industry | Industry, value added, percent of GDP | WDI |
| Value-added of Services | Services, value added, percent of GDP | WDI |
| Share of Manufactures in Exports | Manufactures exports (percent of merchandise exports) | WDI Export |
| Diversification (descriptive) | Inverse of a Herfindahl-Hirschman Index of export concentration using SITC rev. 2, 4-digit product codes, (0–1) | Atlas of Economic Complexity, staff estimates Export |
| Diversification (regressions) | Inverse of Export Diversification Index, which reflects the sum of intensive- and extensive-margin Theil indices | IMF; Cadot et al. (2011) |
| Foreign Direct Investment | Balance of Payments, Net Direct Investment, (BPM6), percent of GDP | WEO |
| GINI index | Area between the Lorenz curve and a hypothetical line of absolute equality, percent | WDI |
| Gender Parity Education Index | Ratio of girls to boys enrolled at primary and secondary levels in public and private schools (0–1) | WDI |
| Literacy Rate | Percentage of people ages 15 and above who can both read and write | WDI Gross Primary School |
| Enrollment | Ratio of total primary school enrollment, regardless of age, to the population of relevant age (percent) | WDI Gross Secondary School |
| Enrollment | Ratio of total secondary school enrollment, regardless of age, to the population of relevant age (percent) | WDI Gross Tertiary School |
| Enrollment | Ratio of total tertiary school enrollment, regardless of age, to the population of relevant age (percent) | WDI |
| Infant Mortality Rate | Number of infants dying before reaching one year of age, per 1,000 live births | WDI |
| Life Expectancy | Life expectancy at birth, total (years) | WDI |
| Terms of Trade | Terms of trade in goods, percent change | WEO |
| US interest rate | US Effective Federal Funds Rate, percent | FRED |
| Global real growth | Global real GDP growth, percent | WEO |
| Variable | Definition | Source |
|---|---|---|
| GDP per capita | Real GDP per capita, constant national currency or USD | WEO; WDI; Maddison Project |
| Real capital growth | Real growth of gross capital formation (in percent), percent | WEO; staff estimates |
| Real TFP growth | Residual from decomposition of real GDP growth into physical capital, human capital, working-age population, using a standard constant-returns-to-scale Cobb-Douglas production function (in percent), percent | WEO; staff estimates |
| Real Public Investment growth | Real growth of public gross fixed capital formation, percent | WEO; staff estimates |
| Real Private Investment growth | Real growth of private gross fixed capital formation, percent | WEO; staff estimates |
| Investment | Nominal investment, percent of GDP | PWT |
| Public Investment | Public gross fixed capital formation, percent of GDP | WEO |
| Private Investment | Private gross fixed capital formation, percent of GDP | WEO |
| Fiscal Balance | General government net lending/borrowing, percent of fiscal year GDP | WEO |
| Government Revenue | General government revenue, percent of fiscal year GDP | WEO |
| Government Gross Debt | General government gross debt, percent of fiscal year GDP | WEO |
| External Debt | Total external debt, percent of GDP | WEO |
| Debt Service | Total debt service paid in percent of GDP | WEO |
| Domestic Savings | Gross domestic savings, percent of GDP | WDI |
| Public Saving | Gross public national savings, percent of GDP | WEO Public |
| Consumption | Public consumption expenditure, percent of GDP | WEO |
| Current Account Balance | Balance of Payments, Current Account, Total, Net (BPM6), percent of GDP | WEO |
| CPI Inflation | Consumer Prices, period average, percent change | WEO |
| HP-filtered REER | Deviation of real effective exchange rate (based on CPI) from standard HP-filtered trend, percent | Information Notice System, staff estimates |
| Trade Openness | Sum of exports and imports, percent of GDP | WEO |
| Financial Openness | Sum of global financial assets and liabilities, percent of GDP | WEO |
| Private Credit | Credit to the Private Sector, percent of GDP | IFS |
| ICT imports | Information and communication technology goods imports (percent of total goods imports) | WDI |
| Patents per capita | Sum of patent applications by residents and nonresidents (per 1000 people) | WDI, WEO |
| Electricity access | Percentage of population with access to electricity | WDI |
| Fixed telephone lines | Fixed telephone subscriptions (per 100 people) | WDI |
| Polity2 | Quality of executive recruitment, constraints on executive authority and political competition, measured on a scale of -10 to +10, where -10 represents the lowest extreme (i.e. hereditary monarchy) and +10 the highest extreme (i.e. consolidated democracy). | Polity IV Project – Center for Systemic Peace |
| WGI (Worldwide Governance Indicators) | Standardized first principal component of scores on six dimensions of governance (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, Control of Corruption) | The Worldwide Governance Indicators (WGI) project, by the Natural Resource Governance Institute, Brooking Institute, and World Bank |
| Civil liberties | The sum of scores on fifteen civil liberties indicators (scale of 1–60) | Freedom House |
| Value-added of Agriculture | Agriculture, value added, percent of GDP | WDI |
| Value-added of Manufacturing | Manufacturing, value added, percent of GDP | WDI; staff estimates |
| Value-added of Industry | Industry, value added, percent of GDP | WDI |
| Value-added of Services | Services, value added, percent of GDP | WDI |
| Share of Manufactures in Exports | Manufactures exports (percent of merchandise exports) | WDI Export |
| Diversification (descriptive) | Inverse of a Herfindahl-Hirschman Index of export concentration using SITC rev. 2, 4-digit product codes, (0–1) | Atlas of Economic Complexity, staff estimates Export |
| Diversification (regressions) | Inverse of Export Diversification Index, which reflects the sum of intensive- and extensive-margin Theil indices | IMF; Cadot et al. (2011) |
| Foreign Direct Investment | Balance of Payments, Net Direct Investment, (BPM6), percent of GDP | WEO |
| GINI index | Area between the Lorenz curve and a hypothetical line of absolute equality, percent | WDI |
| Gender Parity Education Index | Ratio of girls to boys enrolled at primary and secondary levels in public and private schools (0–1) | WDI |
| Literacy Rate | Percentage of people ages 15 and above who can both read and write | WDI Gross Primary School |
| Enrollment | Ratio of total primary school enrollment, regardless of age, to the population of relevant age (percent) | WDI Gross Secondary School |
| Enrollment | Ratio of total secondary school enrollment, regardless of age, to the population of relevant age (percent) | WDI Gross Tertiary School |
| Enrollment | Ratio of total tertiary school enrollment, regardless of age, to the population of relevant age (percent) | WDI |
| Infant Mortality Rate | Number of infants dying before reaching one year of age, per 1,000 live births | WDI |
| Life Expectancy | Life expectancy at birth, total (years) | WDI |
| Terms of Trade | Terms of trade in goods, percent change | WEO |
| US interest rate | US Effective Federal Funds Rate, percent | FRED |
| Global real growth | Global real GDP growth, percent | WEO |
Prepared by Rasmane Ouedraogo (AFR) and Genet Zinabou (FAD) with excellent research assistance from Jiakun Li (IEO) and Céline Bteish (AFR).
Côte d’Ivoire (2016), “Economic Development Documents—National Development Plan, 2016-20”. International Monetary Fund, Washington, D.C.
Due to data availability at the time of writing, 2011-2015 growth numbers are calculated using INS GDP data with base year 1996, whereas 2016-2019 are calculated using INS GDP data in base year 2015.
$3,996 was the 2018 maximum threshold of GNI for being classified as a lower-middle income economy according to the
For Côte d’Ivoire, 2019 or the latest year available is used.
Note that the ``later” average for each of the comparator groups is not directly comparable to the average during the first 7 years, as after year 10, the relative weights of the countries begin to change depending on the final length of the country’s growth spell. Moreover, for some indicators there are missing data in certain years and for certain countries, such that in practice, the weight of each country in “all subsequent years” depends both on the length of its growth spell and its data coverage.
A possible explanation is that the economies which we are capturing in our algorithm remain, even after 10 years of continuous growth, in a relatively early part of their development path, where returns to capital are still high.
The contributions to growth are calculated using a growth accounting framework that assumes a standard constant-returns-to-scale Cobb-Douglas production function, and perfect competition (Solow, 1957). Using this framework, growth is decomposed into growth from physical capital, human capital, working-age population, and TFP (which is the residual).
To limit the influence of outliers, comparator debt service is calculated as the median of the average of each spell during the first seven years and the median of all observations in remaining years.
To limit the influence of outliers, comparator inflation is calculated as the median of the average of each spell during the first seven years and the median of all observations in remaining years. To measure the position of the real exchange rate, we run an HP filter on the long-term trend of each country’s real effective exchange rate and recover deviations from the trend. Ghana’s growth spell from 1984 to 1999 is excluded from the sample due to the unusually high negative deviation from trend in the early years of this spell.
Given that rebased GDP data is only available since 2015, the accompanying figure only shows 2015–18. However, analysis of backward spliced data using historical sectoral growth rates calculated under old, non-rebased GDP confirms limited growth of the industrial sector and, in particular, the manufacturing sector.
We follow the existing literature in defining 5 years of consecutive growth as the minimum criteria of a growth spell (see e.g., Hausman et al. (2005)).
Defining the sample this way yields 285 growth spells (excluding Côte d’Ivoire’s since 2012) of which 118 last 10 years or longer. The median duration of growth spells is 9 years. 49 growth spells that are ongoing in 2018 but have lasted less than 10 years so far are dropped as it is impossible to know whether they will continue. We also drop 51 growth spells for which we do not have comparable early year GDP per capita (i.e. measured in constant US dollars), which we require as a control.
We conducted two robustness tests that varied the cutoff duration for a sustained growth spell, using 8 years and 12 years instead. Results are mostly stable with some differences in statistical significance of results. Notable differences are: private investment growth comes out as more strongly predictive of sustained growth spells when either the 8- or 12-year cutoff is used, external and overall debt ratios are no longer significant under the 12-year cutoff, and the coefficient on changes in FDI over time flips to negative significance under the 8-year cutoff.
See SIP “Potential for Productive Public Spending Efficiency Gains to Support Inclusive Growth”.
Although private investment does not enter significantly in the main specification, it enters with a large positive coefficient and is significant in robustness tests that use 8 and 12 years as the cut-off for defining sustained growth spells.
The negative sign on initial TFP growth could reflect business cycle dynamics or unsustainable catch-up growth. In the case of Côte d’Ivoire, one possible reason underpinning the high observed TFP growth in the initial years of the growth spell is a catch-up effect following the 2002-2011 civil war. As these tailwinds subside, more sustainable drivers of TFP growth will need to be identified to continue the country’s growth spell.
While nowadays, fixed telephone lines are less important than mobile phones, many of the growth spells we study began during a time when fixed telephones were still the dominant form of communication. A measure of the number of mobile telephone subscriptions per capita was insignificant.
The polity2 score measures the quality of executive recruitment, constraints on executive authority and political competition on a scale of -10 to +10, where -10 represents the lowest extreme (i.e. hereditary monarchy) and +10 the highest extreme (i.e. consolidated democracy). Meanwhile, the Worldwide Governance Indicators score countries on six dimensions of governance (Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, Control of Corruption); we construct the first principal component of these six dimensions, with higher levels of the resulting index representing stronger governance.
This result may appear at odds with the insignificance of the polity2 and WGI indices in Table 5. While there is some overlap of concepts these indices aim to measure, civil liberties is the least focused on economic governance.
See SIP on “The Governance Framework: Current State and the Way Forward”
“Good” tax incentives are generally (i) targeted towards exporting firms; (ii) not limited to large investments; (iii) temporary; and (iv) cost-based rather than profit-based (IMF, 2015).
See also SIP on “Potential for Productive Public Spending Efficiency Gains to Support Inclusive Growth”.
