Africa’s Troubles and Promise

Africa south of the Sahara is home to about 780 million people, more than 2 1/2 times the population of the United States. On average, they are very poor, nowhere close to U.S. living standards 100 or even 200 years ago. And economic progress has been both slow and uneven, as the example of Nigeria, the most populous nation in the region, suggests. In fact, real GDP per capita in sub-Saharan Africa actually fell 13% from 1980 to 1994, although it has recovered since then. The consequence of this poor growth performance has been intense and continuing poverty.

This is a very disheartening story. What explains it?

Several factors are probably crucial. Perhaps first and foremost is the problem of political instability. In the years since 1975, large parts of Africa have experienced savage civil wars (often with outside powers backing rival sides) that have killed millions of people and made productive investment spending impossible. The threat of war and general anarchy has also inhibited other important preconditions for growth, such as education and provision of necessary infrastructure.

Property rights are also a major problem. The lack of legal safeguards means that property owners are often subject to extortion because of government corruption, making them averse to owning property or improving it. This is especially damaging in a country that is very poor.

While many economists see political instability and government corruption as the leading causes of underdevelopment in Africa, some—most notably Jeffrey Sachs of Columbia University and the United Nations—believe the opposite. They argue that Africa is politically unstable because Africa is poor. And Africa’s poverty, they go on to claim, stems from its extremely unfavorable geographic conditions—much of the continent is landlocked, hot, infested with tropical diseases, and cursed with poor soil.

Slow and uneven economic growth in sub-Saharan Africa has led to extreme and ongoing poverty for many of its people.

Sachs, along with economists from the World Health Organization, has highlighted the importance of health problems in Africa. In poor countries, worker productivity is often severely hampered by malnutrition and disease. In particular, tropical diseases such as malaria can only be controlled with an effective public health infrastructure, something that is lacking in much of Africa. At the time of writing, economists are studying certain regions of Africa to determine whether modest amounts of aid given directly to residents for the purposes of increasing crop yields, reducing malaria, and increasing school attendance can produce self-sustaining gains in living standards.

Although the example of African countries represents a warning that long-run economic growth cannot be taken for granted, there are some signs of hope. As we saw in Figure 9-8, Nigeria’s per capita GDP, after decades of stagnation, turned upward after 2000, and it has achieved an average annual growth rate of 4.3% from 2008 through 2013.

The same is true for sub-Saharan African economies as a whole. In 2013, real GDP per capita growth rates averaged around 5.1% across sub-Saharan African countries, and they are projected to be over 6% in 2014. Rising prices for their exports are part of the reason for recent success, but there is growing optimism among development experts that a period of relative peace and better government is ushering in a new era for Africa’s economies.

!worldview! ECONOMICS in Action: Are Economies Converging?

Are Economies Converging?

In the 1950s, much of Europe seemed quaint and backward to American visitors, and Japan seemed very poor. Today, a visitor to Paris or Tokyo sees a city that looks about as rich as New York. Although real GDP per capita is still somewhat higher in the United States, the differences in the standards of living among the United States, Europe, and Japan are relatively small.

Many economists have argued that this convergence in living standards is normal; the convergence hypothesis says that relatively poor countries should have higher rates of growth of real GDP per capita than relatively rich countries. And if we look at today’s relatively well-off countries, the convergence hypothesis seems to be true.

Panel (a) of Figure 9-9 shows data for a number of today’s wealthy economies measured in 1990 dollars. On the horizontal axis is real GDP per capita in 1955; on the vertical axis is the average annual growth rate of real GDP per capita from 1955 to 2013. There is a clear negative relationship as can be seen from the line fitted through the points. The United States was the richest country in this group in 1955 and had the slowest rate of growth. Japan and Spain were the poorest countries in 1955 and had the fastest rates of growth. These data suggest that the convergence hypothesis is true.

Do Economies Converge? Sources: Angus Maddison, Statistics on World Population, GDP, and Per Capita GDP, 1–2008AD, http://www.ggdc.net/maddison; The Conference Board Total Economy Database™, January 2014, http://www.conference-board.org/data/economydatabase.

But economists who looked at similar data realized that these results depend on the countries selected. If you look at successful economies that have a high standard of living today, you find that real GDP per capita has converged. But looking across the world as a whole, including countries that remain poor, there is little evidence of convergence.

Panel (b) of Figure 9-9 illustrates this point using data for regions rather than individual countries (other than the United States). In 1955, East Asia and Africa were both very poor regions. Over the next 58 years, the East Asian regional economy grew quickly, as the convergence hypothesis would have predicted, but the African regional economy grew very slowly. In 1955, Western Europe had substantially higher real GDP per capita than Latin America. But, contrary to the convergence hypothesis, the Western European regional economy grew more quickly over the next 58 years, widening the gap between the regions.

So is the convergence hypothesis all wrong? No: economists still believe that countries with relatively low real GDP per capita tend to have higher rates of growth than countries with relatively high real GDP per capita, other things equal. But other things—education, infrastructure, rule of law, and so on—are often not equal. Statistical studies find that when you adjust for differences in these other factors, poorer countries do tend to have higher growth rates. This result is known as conditional convergence.

Because other factors differ, however, there is no clear tendency toward convergence in the world economy as a whole. Western Europe, North America, and parts of Asia are becoming more similar in real GDP per capita, but the gap between these regions and the rest of the world is growing.

Quick Review

  • East Asia’s spectacular growth was generated by high savings and investment spending rates, emphasis on education, and adoption of technological advances from other countries.

  • Poor education, political instability, and irresponsible government policies are major factors in the slow growth of Latin America.

  • In sub-Saharan Africa, severe instability, war, and poor infrastructure—particularly affecting public health—resulted in a catastrophic failure of growth. But economic performance in recent years has been much better than in preceding years.

  • The convergence hypothesis seems to hold only when other things that affect economic growth—such as education, infrastructure, property rights, and so on—are held equal.

9-4

  1. Question 9.10

    Some economists think the high rates of growth of productivity achieved by many Asian economies cannot be sustained. Why might they be right? What would have to happen for them to be wrong?

  2. Question 9.11

    Consider Figure 9-9, panel (b). Based on the data there, which regions support the convergence hypothesis? Which do not? Explain.

  3. Question 9.12

    Some economists think the best way to help African countries is for wealthier countries to provide more funds for basic infrastructure. Others think this policy will have no long-run effect unless African countries have the financial and political means to maintain this infrastructure. What policies would you suggest?

Solutions appear at back of book.