Trade data and structural transformation in African countries

In March 2014, the African Center for Economic Transformation (ACET) officially launched the first African Transformation Report (ATR 2014) in Johannesburg, South Africa. This launch was followed by other launches in Europe and Africa and gave rise to a series of interesting debates on economic transformation in African countries. ATR 2014 underscores the importance of economic transformation, defined as growth accompanied by profound structural transformation of the economy or ‘growth with DEPTH’. That is, growth which is accompanied by diversification of production, enhanced exports competitiveness, increases in the productivity of farms, firms, and government offices, and upgrading of the technology used throughout the economy, all with the view to improve human well-being (ATR 2014). Given that trade (both imports and exports) is an important element of this ‘formula’, it is worth investigating the extent of its recent contribution to explaining structural transformation in African economies.

We use 1995-2010 disaggregated import and export data on the top 5 and top 10 categories of products traded by the group of ‘ACET 15’ countries[1]and try to assess the role of trade in structural transformation. More specifically, we develop an index measuring the intensity of each category of goods in major exports and imports and use it to test the following hypotheses:

(1) Can the type (capital goods versus other goods) of major imports predict structural transformation? 

(2) Can the type of exports (manufacturing or services versus primary commodities) predict structural transformation?

Our primary indicator of structural transformation is ACET’s African Transformation Index (see the 2014 African Transformation Report). We use the Arellano-Bond GMM estimator and control for a number of relevant variables, including institutional quality, conflict, regime change, human capital, openness to trade, financial development, inward foreign direct investment, and per-capita income. We discuss the policy implications of the empirical results and comment on the trade patterns of the countries that have made significant progress on structural transformation― mainly Mauritius and South Africa―versus countries that have been rather slow in transforming their economies, such as Burkina Faso, Burundi, and Nigeria.

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[1] ‘ACET 15’ countries are Botswana, Burkina Faso, Cameroun, Ethiopia, Ghana, Kenya, Mauritius, Mozambique, Nigeria, Rwanda, Senegal, South Africa, Tanzania, Uganda, and Zambia.

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