Misunderstanding Growth in Africa: how economists get it wrong – By Morten Jerven
For the past two decades, mainstream economists who study African economic growth have been trying to explain something that never happened. Economists have focused almost exclusively on one question: Why has economic growth failed in Africa?
This is not only an academic past time, the question has made its way into popular discourse too. Most famously, in 2000, the front page of The Economist depicted Africa as a hopeless continent that was unable to experience economic growth and development. In a special report on the continent, the magazine asked “Does Africa have some inherent character flaw that keeps it backward and incapable of development?”
Yet only ten years later, the same publication had a completely different front-page report about Africa as a hopeful continent that was on the rise. How could they have got it so wrong the first time?
In 2000, Johannesburg’s weekly business magazine Financial Mail pointed out that, in 1997, just three years earlier, The Economist had written that “sub-Saharan Africa is in better shape than it has been for a generation.” The Financial Mail asked: “Do the editors of The Economist have a character flaw that makes them incapable of consistent judgment?”
The Economist is just a popular news-reporting magazine, so one should perhaps not be too surprised that its judgment varies and turns with the current. In the year 2000, the editors were looking back at two decades of news stories from Africa that focused on famines, civil wars and failure.
However, from actual economists one would expect a judgment that relies on long-term patterns and history and stands the test of time. Yet, economists continue to get Africa wrong. How wrong – and why they keep getting economic growth in Africa wrong – is the topic of my book Africa: Why Economists Get It Wrong.
Since the 1990s, almost all economic studies of Africa had focused on explaining why there has been a “˜chronic failure of growth’ on that continent, and even as late as in 2007 Paul Collier identified the “˜bottom billion’, the population of the world that, according to Collier, live in countries that do not experience economic growth. He identified just under 60 countries that he called Africa+
In retrospect, what is so striking is that this statement was made just after a period of rapid economic growth since the mid-1990s in the very economies Collier was talking about. The majority of the economies that Collier described as chronic failures had been growing for more than a decade. Many countries grew before, after and even during the time when Collier was writing his book. So my question is: How could economists miss decades of growth?
The answer is flawed models and evidence. The fundamental error in the models is that they focused solely on explaining the average shortfall of growth in Africa. This meant that the recorded decline in the 1980s and stagnation in the 1990s completely overshadowed the gains made in the 1960s and 1970s.
Not only did this create an erroneous and overly pessimistic picture of economic performance in African economies, it also conveniently circumvented some of the difficult questions for the orthodox economic literature. How can we explain that so called “˜bad’ economic policies in the 1960s and 1970s coincided with good economic performance, whereas the introduction of “˜good’ economic policies and political governance in the 1980s and 1990s is correlated with economic stagnation and political turmoil? This economic analysis gave support to the liberal policy package enforced in the 1980s and 1990s, but the economic record shows that growth only returned when world economic conditions improved in the late 1990s.
Instead of embracing this contradictory pattern which would have entailed questioning some of the basic assumptions in the models and the validity of the evidence, the mainstream economic literature went ahead and accepted “˜chronic failure of growth’ as a stylized fact. In the second generation of the growth literature, the central research question was no longer, whether “˜bad’ policy was correlated with poor economic performance. The question was rather what kind of character flaw these countries had that caused them to persistently follow policies that were bad for growth.
This literature inspired the Economist editorial in 2000. Economists used a range of different datasets that should pick up some of Africa’s distinctness – was it high ethnic fragmentation, colonial legacies, the slave trade or incidence of malaria or other diseases? This work is not interested in explaining economic growth; they are interested in explaining the difference in income levels between nations today. Their focus is on finding root causes for why some countries have failed.
So rather than explaining why, for example, the economy of Tanzania grew each year by one percent from 1960 to 1990 while the economy of Japan grew at four percent, they instead look at variables that can explain the difference in GDP per capita between, say, $1,000 in Tanzania and $20,000 in Japan in the year 2000. They propose that the cause of the $19,000 difference is that Tanzania was exposed to colonial rule and inherited “˜bad’ institutions, whereas Japan was not exposed to the “˜wrong’ type of colonial rule and therefore economic prosperity has been assured by its “˜good’ institutions.
Meanwhile, for Tanzanians, the difference between $500 and $1,000 is more relevant, and the main target for Tanzanians should be how to get to $2,000 or otherwise experience a sustained and significant improvement in living standards. It is not only useless to discover that the difference between Tanzania and Japan can be explained with econometrics by referring to a variable that captures ethnic fragmentation, quality of governance or geographical location, it is also based on poor social science. In Africa: Why Economists Get It Wrong, I show how this poor scholarly practice has meant that the economic growth literature has misunderstood growth in Africa.
Morten Jerven is Associate Professor at the Simon Fraser University, School for International Studies. His book Poor Numbers: how we are misled by African development statistics and what to do about it is published by Cornell University Press.