Productivity Growth, Human Capital and Distance to Frontier in Sub-Saharan Africa

By Danquah, M.; Ouattara, B. | Journal of Economic Development, December 2014 | Go to article overview

Productivity Growth, Human Capital and Distance to Frontier in Sub-Saharan Africa


Danquah, M., Ouattara, B., Journal of Economic Development


1. INTRODUCTION

"Education is both the seed and the flower of economic development."

Harbison and Myers (1965, p xi)

There is a renewed emphasis on human capital or the educational attainment of the labour force as a significant factor to accelerate productivity and economic growth. It is widely accepted that nations cannot raise the quality of their citizens without substantial and consistent investment in human capital. Theoretical models of human capital and economic growth are built around the hypothesis that knowledge and skills embodied in humans directly raise productivity and increase an economy's ability to develop and to adopt new technologies. The earlier work by Nelson and Phelps (1966) argued that a more educated labour force would adopt new technologies faster, consequently closing the technological gap. This was given complementary theoretical support by the new endogenous growth theories (Romer, 1990a; Aghion and Howitt, 1992) who described the stock of human capital as the engine of growth through innovation. Romer (1990b) argues that the level of human capital may have an influence on the growth of productivity both directly and through the effect on the speed of adoption of the "catching- up" process.

Stemming from these foundations, Benhabib and Spiegel (1994, 2005), Barro and Sala-i-Martin (1997) and Barro (1991) demonstrate that the stock of human capital not only enhances the ability of a country to develop its own technological innovation, but also increases its capacity to adopt the already existed knowledge elsewhere and thereby facilitates growth. On the other hand, Lucas (1988) and Mankiw et al. (1992) argue that it is not the stock of human capital but rather the accumulation of human capital which is the main source of growth across countries.

Surprisingly, however, the empirical evidence on the role of human capital in explaining economic growth appears to be mixed.1 A number of empirical studies find negative or no correlation between economic growth and human capital (Benhabib and Spiegel, 1994; Islam, 1995); while other studies point to a positive and significant effect of human capital on growth (Mankiw et al., 1992; Caselli et al., 1996; Hoeffler, 2002). In the specific context of sub-Saharan Africa, Ndulu and O'Connell (2003) report that enrolment rates, educational attainment and human capital accumulation add relatively little to the explanation of cross country growth in these countries.

In this paper we analyse the effects of human capital in fostering productivity growth. Indeed, we empirically explore how human capital affects total factor productivity (TFP) growth, technical efficiency and technical change. The focus on productivity is motivated by its importance in explaining overall growth. To be sure, recent empirical literature on economic growth investigating the proximate causes of the enormous differences in per capita income across countries usually indicate that these differences in incomes are largely a consequence of differences in TFP growth (Krugman, 1994; Klenow and Rodriguez-Clare, 1997; Hall and Jones, 1999; Easterly and Levine, 1997). In the context of Sub Saharan Africa, results from aggregative growth accounting studies indicate a more prominent role to the total factor productivity residual in explaining its relatively slow growth over the last four decades (Collins and Bosworth, 2003; and Ndulu and O'Connell, 2000, 2003). Along the same line, Devarajan et al. (2003) argue strongly, that TFP has played a major role in explaining this growth performance and, therefore, it is TFP rather than the level of investment that has been the constraint to growth. Progress reports of the Millennium Development Goals (MDGs) and Poverty Reduction Strategy Papers (PRSPs) in most Sub-Saharan African countries indicate that a sustainable progress in productivity growth is required in order to achieve the targets set out in these programs.

At the empirical level, a number of studies have investigated the linkage between human capital and productivity, albeit most of these studies focus on OECD countries. …

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