Why is Africa (still) poor?

Ragnar Øygard

UMB School of Economics and Business

April 30, 2013

Why is Africa (still) poor?

• Many causes – many speakers

My explanation: • History, institutions

and policy

Why is Africa (still) poor?

• The right question?

• Alternative question: Why is so much of the world so rich?

• Turning point ca. 1800

Why is Africa (still) poor?

• Less growth in Africa than other parts of the world since 1800 – and esp. last 50 years– In total income– In per capita income (high rates of population

growth)

But: very high growth rates last decade

And: There have been big improvements in health and education

Why less growth in Africa?

Growth regressions - Robust findings:

Higher growth is correlated with:

-Higher saving and investment level

-Not being in Sub-Saharan Africa

So what is it with Africa?

Why less growth in Africa?

Geography

or

Institutions?

Geography

• Tropics• Temperature• Soils• Disease• Low population density• High infrastucture cost• Landlocked

But: Botswana!

Institutions and Policy

Jared Diamond: «Guns, Germs and Steel»:

-Few or no plants and animals suited for domestication

-Little or no settled agriculture

-Not hierarchical settled farmer societies-Hunter-gatherers: «The original Affluent Society» (Marshall Sahlins)

-Easy victim for European colonizers

The Scramble for Africa

• Slave trade• Division of Africa by

colonial powers• Extractive institutions

– e.g. little investment in education – as opposed to in temperate colonies

The colonial legacy: Institutions• Young, weak and

fractionalized states with little basis in pre-colonial divisions

• Weak notion of «nationhood» – of «being in the same boat»

• The language of the state is the colonizer’s language

The colonial legacy: Institutions & policy

• Young, weak and fractionalized states: Redistributive policies

• Extractive institutions – autocratic regimes: Weak «checks and balances» and «rule of law»

• Contested power – civil war

The colonial legacy: Policy

At independence: Divison between political power and control over the economy and businesses.

Adoption of policies of:

-nationalization and

-Import-Substituting-Industrialization

- Trade barriers

- Overvalued exchange rates

- Parastatals and monopolies

Current trends: Reason for some optimism!

• Natural resource boom• Growing sense of nationhood• More democracy – e.g. constitutional transfer of

power. • Better policies for broad based growth – e.g. by

investment in education, agricultue and rural sectors• Foreign direct investment• Falling population growth rates

Africa can catch up – but it will take some time!