Francis Teal

Do African Manufacturing Firms Learn from Exporting

We use firm-level panel data for the manufacturing sector in four African countries to investigate whether exporting impacts on efficiency, and whether efficient firms self-select into the export market. Based on simultaneous estimation of a production function and an export regression, our preferred results indicate significant efficiency gains from exporting, which can be interpreted as learning by exporting. We show that modelling unobserved heterogeneity by a flexible approach is important for deriving this conclusion. A policy implication of our results is that Africa would gain from orientating its manufacturing sector towards exporting.

ECONOMETRICS FOR GRUMBLERS: A NEW LOOK AT THE LITERATURE ON CROSS-COUNTRY GROWTH EMPIRICS

Since the seminal contribution of Gregory Mankiw, David Romer and David Weil (1992), the growth empirics literature has used increasingly sophisticated methods to select relevant growth determinants in estimating cross-section growth regressions. The vast majority of empirical approaches however limit cross-country heterogeneity in production technology to the specification of Total Factor Productivity, the ‘measure of our ignorance’ (Abramowitz, 1956). The central theme of this survey is an investigation of this choice of specification against the background of pertinent data properties when the units of observations are countries or regions and the time-series dimension of the data becomes substantial. We present two general empirical frameworks for cross-country productivity analysis and demonstrate that they encompass the approaches in the growth empirics literature of the past two decades. We then develop our central argument, that cross-country heterogeneity in the impact of observables and unobservables on output is important for reliable empirical analysis. This idea is developed against the background of the pertinent time-series and cross-section properties of macro panel data.

Rates of Return on Physical and Human Capital in Africa's Manufacturing Sector

In this paper two sets of issues are addressed using panel data from the manufacturing sector of five African countries. First, how high are the returns to human relative to physical capital. Second, what is the relative importance of technology and endowments of human and physical capital in determining differences in earnings and productivity across the countries. Evidence from earnings functions shows that the private returns to both experience and education rise with the level of education. Private returns rise from 3 per cent at the primary level, to 10 per cent at the secondary level and 35 per cent for tertiary. Evidence from the production function gives lower returns on education than from the earnings function. Rates of return on physical capital exceed 20 per cent and greatly exceed the average return on human capital. Data is available on the stocks of human and physical capital across the countries. Productivity and earnings differentials are shown to be large between Cameroon and Ghana. These differences are due almost entirely to differences in physical, not human, capital endowments.

The size and sources of economic rents in a developing country manufacturing labour market

The size of rents to labour in a developing country urban labour market is documented in this paper. The data set used enables the relative importance of unions, firm size, profitability, ownership and firm age to be assessed. It is shown that all these factors affect earnings providing strong support for a rent sharing theory of wage determination in a developing country similar to much recent evidence for developed country labour markets.

Skills, investment and exports from manufacturing firms in Africa*

It has been argued that Africa will not be able to export manufactures as it lacks the necessary skills. This study uses panel data from Ghana to ask how skills have impacted on manufacturing investment and exports in the 1990s. Two dimensions of skills are defined and measure. The first is that observable in the education and experience of the workforce. The second is the underlying efficiency with which the firm operates. The latter is shown to be a significant determinant of both investment and exports. These exports are relatively capital intensive; unskilled labour-intensive exports remain negligible. Possible reasons for these outcomes are discussed.

The Determinants of Survival Among African Manufacturing Firms

Recent reforms in many African economies of their trading and exchange rate regimes have eliminated much of the protection that previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this article we focus on the role of total factor productivity (TFP) in determining whether or not firms can survive in the subsequent period. We use a pooled panel data set of firms in Ghana, Kenya, and Tanzania that spans a period of 5 years. We find that productivity influences subsequent firm survival among large, but not small, firms. We investigate whether this result can be explained by differences in risk or the persistence of TFP. We find no evidence that this is the case. The result may be driven by covariance between the unobserved outside option and the value in remaining in existence that makes optimal exiting for small firms largely independent of productivity in the previous period.

Real wages and the demand for skilled and unskilled male labour in Ghana's manufacturing sector: 1991-1995

Real wage rates in Ghana have fallen substantially over the last twenty years. In this paper survey data for the years 1991–1996 is used to assess whether this fall has continued in the 1990s. It is shown that the fall in average real wage rates has continued, the relative wage of skilled labour has risen, the share of skilled wages in total wages has remained constant and the share of wages in value-added has risen. Factor share equations for skilled and unskilled labour are estimated which are consistent with the rise in skilled wages leading to substitution to unskilled labour and with technical regress raising the demand for unskilled labour. Real wage income in the sample has risen over the period.

Exports of African manufactures: macro policy and firm behaviour

Macro policy has changed the real exchange rates for African countries dramatically in the 1990s. In this paper the possible impact of macroeconomic policy on firms in the manufacturing sector is considered based on a panel survey of such firms in Cameroon. Kenya, Ghana and Zimbabwe. The data show that most large African manufacturing firms do export, but most do not specialize in exporting. An export equation is estimated both for the propensity of the firms to export and the percentage of output exported. It is shown that a stable export function can be estimated for all four countries over the three rounds of the survey. While there is no evidence that real devaluations have effected a general rise in manufactured exports there is evidence from the surveys of a rise in the percentage of output exported from the Cameroon. Reasons for the lack of a general response to macro policy are suggested. In the Cameroon, large firms did increase their propensity to export. Understanding the links between macro policy and firm performance may require an understanding of how such policies impact on different types of firms.

Why Can Mauritius Export Manufactures and Ghana Not

Exports of labour-intensive manufactures from sub-Saharan Africa are negligible with the exception of Mauritius. Such exports from Ghana are low relative to other sub-Saharan African countries and relative to what would be predicted by its factor endowment. Firm level data from the two countries is used to assess the reasons for this poor performance. Large firms (those with more than 100 employees) are much more likely to be in the export market than smaller firms. It is shown that Mauritian firms are four times more efficient than those in Ghana while wages are six times higher. However for large firms the productivity differential is similar but wages in Mauritius are only three times those in Ghana. Large firms in Ghana cannot compete with those from Mauritius due to their high wages relative to productivity.

The Ghanaian manufacturing sector 1991–95: Firm growth, productivity and convergence

The removal of high levels of protection combined with substantial real devaluations have changed the environment in which Ghanaian manufacturing firms have operated in the 1990s. The changes in output, composition and productivity, which have occurred over this period, are examined in this article. Survey evidence for the growth of the sector is shown to be consistent with data from sales tax returns. Analysis of the panel survey shows that, in a comparative context, the rate of job creation in Ghanas manufacturing sector is high. This rate is highest in medium-sized firms; small firms have not grown more rapidly than larger firms. There has been no underlying growth in technical efficiency and output growth has been matched by a commensurate growth in labour and capital inputs. Labour productivity differs substantially by firm size due primarily to differences in physical, not human, capital endowments.