Johnson, Ostry & Subramanian – “The Prospects for Sustained Growth in Africa: Benchmarking the Constraints” – NBER & IMF working paper, March 2007

I saw Simon Johnson present an early version of this paper — it’s very interesting.

IMF blurb:

Africa is experiencing its strongest growth in years. But for those who view Africa’s prospects through the perspective of the “deep” determinants of development—geography, institutions, and history—the outlook still seems somewhat bleak. The paper tries to assess Africa’s prospects by comparing Africa today with countries that were similarly weak in the past—in terms of their institutional development—and yet managed to escape from poverty.

The authors say the data suggest that these deep indicators, especially for a group of “promising” countries, are not much worse in Africa today than they were in much of East Asia in the early 1960s or in Vietnam and China around 1980. There are inherited institutional weaknesses in Africa—and internal conflict and social fragmentation remain concerns—but the East Asian experience demonstrates that some institutional weaknesses can be fixed. So the good news for countries seeking to escape their current poverty trap is that breaking away from their institutional legacy is possible because it has been done by others.

Creating a stronger and more dynamic manufacturing export sector is likely to be one of the keys to sustaining growth. To achieve this, though, reducing direct regulatory costs for exporters and avoiding real exchange rate overvaluation will be essential. And on these scores, the authors see risks going forward that were less of an issue for the East Asian escapees: commodity-based growth and sizable aid inflows that partly underpin the positive prognosis for Africa may impede institutional development and make it harder to avoid real exchange rate overvaluation. Sub-Saharan Africa’s escape from poverty, although certainly possible, may be more challenging than it was for East Asia.