Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model

Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model We develop a model economy that has many of the features of Lewis (1954) but that also includes an in-between sector as described by Lewis (1979). Our model underscores the importance of the following determinants of structural change: (i) productivity growth in the agricultural sector; (ii) productivity growth in the nonagricultural sector and; (iii) the terms of trade. Public investment enhances productivity growth in all sectors but when it is financed by foreign inflows, it also causes a real exchange rate appreciation leading to a contraction in the open modern sector. These results provide a partial explanation for recent patterns of growth in Rwanda and elsewhere in Africa where the nontradables or what we call the in-between sector has expanded more rapidly than the tradable sector. Our results also highlight the dilemma faced by poor countries in dire need of public investment with a very limited tax base. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png World Development Elsevier

Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model

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Publisher
Elsevier
Copyright
Copyright © 2016 Elsevier Ltd
ISSN
0305-750X
eISSN
1873-5991
D.O.I.
10.1016/j.worlddev.2016.12.008
Publisher site
See Article on Publisher Site

Abstract

We develop a model economy that has many of the features of Lewis (1954) but that also includes an in-between sector as described by Lewis (1979). Our model underscores the importance of the following determinants of structural change: (i) productivity growth in the agricultural sector; (ii) productivity growth in the nonagricultural sector and; (iii) the terms of trade. Public investment enhances productivity growth in all sectors but when it is financed by foreign inflows, it also causes a real exchange rate appreciation leading to a contraction in the open modern sector. These results provide a partial explanation for recent patterns of growth in Rwanda and elsewhere in Africa where the nontradables or what we call the in-between sector has expanded more rapidly than the tradable sector. Our results also highlight the dilemma faced by poor countries in dire need of public investment with a very limited tax base.

Journal

World DevelopmentElsevier

Published: Sep 1, 2018

References

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