Labor Productivity Growth and Industrialization in Africa

Abstract

Manufacturing has made an important contribution to raising living standards in many parts of the world. Concerns about premature deindustrialization have made some observers skeptical about the potential for manufacturing to play this role in Africa. But employment in African manufacturing has grown rapidly over the past 20 years. These employment gains have been accompanied by: (i) large increases in the number of small manufacturing firms; (ii) limited employment gains in large firms; and (iii) robust labor productivity growth in Africa’s large firms. Limited employment growth in Africa’s large manufacturing firms is partly a result of the capital intensity of the manufacturing subsectors in which African countries are most engaged—the processing of resources—and partly a result of rising capital intensity in manufacturing. The potential for manufacturing to raise living standards in Africa depends on indirect job creation by large firms through backward and forward linkages and increasing labor productivity in small firms.

A Manufacturing (Re)Naissance? Industrialization in the Developing World

“…One interpretation is that sustained economic growth is possible if productivity improves in unregistered firms (IMF 2018 ). That may require a growth strategy that targets small- and medium-sized firms (Rodrik 2021 ) and trade integration that encourages sales to regional markets (Lopes and te Velde 2021 ; McMillan and Zeufack 2022 ). An alternative interpretation is that barriers to labor mobility increase allocative inefficiency, which would require a growth strategy that targets decreasing these barriers.…”

“… 1 See also Diao et al ( 2017 ), Haraguchi et al ( 2017 ), Lopes and te Velde ( 2021 ), Mensah ( 2020 ), Naudé ( 2019 ), Nguimkeu and Zeufack ( 2019 ), and Sen ( 2019 ). McMillan and Zeufack ( 2022 ) discuss various other opportunities to expand employment in manufacturing sectors in SSA. …”

“… 2 For example, in Viet Nam industrialization was at first characterized by a large share of employment in unregistered firms and these grew in importance during the initial stage (McMillan and Zeufack, 2022 ). …”

“… 17 Within developing Asia this may vary by country. In some countries such as Viet Nam, structural change is found to be related to an expansion of jobs at registered firms (McCaig 2011 ; McCaig and Pavcnik, 2018 ), although at first it was characterized by a large and growing share of employment in unregistered firms (McMillan and Zeufack, 2022 ). In other countries such as India, jobs appear mainly created at small firms (de Vries et al 2012 ).…”

New Perspectives on Institutional Intermediaries and Small Business in Developing Countries

“…Respondents typically show some social desirability bias or some data retention about their business when it comes to disclosing profit. Finally, labor productivity is seen as a good indicator of firm performance for firms in the food processing industry in Africa, because these firms have the potential to create more jobs and wealth and a higher productivity is an indication that these firms are fulfilling the expected function and performance (McMillan & Zeufack, 2022). We measured labor productivity as the total monthly sales over the total number of employees (Bloom & van Reenen, 2007;Bender et al, 2018).…”