Toward an Understanding of Economic Growth in Africa: A Re-Interpretation of the Lewis Model

Xinshen Diao () and Margaret McMillan

No 21018, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Africa’s recent economic growth is at a historical high. The patterns associated with this growth appear to be quite different from the Asian experiences where rapid growth was fueled by labor intensive, export-oriented manufacturing. Because this pattern differs with our typical view of structural transformation, a heated debate has begun over the sustainability of Africa’s growth. One thing is clear: the recent growth is not well understood. Against this background, we adapt Lewis’s (1954) dual-economy model to the economies of Africa to better understand the role that the “in-between” sector as defined by Lewis (1979) has played in Africa’s recent growth. Our framework incorporates the coexistence of a closed and an open modern economy and takes into account the diversity and heterogeneity of the activities that characterize modern African economies. We apply this framework to the economy of Rwanda to assess Rwanda’s future growth prospects based on different levels of foreign capital inflows. We find that higher foreign inflows lead to significantly more growth in the closed modern economy and stagnant growth in the open modern economy, a phenomenon consistent with recently observed patterns of growth across several African countries.

JEL-codes: O11 O55 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-afr, nep-gro, nep-pke and nep-sea
Note: DEV EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Xinshen Diao & Margaret McMillan, 2017. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, .

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Journal Article: Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model (2018)
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