Explaining Differences in Income Levels of Africa’s Largest Economies – A Development Accounting Perspective

Oyakhilome Ibhagui

MPRA Paper from University Library of Munich, Germany

Abstract: Drawing upon the experience of Africa’s largest economies, this paper examines the phenomenon of income discrepancies in Africa and applies the combined methodologies of Development Accounting (DA) à la Caselli (2005) and Business Cycle Accounting (BCA) à la Chari, Kehoe and McGrattan (2007) in a standard neoclassical, small open economy model. Classified into 2 equal-numbered groups – G1 and G2 – based on output size and region of location, the economies comprise Sub-Saharan Africa’s top 3 economies (G1: Nigeria, South Africa and Angola), and North Africa’s top 3 economies (G2: Egypt, Algeria and Morocco). Distortions in production efficiency, labour and capital, collectively termed wedges, are calculated, and the extent, evolution and impact of the wedges are determined for the period 1990 to 2013. Empirical results show that although efficiency wedge plays an important role in explaining income differences, labour wedge and investment wedge are also important for understanding income differences in Africa and, by extension, bridging the gap.

Keywords: Business cycle accounting; efficiency, capital and labour markets distortions; development accounting; distortions; African economies. (search for similar items in EconPapers)
JEL-codes: O11 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dge
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