Can Africa export manufactures? The role of endowment, exchange rates, and transaction costs

Ibrahim A. Elbadawi

No 2120, Policy Research Working Paper Series from The World Bank

Abstract: The author analyzes the determinants of manufactured exports in Africa and other developing countries, guided by three pivotal views on Sub-Saharan Africa's (Africa's) prospects in manufactured exports: * Adrian Woods holds that Africa cannot have comparative advantage in exports of labor-intensive manufactures (even if broadly defined to include raw material processing) because its natural resources endowment is greater than its human resources endowment (endowment thesis). * Paul Collier argues that, for most of Africa, unusually high (policy-induced) transaction costs are the main source of Africa's comparative disadvantage in manufactured exports (transaction thessis). * A third approach (Elbadawi and Helleiner) emphasizes the importance of stable, competitive real exchange rates for profitability of exports in low-income countries (exchange rate-led strategy). The author tests the implications of these three views with an empirical model of manufactured export performance (manufactured exports'share of GDP), using a panel of 41 countries for 1980-95. His findings: * Corroborate the predictions of the transaction thesis, in that transaction costs are major determinants of manufactures exports. Investing in reducing these costs generates the highest payoff for export capacity. * Lend support for the exchange rate-led strategy. After controlling for other factors, ratios of natural resources per worker were not robustly associated with export performance across countries, but this cannot be taken as formal rejection of the endowment thesis - unless one is prepared to assume that manufactured exports'share of GDP was highly correlated with ratios of manufactured to aggregate (or primary) exports. But this is not unlikely.

Keywords: Environmental Economics&Policies; Fiscal&Monetary Policy; Export Competitiveness; Economic Theory&Research; Trade Policy; Economic Theory&Research; Achieving Shared Growth; Macroeconomic Management; Environmental Economics&Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT (search for similar items in EconPapers)
Date: 1999-04-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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