Tag Archives: GDP

Africa’s economic growth

While China’s economy continues to rapidly grow, during the first decade of the 2000s, most of the world’s fastest-growing economies were in sub-Saharan Africa and the IMF projects that this trend will continue over the next five years.

The Economist writes about this recent rapid growth:

Africa’s changing fortunes have largely been driven by China’s surging demand for raw materials and higher commodity prices, but other factors have also counted. Africa has benefited from big inflows of foreign direct investment, especially from China, as well as foreign aid and debt relief. Urbanisation and rising incomes have fuelled faster growth in domestic demand.

Economic management has improved, too. Government revenues have been bolstered in recent years by high commodity prices and rapid growth. But instead of going on a spending spree as in the past some governments, such as Tanzania’s and Mozambique’s, have put money aside, cushioning their economies in the recession.

Some ambled through the decade rather than sprinted. Africa’s biggest economy by far, South Africa, is one of its laggards: it posted average annual growth of only 3.5% over the past decade. Indeed, it may be overtaken in size by Nigeria within ten to 15 years if Nigeria’s bold banking reforms are extended to the power and the oil industries. But the big challenge for all mineral exporters will be providing jobs for a population expected to grow by 50% between 2010 and 2030.

Commodity-driven growth does not generate many jobs; and commodity prices could fall. So governments need to diversify their economies. There are some glimmers. Countries such as Uganda and Kenya that do not depend on mineral exports are also growing faster than before, partly because they have increased manufacturing exports. Standard Chartered thinks that Africa could become a significant manufacturing centre.

Estimating welfare: another measure

New NBER paper Beyond GDP? Welfare across Countries and Time by Charles Jones and Peter Klenow looks interesting.  They propose a new summary statistic for a nation’s flows of welfare that combines data on consumption, leisure, inequality, and mortality.  They do not include welfare gains from ecosystem services.

The authors explain their index:

… High hours worked per capita and a high investment rate are well known to deliver high GDP, other things being equal. But these strategies have associated costs that are not reflected in GDP. Our welfare measure values the high GDP but adjusts for the lower leisure and lower consumption share to produce a more accurate picture of living standards.

This paper builds on a large collection of related work. … We try to incorporate life expectancy and inequality and make comparisons across countries as well as over time, but we do not attempt to account for urban disamenities. The World Bank’s Human Development Index combines income, life expectancy, and literacy into a single number, first putting each variable on a scale from zero to one and then averaging. In comparison, we combine different ingredients (consumption rather than income, leisure rather than literacy, plus inequality) using a utility function to arrive at a consumption equivalent welfare measure that can be compared across time for a given country as well as across countries. Fleurbaey (2009) contains a more comprehensive review of attempts at constructing measures of social welfare.

They discover that while their index is highly correlated with GDP/capita (.95) there are still important differences among countries using this new measure.  They also find welfare growth is less correlated with GDP (0.82), and exhibits even larger differences among individual countries.  According to their index, welfare is being substantially increased by recent increases in life expectancy worldwide (with the major exception of sub-Saharan Africa).

Using this index many developing countries are poorer than GDP/capita alone suggests due to inequality, poor health and lack of leisure.