Comparative advantage, economic structure and growth: The case of Senegal

Abstract

Background: Using a concept of revealed and latent comparative advantage, this article identifies relatively productive industries and industries with great potential in the slow-growing economy of Senegal. The identification of such industries allows for economic structure adjustment resulting in a higher gross domestic product (GDP) growth rate.

Aim: The aim of the study is to identify Senegalese long-term revealed comparative advantages and to estimate Senegalese latent comparative advantages. The analysis is focused solely on manufacturing industries because industrialisation serves as an engine of growth in developing countries.

Setting: The analysis is carried out on endowment structure and international trade data (1995–2015) of Senegal and appropriate comparator economies (Tanzania, Cambodia, Lao, Vietnam and Cape Verde).

Methods: To identify revealed comparative advantages, we calculate the normalised revealed comparative advantage index. To estimate latent comparative advantages, we employ a growth identification and facilitation framework. The methodology is slightly modified because the estimation is based on long-term revealed comparative advantages comparisons (rather than export shares comparisons).

Results: We argue that the relatively productive manufacturing industries (with revealed comparative advantage) include chemicals and manufactured goods classified chiefly by various materials. Furthermore, Senegal may have unexploited potential (i.e. latent comparative advantage) in footwear and particularly in apparel production.

Conclusion: In order to accelerate GDP growth rate, Senegal should focus on developing the above mentioned industries to align its economic structure with the comparative advantages and also to promote industrialisation.