Physical capital, total factor productivity, and economic growth in sub-Saharan Africa

Abstract

Background: A major question that received the attention of numerous theoretical and empirical studies during the past few decades relates to the issue of output growth decomposition and the sources of economic growth. The literature focuses on two sources of growth: factor accumulation (mainly physical capital) and total factor productivity (TFP) growth, presenting inconclusive results as to the relative importance of each.

Aim: This article investigates the relative importance of physical capital accumulation and TFP in explaining output growth in 36 sub-Saharan African (SSA) countries over 1996–2014. The possibility of TFP-induced input effects is tested in order to better assess the role of TFP in total output growth.

Setting: 36 SSA countries over the period 1996–2014.

Method: The article uses a stochastic frontier analysis, an empirical methodology that decomposes total output growth into input growth, technological change and technical efficiency change.

Results: The contribution of physical capital to total growth exceeds that of TFP in 22 out of the 36 countries. The result withstands issues of TFP-induced effects on inputs.

Conclusion: A large share of growth in SSA is explained by factor inputs and not by TFP. There is therefore room for TFP to further increase growth in SSA. In order to create more opportunities for growth, SSA countries ought to invest in productivity-enhancing factors.