Does Premature Deindustrialisation Stall Growth? Evidence from Sub-Saharan Africa

Abstract

Structural transformation (ST) accelerates growth when labour transition occurs from low-productivity to high-productivity sectors. However, evidence from Sub-Saharan Africa (SSA) indicates that the manufacturing sector is not generating enough employment opportunities and that labour absorption is primarily occurring in low-productivity service activities—a process known as premature deindustrialisation that hinders the growth-enhancing effect of ST. This article contributes by quantifying the effect of labour movement across sectors and estimating its impact on growth in the region. We apply the Shapley decomposition technique to extract the effect of ST on change in labour productivity. Next, by using a panel ARDL framework, we analyse the impact of ST on long-run economic growth for 12 middle-income economies from SSA for the period 1992–2017. Our findings suggest that in the long-run, ST towards low productivity service activities is having a growth-depressing effect on these economies. Although middle-income African economies have adopted several policy initiatives to reverse the deindustrialisation trend, our findings show that these have not (so far) generated economic growth. Further efforts are needed in these countries to foster the investment climate, infrastructure, financial sector, skills and regional integration needed for labour transition towards high productivity sectors.