Solving the Mystery of the AFRICA Dummy
Introduction
In his landmark empirical study of economic growth, Barro (1991, p. 436) acknowledged that “there appear to be adverse effects on growth from being in Sub-Saharan Africa” which his model could not explain despite controlling for the level of investments, government consumption, school enrollments and political instability. In fact, the dummy variable which he used to assess whether a country was African—the “AFRICA dummy”—was significantly associated with an annual decline in per capita GDP of as much as 1.14% during 1960–85.
Most subsequent cross-sectional studies of growth have been unable to reduce the magnitude and significance of the AFRICA dummy effect. Mauro (1995), for example, despite controlling for a “bureaucratic efficiency index” which included measures of corruption, red tape and quality of the judiciary, nevertheless saw his AFRICA dummy reduce average annual per capita GDP growth over 1960–85 by between 1.7% and 2.1%. Easterly and Levine (1997), who set out to explain Africa’s “growth tragedy” as a function of its ethnic heterogeneity, similarly still ended up with a significant AFRICA dummy impact, ranging from 1.2% to 1.4% decline in annual per capita GDP (1960–89) after controlling for ethno-linguistic heterogeneity. This effect was only slightly smaller than the dummy’s coefficient without controlling for ethno-linguistic heterogeneity (−1.4% to −1.8%), suggesting that they essentially failed to capture the true nature of Africa’s growth tragedy. Most recently, Temple and Johnson’s (1998) rather robust findings on the effects of prior “social arrangements” on subsequent growth, were significantly reduced upon controlling for regional dummies, of which AFRICA was the only one to be significantly and negatively associated with growth. These models all share, therefore, a failure to capture what it is about being an African country, which is inimical to growth.
Two fairly recent contributions to the growth literature have managed, however, to produce regressions with statistically insignificant AFRICA dummies. In a cross-sectional study of 79 countries, Sachs and Warner (1997) showed that a mix of structural and policy variables captured the sources of Africa’s slow growth quite exhaustively, leaving the regional dummy without further additional impact. Their structural factors included a dummy for landlocked status and a semi-continuous variable for tropical climate, ranging from 0 (no part of the territory covered by tropical climate) to 1 (entire territory subject to tropical climate). They argued that a landlocked position reduces the benefits of international trade by adding to transportation and insurance costs, and that tropical conditions worsen agricultural productivity, morbidity and life expectancy (see also Bloom & Sachs, 1998). Their policy variables included measures of openness to trade, central government saving and an index of institutional quality. Similarly, in a panel estimation, Barro (1997) also succeeded in suppressing the effects of the AFRICA dummy after controlling for the ratio of government consumption to GDP.
These two studies provide empirical evidence that Africa’s development crisis is indeed largely a policy crisis. As such, they vindicate the argument made by many political scientists since Bates (1981) first questioned the policy choices of African governments. In their success, however, lies also their ultimate failure. By substituting policy choices for a regional dummy, they replace indeed one measure of our ignorance with another. For, if policies affect growth, it remains in turn to explain what affects policy choices. In other words, why do most African governments tend to adopt policies that are inimical to growth? Short of a model that relies on truly exogenous explanatory variables, the AFRICA dummy may well end up empirically deflated but its mystery remains.
In this paper I offer a model which purports to solve the mystery of the AFRICA dummy without resorting to endogenous explanatory variables. Relying on some of the insights of the neo-patrimonial literature in political science, I show that the lack of historical continuity of the African state from the precolonial to the postcolonial period constrains the options available to African policy makers. Specifically, the relative power payoffs of developmental policies for political elites are lower in countries where the state was arbitrarily imposed over preexisting institutions, leading them to resort instead with greater frequency to redistributive policies which retard or hinder growth. Because, of all regions, sub-Saharan Africa has the largest concentration of arbitrary postcolonial states, with little or no embeddedness into precolonial institutions and preexisting norms of political authority, its economic performance tends to be weaker, even after controlling for other variables known to differ between Africa and other regions.
After suggesting an original approach to quantify the historical nature of the state, I test this hypothesis and manage to reduce dramatically the magnitude and obliterate the significance of the AFRICA dummy in growth regressions while simultaneously endogenizing policy preferences. The paper’s contribution is twofold. First, it provides a theoretical articulation of the historically constrained calculus by which African elites decide to opt for neo-patrimonial rather than developmental policies. Second, it shows that the true residual root of African stagnation lies in the nature of the African state, a political emphasis which most empirical studies of growth tend to neglect.
Section snippets
Idiosyncracies of African statehood
Econometric studies of growth which use countries as their unit of observation assume a relative homogeneity of states across the world. Differences in the capacity of governments to design and carry on specific policies for growth are acknowledged but, as an analytical category, the state remains generally unchallenged. Yet, most African states differ from states elsewhere in their very configuration and origins (Clapham, 1996). By and large, they are exogenous institutions superimposed over
Roots of african neo-patrimonialism
The peculiar historical origins of African states posed a challenge to their rulers and limited the options available to them to address it. Their challenge resided mainly in the vacuity of their alleged power. African “inheritance elites” (Gellar, 1973) were bequeathed the colonial state but not the colonial power that forced it and kept it together. Even those who benefited from chiefly status in customary systems did not enjoy nationwide foundations to their power by virtue of the
Data and methodology
This paper tests the hypothesis that the relative lack of historical legitimacy of African states magnifies their propensity to adopt neo-patrimonial policies with their attendant negative effects on growth. One would expect, therefore, to see neo-patrimonial policies as an inverse function of levels of state legitimacy and to find no residual negative effect on growth of being an African country once levels of state legitimacy are controlled for.
I use a cross-sectional data set covering the
Solving the mystery
Table 3 compares the mean performance of legitimate and nonlegitimate developing countries on individual policy indicators, the policy index and GDP growth. In all but one instances, the performance of legitimate states is statistically significantly better than that of their nonlegitimate counterparts. Only with respect to distortions in the foreign exchange market is the difference not in the expected direction and, at any rate, not significant. The reason for this counter-intuitive finding
Conclusions
The nature of the state, the extent to which it conflicts with preexisting political institutions and norms of authority, is of crucial importance in explaining policy choices and the spread of economic growth around the world. This very nature of statehood is a variable along which Africa is most different from other regions. As a result, controlling for the effects of state legitimacy in growth regressions reduces the residual negative growth impact from being an African country to
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