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But the growing voices in continued opposition to the current orthodoxy refuse to shut up. The debate on the way forward pertains to both normative and positive questions. At the normative level, the debate is about the kind of policies that should be adopted to best promote growth-oriented trade and industrialization.

This normative question is predicated on the assumption that policy, rather than other factors such as geography and shocks, is the decisive determinant of the outcomes. The positive question is about what factors influence the trade and industrial policy choices policy-makers make. This is the key question especially given that even in the same broad spectrum of policy e.

While the veracity of the above premise needs scrutiny, a better characterization and understanding of the policy process in Africa is critical for the way forward. Consequently, a number of questions beg for answers. Who and what determined the past trade and industrial policies in Africa or why have policy-makers failed to effectively implement policies which they designed? Under the prevailing international rules of the game and the aid relationships, what room do African policy-makers have to manoeuvre in terms of true country ownership of their policies? In other words, what are the relative contributions of mainstream ideas about development and role of donors in propagating the ideas or policies?

To what extent does the interest group public choice model explain policy choice in Africa? Does the model of state institutional-bureaucratic capacity explain much? What about the effects of history-geography-production structure such as economies dominated by mineral rents, and are ethnically divided, or the impact of ethnic versus economic power balance on policy choice?

Given that Africa might be one of the few regions of the world that would industrialize without the selective industrial and strategic trade policies used by earlier late-comer industrializers, how are African policy-making and institutions adapting to, or coping with, the challenging and changing. Are there generalizable lessons from the policy-making and implementation experiences across the region that are important for understanding and for changing the African policy landscape? What are the challenges and possible responses towards a more sustainable, development-oriented trade and industrialization strategy in Africa?

This book is primarily motivated by the positive questions raised above. The focus of the study on political economy is predicated on the assumption that trade and industrialization outcomes in Africa are predominantly the result of policy choices.

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To say the least, this assumption is highly debatable. Tangential to the appropriate weight to policy is another equally important issue of the endogeneity of policy to other factors. Do the environment and other factors circumscribe policy?

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And this is not trivial debate. This is because the appropriate weight given to policy is it 10 percent or 90 percent for example?

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Most of the cross-country growth regressions in the last decade have been devoted to debate on the relative explanatory power of various clusters of variables, with unresolved issues pertaining to the robustness and fragility of the parameter estimates as well as fundamental issues of methodology. In the growth literature, over five dozen variables have been experimented with, but they could be grouped into a few clusters as follows: growth fundamentals — savings investment, human capital; policy — with dozens of variables including the degree of openness or trade policy and industrial policy; destiny variables — geography, ethno-linguistic fractionalization, demography, and natural resource endowments; quality of institutions; and external shocks — mostly proxied by terms of trade variables.

For trade and industrialization particularly, there are two levels of the debate.

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The first is whether there is a definite causal relationship going from trade volumes to growth or from growth to trade volumes. On this, while much of the literature argues for a trade-cause-growth thesis, others such as Rodrik see either a correlation and not causation, or reverse causation in that trade volumes depend on a number of factors including growth and trade policy. The second level of the debate, which is important for this study, is the relative importance of trade or industrial policy per se in determining either trade volumes or growth.

The precise weight to be attached to each of these clusters of explanations still remain an unresolved empirical question.

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The first of these factors, and perhaps one with the longest history is geography see Acemoglu et al , a for a listing of the long bibliography including Nicolo Machiavelli, Charles de Montesquieu, Anorld Toynbee, Alfred Marshall, Ellsworth. Huntington and Gunnar Myrdal. These authors saw climate as a major determinant of work effort, productivity and therefore the prosperity of nations.

A seminal statement of the role of destiny and geography as determinants of trade and industrialization was given by Adam Smith in Book 1, the Wealth of Nations 25 as follows:. As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland part of the country.

All the inland part of Africa, and that part of Asia which lies any considerable way north of the Euxine Black and Caspian seas, the ancient Sycthia, the modern Tartary and Siberia, seem in all ages of the world to have been in the same barbarous and uncivilized state in which we find them at present. There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the gulps of Arabia, Persia, India, Bengal, and Siam, in Asia to carry maritime commerce into the interior parts of that great continent.

Although written more than years ago, it seems Adam Smith was describing much of contemporary Africa.

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The resilience of this idea was reinforced by Diamond who elaborated the importance of the geographic determinants of the Neolithic revolution, showing that modern prosperity was related to the timing of the emergence of settled agriculture in more conducive environments. Many analysts would answer in the affirmative see particularly Bloom and Sachs, ; Wood and Jordan, ; Wood and Mayer, , Wood, ; Easterly and Levine, The other, and perhaps major aspect of the nature and geography thesis is the consequence of natural resource endowment.

An important statement of this thesis was provided by Wood and Mayer, , based on an extended Heckscher-Ohlin model of differing paths of development see Kruger and Leamer A key aspect of the Kruger-Leamer extended H-O model is that it shows that the sectoral structures of production and trade will evolve differently in the course of development in different countries, depending on their initial land-labour ratios.

Countries specialize in the sectors in which their mix of factor endowments give them a comparative advantage. With this framework, Wood and Mayer show that because Africa is better endowed than Asia with natural resources especially land but less endowed with human skills, it has an endowment-based advantage in primary commodities. Besides the skill-land ratios and possibility of the Dutch disease, there are other channels through which dependence on natural resources could hinder growth and industrialization see Collier , and Collier and Dehn, Since African countries are dependent on a narrow range of primary commodity exports, they are also susceptible to large and volatile price shocks.

As Collier , p. In the case of the typical large negative export shock, directly costing 7 percent of GDP, the shock then triggers a cumulative contraction in the economy over the next two or three years, leading to an additional loss of output of around 14 percent of initial GDP.

Furthermore, natural resource dependence leads to bad governance due mainly to the generation of rents which are either inefficiently spent causing the Dutch disease, as well as creating an incentive system favouring illegal asset stripping relative to investment and support for persistence of weak rule of law. Finally, natural resource dependence increases the risk of civil war, especially in very poor societies where the opportunity cost of being involved in rebellion is almost zero. Related to the endowment thesis is the impact of location on transport costs. Redding and Venebles had drawn attention to this model where a key comparative advantage is proximity to market and to suppliers.

The need for this proximity consequently exerts a powerful force of agglomeration thus giving a huge comparative advantage to those countries that industrialize first. Agglomeration economies imply that manufacturing industries will always be concentrated in a few locations, and locations such as Africa that have not yet industrialized may have permanently missed out. For Africa, therefore, industrialization is viable only to the extent that it serves the local market and benefits from the natural protection of high transport costs. From the analysis presented so far, it is not only that policy matters less, it is to some extent endogenous to geography and natural resource endowments.

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For example, Gallup and Sachs suggest that countries isolated by location will also have weaker lobbies in favour of trade, hence geographic isolation will be compounded by policy-. Collier and Gunning 16 suggest that natural resources may bring forth a variety of other policy errors. For example, it may worsen policy by turning politics into a contest for rents or, through crowding out manufactured exports, prevent the emergence of potentially the most potent lobby for openness.

Easterly and Levine suggest that ethno-linguistic fractionalization makes co-operation among the ethnic groups more difficult, which worsens policies. But performance is not explained only by geography, natural resource endowments and exogenous factors. On the contrary, some analysts fly the institutions-matter flag and sometimes present it as an alternative explanation for performance see North and Weingast, ; Olson ; Acemoglu et al a, etc 2.

The analysts largely attribute differences in economic performance to differences in the organization of society and the incentive structure. Acemoglu et al not only make the case for institutions as the decisive factor in performance but also challenge the geography hypothesis.

The authors argue that if geography is the key determinant of differences in economic performance across countries, then such performance should be highly persistent, since geographic factors have not changed much in recent history. To the extent that other factors also matter for income, persistence will not be perfect, but we should expect relatively rich countries today to have been, on average, richer several hundred years ago.

However, since institutions and the way societies are organized are persistent, the institutions hypothesis predicts persistence in income levels. Consequently, if there is a major change in institutions, then we should expect a significant change in the distribution of income across countries. The authors show that European colonialism made fundamental differences in the development trajectory of their colonies depending on whether productive institutions or extractive institutions were established by the colonizers.

Thus institutional reversals have coincided with reversals in development. The major impetus for the wrong or right type of institutions was determined by European settlement. Relatively poorer regions were often sparsely populated and if they also had a relatively lower tropical disease environment such as malaria , then Europeans settled in large numbers and developed institutions encouraging investment.

On the contrary, a large population and relative. In other parts where settlement was not conducive because of the disease environment such as in West and Central Africa, the systems of economic structure and institutions established were geared towards extraction and servicing of European industries rather than development of the colonies.

Implicit in Acemoglu et al is the notion of path dependence — institutional persistence and the corresponding performance persistence.


The Acemoglu et al thesis about institution-performance persistence is interesting because it sheds some light on one of the emerging puzzles in the country case studies. It may not also be an accident that the development of property rights is far more advanced in these countries than in most others.