January 19, 2004
The Economic Decline of Africa
Economically speaking, Africa is a complete basket case, according to some new research at NBER.
- While the world's economy grew at an average of 2% from 1960 to 2002, in Africa it was negative from 1974 through the mid 1990's.
- Half of the population in Africa lives below the poverty line, or 360 million people.
- In 1970 1 in 10 people living in poverty lived in Africa, now it is 1 in 2.
- Sub-Saharan GDP has declined by 11% since 1974.
Here are the interesting parts of the NBER overview,
The economic situation in Africa also would improve if the military conflicts that have plagued the continent over the past half-century stopped. And, other important factors could contribute to African economic growth: these include the maturation of institutions that guarantee the rule of law and property rights; greater investments in education; the reduction of policy distortions that make investments excessively expensive; and the reduction of wasteful consumption expenditures.
In other words, their economies need to be more market oriented (capitalistic), not less. No big shock here, the rule of law and property rights are necessary conditions for a sound market economy and economic growth.
This paragraph is also interesting,
Citing the fact that massive aid programs have not helped much, the authors suggest that new initiatives may be needed. For example, more research could be focused on the continent's devastating health problems. Africans themselves have neither the resources nor the expertise to discover vaccines that prevent AIDS or malaria. Yet rich countries have little incentive to invest in these lines of research because the discoveries will help people with little ability to buy the products. The authors believe that if international aid financed by bilateral donors and multilateral institutions were redirected towards these health problems, then the situation in Africa might improve.
First we see a market failure in that the people in Africa are, generally, so poor as to not be able to afford cures for these diseases. This lack of demand (and thus revenues and profits) means that pharmaceutical companies are going to under-allocate resources to find a cure (from a social welfare view point). The point about diverting aid payments to fund such research is good, but the problem is it does not provide immediate results.
Over all a very grim outlook for Africa.
Posted by Steve at January 19, 2004 11:07 AMThe claim that "vaccines" against AIDS and malaria aren't developed because Africa is so poor is nonsense. Neither are diseases that have viable approaches to such today, and the developed world ( in the case of malaria ) has economic ways to combat the disease that Africa is too backward both politically and economically to employ.
Posted by: Robin Roberts on January 19, 2004 11:58 AMThank goodness I didn't make that argument.
Posted by: Steve on January 19, 2004 12:05 PMWhat? I was serious. Malaria was defeated in the developed world without vaccines. Draining wetlands, using screened windows are a huge start.
Posted by: Robin Roberts on January 19, 2004 12:57 PMRead what I wrote again. I said nothing about why vaccines are not developed, but that investment into that kind of research is sub-optimal from a social welfare perspective. A somewhat different argument.
Posted by: Steve on January 19, 2004 01:37 PMI see, you were interpreting my comment as whacking at your discussion of the economic principle. My error in sloppy composition.
I don't dispute the economics, I dispute the idea that the issue should be phrased as described. These issues were addressed outside Africa but those solutions are not being applied inside of Africa. Why not? I believe that Africa's health problems can be solved, but as a result of general reforms focused on the core problems discussed earlier such as rule of law, property rights and stable, accountable government.
Posted by: Robin Roberts on January 19, 2004 01:45 PMI'm sure that is indeed part of it. Another way of looking at it, the aid money currently going to Africa doesn't even qualify as a baind aid level of assitance. It reminds me of the old truism,
"Give me a fish I eat today, teach me to fish and I'll be able to eat everyday."
The aid is going to the wrong place (at least in part). Diverting some of it to research might have better results, combine that with reforms of government to support the rule of law and property rights and the situation in Africa would probably turn around.
Posted by: Steve on January 19, 2004 02:01 PMTwo add'l (but somewhat tangential) observations (as if I make any other kind):
1. The WaPo reported that the number of conflicts in Africa is actually declining because of the War on Terror. As the money and arms transfers links are shut down by the US and other internat'l players, the sources of Africa's fighting dry-up. (Interesting, as this suggests that external factors were at least as important as internal ones for their wars.) It would be ironic if the Dubya Admin, opposed to nation-building, pilloried as war-mongering, were actually to provide the foundation for a better Africa.
2. OTOH, recent advances only serve to screw Africa further. Frex, the rise of broadband relies, to a large extent, on fiber-optics. Which are made from sand, which can be gotten from lots of places. This has displaced copper, so that global copper markets are down significantly. Guess who produces copper?
Posted by: Dean on January 19, 2004 08:16 PM