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Determinants of Inter-Country Variations in Industrial Performance in Africa: Evidence from Cross-Country Regressions

Are trade openness and economic reform more important than investment in human capital and technological change for industrial development in Africa? Should economic reform and investment in human capital and technological change be pursued simultaneously by African countries in order to spur industrial development, reduce their dependence on imports, and conserve scarce foreign exchange? This paper uses cross-country regressions and three indicators of industrial performance to investigate whether differences in trade openness, economic reform or investment in skills and technological change explain the skewed industrial performance of African countries. Preliminary results from the paper suggest that neither economic reform nor technological capability is an important explanation for the differences in the industrial performance of African countries. To the contrary, investment in human capital seems to be a more important explanatory variable. This implies that human capital is an important source of total-factor productivity growth for African firms.

The empirical results also suggest that there might be idiosyncratic or African-specific factors that explain the region’s weak industrial performance, compared to other developing countries. The robustness of some of the paper’s empirical results is evaluated by a case study of the Nigerian textile industry.