Skip to main content

Structural Transformation and Labor Market Performance in Ghana

I am happy to report that a research paper I have been working on at the World Bank has just been published. The study takes stock of Ghana's economic transformation by decomposing growth drivers and reviewing labor market changes over time. We use three rounds of nationally-representative household surveys as well as macro-level data to benchmark Ghana with structural and aspirational peers.

Ghana's post-independence (1957) industrialization strategy focused on large-scale, state-managed manufacturing industries known as import substitution industrialization (ISI). ISI, accompanied by protectionist measures, aimed to develop domestic production and reduce reliance on imports. During the 1960s, Ghana experienced initial success with ISI, witnessing significant growth in the manufacturing sector, which expanded from 2% to 9% of total output by 1969. 

However, the protective measures led to excess capacity, and policy reversals in the 1970s caused balance of payments crises. Import and interest rate liberalization in 1971 resulted in increased imports and rising debt levels. Production and capacity utilization in import-substituting industries declined from the mid-1970s to 1983. 

Stabilization efforts after 1983, including trade liberalization, exchange rate adjustments, and financial reforms, exposed domestic industries to international competition, leading to increased production costs and cuts. The government implemented tax reforms to boost revenue, and by 1983, Ghana shifted from an ISI strategy to export-led policies supported by the International Monetary Fund (IMF) and World Bank.

Between 1989 and 2010, Ghana's manufacturing sector's contribution to economic growth declined, while the utilities, construction, and mining sectors grew. The services sector consistently remained the largest contributor to overall economic growth during this period. The shift in policy from ISI to export-led strategies had positive effects on economic growth and sectoral dynamics.

A decomposition of growth drivers suggests that labor has been moving from primary activities in rural areas to services activities with low productivity growth in urban areas. As such, the nature of structural change in Ghana has not been growth-enhancing. This finding is consistent with other research on Ghana and Africa, implying a need for an industrial policy that can spur productivity growth in services and so called 'industries without smokestacks.' Further, the traditional marker of industrialization, manufacturing, has fallen as a share of value-added, employment, and exports. Again, Ghana is not unique in seeing what has been referred to 'premature deindustrialization.' 

On the labor market side, Ghana has a high employment rate, low unemployment rate, high shares of self-employment, and low shares of wage employment for its level of development. Subgroup differences show that while women, youth, and rural workers are less likely to be engaged in wage employment, their conditional returns to schooling are higher than for counterpart subgroups. The study also finds an inelastic relationship between GDP growth and employment including wage employment. Building on the World Bank’s Ghana Country Private Sector Diagnostic, the study offers an analysis of feasible sectors to promote based on their employment and productivity-enhancing potential, among other factors. As such, the recommendations that follow strengthen ongoing efforts by the Government to industrialize the economy.

Comments

Post a Comment

Constructive feedback is always welcome. Thank you

Popular posts from this blog

Malaysia at a Cross Roads: Diagnosing the Constraints to High Income Status

Malaysia at a Crossroads: Diagnosing Constraints to High-Income Status In 2008, Malaysia was recognized by the Growth Commission – a distinguished panel comprising 2 Nobel Prize Winning Economists and other leading development practitioners – as one of thirteen countries that sustained high growth in the post-war period. The 30-year stretch that caught the attention of the Growth Commission was between 1967 and 1997 when Malaysia grew at an average of 7.3% per year. This long stretch of growth was interrupted by periods of external shocks including the Volcker shock of 1986, the Asian Financial crisis in 1997/8, later the so-called Dot Com Bubble of 2001, and more recently the Global Financial Crisis of 2008. Despite these shocks, Malaysia remained resilient - formally earning the title "Upper Middle Income Country" in 1992. (See summary figure that breaks down the country's per capita growth story). As...
2 comments
Read more

Corporate Network Analysis

The complex interconnections that define modern society are most readily visible from our Facebook, Twitter, or Linkedin networks. What is perhaps less talked about is the extent to which corporations are linked. I just started building a network of cross shareholding among Malaysia's corporations using listed company data. The map below is a preliminary visualization of the country's corporate network as of 2015. I use social network analysis (SNA) tools to partition or color the network into key connected components or communities therein. I have deliberately excluded company names but I will tell you that the biggest nodes represent the most connected shareholders including governments, fund managers, and international asset managers.  Malaysia's Corporate Network in 2015 Created Using Gephi 0.9.1 As the Malaysia economy has grown so has the complexity of the corporate network from few shareholders to many interlinked players. Below is a visualization using sha...
2 comments
Read more

Assessing labor market transitions in Ghana using panel data

Understanding labor market transitions is important for policymakers and researchers in developing countries. Changes in economic activity status (employed, unemployed, out of labor force) vary significantly from one country to another and also within countries from one socio-economic group to another. Below I summarize analysis from the latest Ghana Annual Household Income and Expenditure Survey ( AHIES ) published by the Ghana Statistical Service. The AHIES is a panel survey that has followed over 10,000 individuals since 2022Q1 to assess changes in their livelihoods. I am currently analyzing trends and show here what has happened to economic activity between Q2 and Q3.  Transitions in Ghana labor force status, 2022Q2 - 2022Q3 Source : Own analysis using AHIES from Ghana Statistical Service. Note : Left hand side is 2022Q2 and right side is 2022Q3 81 percent of working age individuals (15-64-years) who were  employed  in 2022Q2 were still employed in 2022Q3; 7 perc...
Post a Comment
Read more