Analyzing Africa's Total Factor Productivity Trends: Evidence from the DEA Malmquist Approach

Using data envelopment analysis (DEA), the authors investigate the productivity changes of 42 African countries by computing the Malmquist productivity indices. Subsequently, the measured Malmquist productivity indices become the dependent variables of a pooled truncated regression. The point estimates of the Malmquist indices indicate that TFP improved at an annual rate of 1.97% over the period 1992-2007. The decomposition of TFP shows that the major contribution of TFP growth is technological progress. Nevertheless, technical efficiency also appears to be trending upwards. Therefore, these results suggest that contrary to the dominant view in previous studies, Africa's TFP since the early 1990s has been accompanied by positive technological change rather than stagnation. The second stage results suggest that improving the quality of human capital and FDI not only augments the quality of labor, but also indirectly improves TFP. Regression results also show that an increase in openness positively affects TFP growth as this facilitates adoption of more efficient techniques of production.