Transformative pathways: understanding economic growth in Africa using the African Transformation Index

Abstract

This study investigates the critical role of structural transformation in African economies and its significance for inclusive growth, utilizing the African Transformation Index (ATI). The core focus is to understand how structural transformation influences economic growth and to highlight key factors driving this process. By employing a Cobb-Douglas production function and panel quantile regression analysis on data from 30 African countries from 2000 to 2022, the research aims to fill a gap in the literature on African economic development. The major findings reveal that the ATI positively impacts GDP per capita growth rates, especially at lower quantiles, indicating that structural transformation is vital for inclusive growth. Conversely, diversification negatively affects growth, highlighting the challenges of overly diversified economies. Additionally, export competitiveness and productivity improvements contribute positively to growth, while technology upgrading shows significant impact mainly at lower quantiles. Human well-being is identified as a crucial driver of growth, particularly at middle quantiles. The significance of these findings lies in their policy implications: prioritizing structural transformation, enhancing export competitiveness, improving productivity, and focusing on human well-being are essential for achieving sustainable and inclusive growth in Africa. This research provides empirical evidence on the importance of structural transformation and offers valuable insights for policymakers aiming to foster sustainable development in African economies. This study looks into the transformative potential of structural change in driving inclusive economic growth across African economies. By leveraging the African Transformation Index (ATI), our findings highlight how targeted structural reforms, improved export competitiveness, and productivity gains can significantly bolster GDP per capita, especially in countries with lower initial growth levels. The research reveals critical insights for policymakers: over-diversification may hinder growth, while a focus on key drivers like human well-being and technology upgrading at strategic economic stages can sustain long-term growth. These insights are essential for guiding policy frameworks that promote sustainable economic development, alleviate poverty, and foster inclusive growth throughout Africa. This study thus fills a critical knowledge gap, providing an empirical foundation for advancing structural transformation policies across the continent.