William Easterly and Ariell Reshef (2010). NBER Working Paper No. 16597, December.

This paper examines the determinants of African export successes with interesting case studies and finds that those determinants are remarkably similar to those in the rest of the world.

This paper examines the determinants of African export successes and finds that they are often the same as in the rest of the world.

In the fifteen years leading up to the financial crisis, the world experienced an explosion of global trade.  Sub-Saharan Africa was a part of this trend, with exports per capita increasing by 13% per year 1994 and 2008.  This rate was strong in the global pack, compared to 4% in the United States, 8% in Germany, 13% in India, and 19% in China.  Easterly and Reshef comment that “Given the well known difficulties in exporting from Africa (let alone running a business there), 13% annual growth rates of exports per capita are no small feat” (2).  This phenomenon motivates their study.

Sub-Saharan African exports have historically been strong on agriculture, food, fuel, ores, and metals and weak on manufacturing.  However, this broad picture masks several important trends.  The authors argue that “several common views about exporting activity from Africa are not accurate at best, and in some cases simply wrong.  Perhaps exaggerating a bit the traditional view held for amny years, Africa is seen primarily as a commodity exporter, and commodity exports are perceived not as ‘prestigious’ as other exports (such as manufacturing) because commodity revenues are thought to reflect mainly endowmnets and world prices rather than domestic success.  …While many researchers probably now already have a more subtle view of African exports, we think that the polar extreme of this traditional view still has some influence in academic and policy circles, and hence is worth testing as a set of hypotheses” (2-3). 

In this paper, Easterly and Reshef “largely reject” these hypotheses (3).  African export patterns are demonstrated to largely correspond with those in the rest of the world.  Successes are characterized by “Big Hits” following a power law distribution common to the rest of the world, in which “the top ranked exports are vastly larger than lower ranked exports” (6).  Global commodity price fluctuations do not determine African export revenues, and world prices do not have a large differential impact on commodities versus manufactured goods. 

Easterly and Reshef use Comtrade database HS4 product-level data to evaluate these claims.  One thing they note, and the other researchers should be aware of, is that there are significant measurement error problems in the Comtrade database.  They also interviewed export entrepreneurs, officials, and NGO personnel in Rwanda, Uganda, and Tanzania.  They conclude from the data and from the interviews that “African exporting entrepreneurs perform very similar activities to those that exporters are expected to do anywhere else.  This is in line with Tybout (2000), who concludes that manufacturing firms (not only exporters) in developing countries are not inefficient relative to their counterparts elsewhere.  If there are differences, they are driven by low incomes in target markets, detrimental macro policies, high transportation costs, bureaucracy, and poor rule of law” (3). 

The authors identify “conventional” and “idiosyncratic” drivers of African export successes. Conventional determinants include quality improvements, comparative advantage, trade liberalization, technological improvements, foreign ownership, ethnic networks, and entrepreneurial foreign experience.  Idiosyncratic determinants include the success of foreign aid in improving the quality of Rwandan coffee “despite the usual poor record of aid,” the personal drive of one roasted coffee entrepreneur in Uganda, luck in the case of Nile perch in Lake Victoria, and aviation fuel cost shocks that wiped out cut flower exports in Uganda.  Easterly and Reshef find that international aid organizations can help bridge gaps between Africa and Western markets, though “only careful implementation of aid in partnership with local producers (or farmers) works well” (4).  “Pioneers” were also particularly successful in galvanizing exports.  As would be expected, regional free trade zones and low European import duties also contributed to African export success.  One recommendation that consistently emerged in interviews was that product quality mattered, especially as a determinant of exporters’ ability to sell in rich markets such as the EU and United States.  However, cost surpassed quality as the most important determinant of regional exports.  Easterly and Reshef comment that “There seems to be a tradeoff between cost and quality, and when incomes are low, costs trump quality.  Hence, which model is right depends on context” (5). 

Overall, Easterly and Reshef conclude that the pattern of export successes in Africa is much the same as that in the rest of the world.  Successes are characterized by “Big Hits,” that change markedly between periods, and which are mot explained by obvious factors such as commodity prices.  Export shifts are driven by both conventional macroeconomic and business factors, as well as idiosyncratic features of specific markets and individual entrepreneurs.  In terms of policy recommendations, the authors conclude on the note that “The picture of African exports could suggest the advantages of a flexible and decentralized system for continually making these discoveries, while sometimes succeeding also in perpetuating the success of old exports.  A system that might fit the bill is private entrepreneurs operating in a relatively free market, just as much in Africa as in the rest of the world” (50).