2.4 Efficiency of Production, by Country, Relative to the United States, 2017

n ee D e D : b oostin G the C ontribution of t ot AL fA C tor Pro D u C tivity 27

MAP 2 .4 Efficiency of Production, by Country, Relative to the United States, 2017

Relative TFP (US=1) (A/A*) < 0.2 0.2 – 0.4 0.4 – 0.6 0.6 – 0.8 > 0.8

No information

Source: Penn World Table (PWT) 9.0 and PWT9.1 updates (Feenstra, Inklaar, and Timmer 2015). Note: The relative total factor productivity (TFP) of each country, A/A*, was computed using data on output per worker, capital-output ratios, human capital, and the share of labor in output relative to the US (= 1.0).

production—as captured by the share due to TFP—has become increasingly relevant to explanations of productivity gaps from 2000 to 2014. The decrease in TFP in Sub-Saharan Africa relative to the United States could be attributed, among other things, to resource misallocation.

There is a shift in the narrative of what explains the persistent gap in labor productivity between Sub-Saharan Africa and the United States. It has shifted from an undercapitalization story (reflected by the substantially lower relative capital-output ratios from the 1960s to the mid-1980s) to a production inefficiency story (captured by the region’s lower relative TFP). In turn, Sub-Saharan Africa’s lower TFP levels could be attributed, among other things, to resource misallocation. In sum, the region’s scarce physical and human capital, compounded by the misallocation of these resources, translates into an even lower level of (labor and total factor) productivity.

Drivers of the Labor Productivity Gap

The extent and persistence of the labor productivity gap between Sub-Saharan Africa and the United States differ markedly across countries in the region. However, country evidence supports the aggregate story of changes in the main drivers of these persistent gaps in output per worker.

First, output-per-worker differences between Sub-Saharan African countries and the United States from 1980 to 1989 were primarily driven by differences in the stocks of physical and human capital.9 Lower capital-output ratios and human capital relative to the United States explain more than half of the labor productivity gap during that period in 22 out of 37 Sub-Saharan African countries. The median share of labor productivity differences attributed to factors of production was about 67 percent.

Second, disparities in labor productivity between Sub-Saharan African countries and the United States were larger in 2010–17 than in 1980–89. Furthermore, factor accumulation and TFP played increasing roles in