Comments on: “Determinants and effects of export diversification in Cape Verde and Mozambique: A contribution towards assessing successes in West and Southern African economic communities,” by Jorge Braga de Macedo, Luis Brites Pereira and Manuel Caldeira Cabral Jeff Frankel, Harvard Univ. & NBER For Economic Research on African Development Successes Pre-Conference, Feb. 28, 2009

Historical background Most authors at this conference weren’t born when the countries they are studying became independent. But Jorge was actually a colonial occupier ! When I first met him in Lisbon in 1976, he was a junior army officer, just-returned from Angola. But then, junior officers were the ones who turned against the colonial wars and overthrew the Portuguese dictatorship. So that’s okay. 2

Overall… Compliments: – I learned a lot from reading the paper. – It blends econometrics with country cases. – It raises some interesting questions Grumble, grumble: – I only got the current version Friday. – It is 64 pages long, single-spaced. Its title is almost as long as other people’s papers here! – It is really two different papers, with little connection: 1 st half is econometrics on Export Diversification & Export Sophistication 2 nd half is indicators for Cape Verde & Mozambique 3

Why the choice of Cape Verde & Mozambique? Obviously they are Portuguese speaking, but why these two out of the five? Cape Verde? It counts as a success. Mozambique? It recovered rapidly after its civil war. I would propose perhaps re-casting this half of the paper as two comparisons: – Cape Verde versus Sao Tome & Principe (2 small island countries) – Mozambique vs. Angola (2 remote mainland countries each of whom fought a long civil war). – The question then would be why Cape Verde has done better than ST & P and Mozambique over Angola. – If the question were phrased this way, the obvious starting point would be Natural Resource Curse: both ST & P and Angola have oil. 4

Indicators of governance (rule of law…) and outcomes (income per capita, human development…) Part 3 of the paper shows lots of indicators from the usual sources (World Bank, etc.) I will show some summary measures from the annual Index of African Governance by Rachel Gisselquist & Robert Rotberg, Harvard. 5

Index of African Governance (for 2006, published 2008) 1.Mauritius 2.Seychelles 3.Cape Verde 4.Botswana 5.South Africa … 24.Niger … 44. Angola 45. Sudan 46. Chad 47. Congo (DR) 48. Somalia

7 Three island countries have the best institutions, as measured by Index of African Governance Mauritius, Seychelles & Cape Verde are rivaled only by S.Africa & Botswana Angola falls far short of Mozambique Cape Verde better than Sao Tome & Principle

“Globalization” “In less than one year, the risk of excluding African economies from globalization has turned into the hope of sparing [them] from the global financial crisis (p.1). ” -- …Very well said ! “…globalization in the form of export diversification and sophistication interacts with development and governance indicators… (p.44) ” -- …Not so well said. Globalization ≠ Export Diversification & Export Sophistication. – A country that produces only minerals for export is globalized ! Interacting globalization measures with governance indicators in a growth equation is a good idea. Why not try it? 8

Regional integration The authors present the interesting proposition that regional integration helps globalization – Because economies-of-scale helps trade (Helpman-Krugman) – & regional associations reinforce political will to reform Apparently for CFA countries – But not for ECOWAS & SADC, to which Cape Verde & Mozambique, respectively, belong. An appealing notion, but they could pursue it further. – Needs to be demonstrated; versus, e.g., trade-diversion. 9

Income per capita Export diversi- fication Export diversification & income/cap The authors’ Table I’m not sure what is supposed to be the theory, or even the direction of causality !

Export diversification & income/cap The authors’ Table 2.4. I’d expect those clustered at lower left to be small countries. – Theory predicts: small countries have both lower income & less diversification within exports (despite higher X/GDP). Two reasons – a narrower range of endowments – Increasing returns to scale. Indeed the authors find size a significantly determines ExDiv (Fig. 2.6) – even more than does income/cap; – especially within Africa (p. 13) Thus I would think that controlling for size would cut the positive correlation between Ex. Div. & income. – But they find controlling for size raises the correlation. (p. 12) 11

Other controls in the Ex.Div. equation include: Barriers to trade – Landlockedness – Distance which turns out to mean distance from Europe. As they note, Niger is closer than Namibia or Mauritius One can do better – (1) There exists measures of distance to nearest port, and then by sea. – (2) Compute Remoteness: GDP-weighted average distance from all trading partners. – Tariffs (p. 17) All the barriers to trade reduce Export Diversification (not just X/GDP), as one would probably expect. 12

Measures of governance raise E x. D iv. & E x. S oph. (pp ) I would’ve guessed the effect comes via income – But they find it holds even controlling for income. I would have guessed it is an artifact of countries highly specialized in minerals (NRC; e.g., Engerman & Sokoloff). – But they find it holds even controlling for oil. 13

Ex Div apparently lowers infant mortality. “Half as important as income” How? What channel? (Label the axes, please) 14

Ex Soph apparently lowers infant mortality. How? What channel? The same question for the relationship with income: what is the causal direction of the relationship with ExDiv.? 15

Meanwhile, back in Cape Verde & Mozambique… Africa’s E x. D iv. & E x. S oph. << all countries (stat. sig. P.21) Mozambique’s E x. D iv. & E x. S oph. ≈ Africa’s (insig. diff.) – But fnote 10 reveals an aluminum project dominates Mozambique’s E x. D iv., apparently driving a bigger wedge between the two halves of the paper. Cape Verde’s Ex.Div. & Ex.Soph. >> rest of Africa’s (stat. sig.) 16

Ultimately, the keys to Cape Verde’s success: Highly diversified exports (p. 28). Good governance (p. 38). Or is it divine providence? – The authors refer to “…its success in having god governance.” (p.21) 17

Addendum: 3 island countries have the best institutions, as measured by Index of African Governance, but some oil producers show up with relatively high income 20