1. PHYSICAL INVESTMENT, HEALTH INVESTMENT AND ECONOMIC COMPETITIVENESS IN AFRICA By Abiodun O. Folawewo and Adeniyi Jimmy Adedokun Department of Economics, Faculty of the Social Sciences University of Ibadan NIGERIA

2. OUTLINE OF THE PRESENTATION  Introduction  Objective of the Study  Background  Literature Review  Methodology  Analyses of Results  Conclusion and Recommendation

3. Introduction Competitiveness definition  Set of institutions, policies, and factors that determine the level of productivity of a country, in an effort to understand and measure the drivers of economic prosperity (World Economic Forum, 2011).  Also, OECD (1992) defined it as the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the longer term.

4. Contd. Studies have shown that there are several determinants of competitiveness (see Szentes, 2005 and Csath, 2007 among others) World Economic Forum (2011), identified 12 pillars of competitiveness – institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

5. Contd. Given the definitions, competitiveness can be seen from two major angels  At the aggregate level, which Fagerberg et al.(2004) referred to as overall competitiveness, better measured through GDP per capita.  At the components level, better measured through variables that can proxy the different pillars as identified above. Based on this, this study identified two important pillars of competitiveness (physical investment and health investment) and examine their effects at the aggregate level in Africa.

6. Objectives of the Study The overall objective is to investigate the role of investment on economic competitiveness in Africa Specific Objectives: – examine the effect of physical investment on economic competitiveness in Africa; – examine the effect of health investment on economic competitiveness in Africa; and – investigate economic convergence in Africa.

7. Background: Africa’s Economic Competitiveness Table 1: Annual Averages of PCI and PCI Percentage Distribution in Africa and Rest of the World (Constant 2005 US Million Dollars), 1996-2013 Source: World Development Indicators (WDI, 2014) Regions1996-981999-012002-042005-072008-102011-13 High Income25323.6827349.428713.0230797.830779.5731515.91 Europe and Central Asia 15247.95 60.21% 16598.18 60.69% 17610.67 61.33% 19101.8 62.02% 19275.44 62.62% 19494.43 61.86% World 6200.64 24.49% 6554.63 23.97% 6825.26 23.77% 7364.64 23.91% 7495.6 24.35% 7767.64 24.65% Latin America & Caribbean 4654 18.38% 4746.82 17.36% 4789.79 16.68% 5301.59 17.21% 5628.12 18.29% 6016.43 19.09% East Asia & Pacific 3890.71 15.36% 4058.91 14.84% 4394.56 15.31% 4955.12 16.09% 5424.68 17.62% 6028.21 19.13% All Middle Incomes 1469.67 5.8% 1570.74 5.74% 1732.92 6.04% 2073.83 6.73% 2390.93 7.77% 2726.9 8.65% Africa 1372.38 5.42% 1473.16 5.39% 1592.36 5.55% 1808.96 5.87% 1930.64 6.27% 1963.6 6.23% South Asia 497.79 1.97% 556.21 2.03% 615.33 2.14% 748.52 2.43% 878.58 2.85% 1022.92 3.25% Low Income290.57 1.15% 301.17 1.1% 316.48 1.1% 352.68 1.15% 391.7 1.27% 438.06 1.39%

8. Background Contd. Table 2: Annual Averages of PCI and PCI Percentage Distribution in Africa and its Sub-Regions (Constant 2005 US Million Dollars), 1996-2013 Source: World Development Indicators (WDI, 2014) Regions1996-981999-012002-042005-072008-102011-13 Africa1372.381473.161592.361808.961930.641963.60 West Africa 500.31 36.46% 530.73 36.03% 555.73 34.90% 611.15 33.78% 662.72 34.33% 701.49 35.72% East Africa 1229.83 89.61% 1317.23 89.42% 1295.17 81.34% 1427.60 78.92% 1519.12 78.68% 1675.38 85.32% Central Africa 1650.55 120.27% 1834.51 124.53% 2305.56 144.79% 2750.03 152.02% 2906.07 150.52% 2910.90 148.24% North Africa 2358.44 171.85% 2560.34 173.80% 2725.02 171.13% 3119.64 172.45% 3385.42 175.35% 2915.01 148.45% South Africa2935.15 213.87% 3032.85 205.87% 3217.59 202.06% 3595.53 198.76% 3803.33 197.00% 4077.80 207.67%

9. Background Contd. Table 3: Average Regional Physical Investment, Health Investment and Per Capita Income Growth in Africa and its Sub-Regions (1996 – 2012) Africa Indicators1996-981999-012002-042005-072008-102011-12Average Physical Investment (% of GDP) 21.6820.1220.2121.3422.8625.1521.89 Health Investment (% of GDP) 5.145.305.555.866.106.275.70 Per Capita Income Growth 4.001.662.203.231.862.012.49

10. Background Contd. Table 3: Average Regional Physical Investment, Health Investment and Per Capita Income Growth in Africa and its Sub-Regions (1996 – 2012) West Africa Physical Investment (% of GDP)15.4114.3016.0219.3221.1024.1018.38 Health Investment (% of GDP)5.996.116.136.646.997.116.49 Per Capita Income Growth Rate4.162.091.712.572.002.472.50 East Africa Physical Investment (% of GDP)16.1016.5017.8020.1221.4825.9819.67 Health Investment (% of GDP)4.574.945.326.156.066.255.55 Per Capita Income Growth Rate1.600.710.462.841.642.981.74 Central Africa Physical Investment (% of GDP)41.4533.7029.7626.2227.0729.5831.30 Health Investment (% of GDP)4.584.514.924.334.634.424.56 Per Capita Income Growth Rate9.992.445.054.042.041.984.26 North Africa Physical Investment (% of GDP)18.4519.9720.6323.1226.2823.9522.07 Health Investment (% of GDP)4.204.324.674.485.175.684.75 Per Capita Income Growth Rate3.532.143.294.382.244.683.38 Southern Africa Physical Investment (% of GDP)28.2024.7522.3520.2323.2023.5723.71 Health Investment (% of GDP)6.316.386.536.968.008.507.11 Per Capita Income Growth Rate1.321.232.903.741.412.612.20

11. Literature Review Economic Competitiveness  According to Fagerberg et al (2004), competitiveness is applied on several levels; when applied to a country, it has a double meaning – it relates both to the economic well-being of its citizens, normally measured through GDP per capita, and trade performance of the country.  Also, competitiveness can be observed from two major angels.  first, at the aggregate level (Fagerberg, et al. 2004 referred to this as overall competitiveness)  second, at components level (World Economic Forum, 2011 identified 12 pillars of competitiveness)

12. Contd. Theoretical Positions  Growth models generally have identified several factors that can contribute to economic growth. Harrod-Domar identified investment; neoclassical identified capital and labour; endogenous Empirical Evidences  The study concentrates on studies that investigated the role of physical and health investment in economic growth.  Physical Investment – private (see Ghura and Hadjimichael, 1996; Ghani and Din, 2006), public (see Ghani and Din, 2006; Warner, 2014), infrastructural investment such as transportation (see Aschauer, 1989; Amaghionyeodiwe and Folawewo, 1998; Banerjee et al., 2009).  Health Investment – life expectancy and child mortality (Bloom et al. 2004, Aghion et al. 2010)  Health expenditure (see Taban (2006), Cetin and Ecevit (2010)

13. Methodology  The empirical model for the study is built on the neoclassical growth theory  The dynamic model estimated for the study is presented below.  P, H, m2, and C are all in per capita forms.  System GMM proposed by Arellano and Bover (1995) and Blundell and Bond (1998) is used.  3 different categories within the continent is considered.  sub-regions - West Africa, East Africa, Central Africa, Southern Africa, and Northern Africa  oil producing - oil producing and non-oil producing countries  population size - low populated and high populated  Data used in this study cover African countries from the period 1996 to 2012, measured at 2005 constant prices, US Dollars and sourced from WDI, (2014)

14. Discussion of Results Table 5.1: Descriptive Statistics of Major Variables AfricaWest Africa VariableMeanSDMinMaxCVVariableMeanSDMinMaxCV PCGRT2.618.93-62.47142.073.41PCGRT2.507.89-33.9891.673.15 PHYINV21.6916.99-2.42219.070.78PHYINV18.048.84-2.4258.960.49 HLTINV5.692.321.5418.410.41HLTINV6.462.873.4418.410.44 East AfricaCentral Africa PCGRT1.674.34-17.9510.672.60PCGRT4.3414.61-11.17142.073.36 PHYINV19.007.672.0047.850.81PHYINV31.2134.492.1219.071.11 HLTINV5.511.892.6011.620.34HLTINV4.571.921.5411.810.42 Southern AfricaNorth Africa PCGRT2.182.75-8.6911.031.26PCGRT3.3112.40-62.47102.783.75 PHYINV23.7210.658.4274.820.45PHYINV21.835.878.9738.240.27 HLTINV7.031.673.8511.730.24HLTINV4.701.162.257.470.25

15. Discussion of Results Contd. Oil ProducersNon-oil Producers VariableMeanSDMinMaxCVVariableMeanSDMin Max CV PCGRT3.8014.57-62.47142.073.83PCGRT2.225.96-33.9891.672.68 PHYINV25.1728.922.10219.071.15PHYINV20.509.85-2.4279.350.48 HLTINV4.811.731.549.140.36HLTINV6.002.422.6018.410.40 High Population CountriesLow Population Countries PCGRT2.483.88-15.2830.341.56PCGRT2.6710.35-62.47142.073.88 PHYINV19.457.312.147.850.38PHYINV22.6819.72-2.42219.070.87 HLTINV5.511.533.149.560.28HLTINV5.772.591.5418.410.45

16. Empirical findings Stepwise regression is carried out to effectively investigate the objectives of the study.  Model 1: Population growth*, M2**, and openness*** and inflation***  Model 2: Physical investment***  Model 3: Health Investment***  Model 4: Physical***; Health. This shows that for Africa, physical investment has overwhelming influence over health investment The results for other groups of countries shows that as physical investment increase in Africa, it enhances income competitiveness, however its explanatory varies across groups. It is highly significant for seven groups, but insignificant in West Africa, Central Africa, and high population.

17. Empirical findings Contd. Health investment’s coefficient is also consistent with apriori expectation in all the models, except (North Africa). It’s explanatory power is only relevant for five models (West, central, Oil producing, Non-oil producing, and high populated) Convergence across Africa is established for all the models estimated.

18. Variables(1)(2)(3)(4) Initial GDP per Capita (log) -4.46* (-1.85) -6.85*** (-2.64) -5*** (-3.33) -5.49*** (-3.01) Population Growth 1.94* (1.66) 0.26 (0.48) 1.16* (1.76) 0.37 (0.67) M2 2.84** (1.99) 0.51 (0.56) 0.58 (0.52) 0.9 (0.71) Openness 0.05*** (2.76) 0.04** (2.1) 0.07*** (2.72) 0.04*** (2.49) Inflation -0.01*** (-4.4) -0.004*** (-3.37) 0.001 (0.8) -0.004*** (-2.73) Government Consumption -4.46* (-1.85) 0.4 (1.25) 0.57** (2.14) 0.35 (1.39) Physical Investment(log) 4.86*** (3.49) 2.96*** (2.59) Health Investment 4.09*** (3.2) 0.26 (0.17) Hansen Test Chi-Sq 47.13 [1.000] 44.31 [1.000] 47.50 [1.000] 44.65 [1.000] AR(1) -2.05 [0.040] -2.44 [0.014] -2.20 [0.028] -2.42 [0.015] AR(2) -1.48 [0.140] -1.14 [0.254] -0.97 [0.333] -1.12 [0.263] Number of Observation684659655649 Table 2: System GMM for Physical Investment, Health Investment, and Economic Competitiveness in Africa (1996 – 2012)

19. Table 3: System GMM for Physical Investment, Health Investment, and Economic Competitiveness: Africa and Other Categories (1996 – 2012) Variables (1) Africa (2) West Africa (3) East Africa (4) Central Africa (5) Southern Africa (6) Northern Africa Initial GDP per Capita (log) -5.49*** (-3.01) -6.09*** (-2.6) -3.34** (-2.17) -17.32** (-1.95) -3.54** (-2.15) -4.69*** (-6.07) Population Growth 0.37 (0.67) 1.63* (1.84) -0.78*** (-2.5) -1.2 (-0.58) -0.28 (-1.48) -1.75 (-1.11) M2 0.9 (0.71) 1.71 (0.96) -0.5 (-0.67) 1.99 (0.93) -0.85 (-0.77) -0.77 (-0.69) Openness 0.04*** (2.49) 0.02 (1.49) -0.03 (-1.32) 0.09*** (2.9) -0.03 (-1.2) 0.07* (1.9) Inflation -0.004*** (-2.73) 0.02 (0.99) -0.09** (-2.23) -0.004** (-2.14) 0.01 (0.07) 0.09*** (3.04) Government Consumption 0.35 (1.39) 1.22*** (2.7) -0.47* (-1.76) 0.35 (0.39) 0.81*** (2.62) -0.17 (-0.82) Physical Investment 2.96*** (2.59) 0.23 (0.14) 3.72*** (4.00) 5.7 (1.09) 2.38** (2.11) 2.76** (1.99) Health Investment 0.26 (0.17) 4.1*** (3.33) 0.88 (1.00) 4.43** (2.03) 0.04 (0.05) -0.55 (-0.47) Hansen Test Chi-Sq 44.65 [1.000] 10.48 [1.000] 6.14 [1.000] 0.00 [1.000] 0.00 [1.000] 0.00 [1.000] AR(1) -2.42 [0.015] -2.08 [0.038] -2.74 [0.006] -1.32 [0.186] -1.71 [0.087] -1.61 [0.107] AR(2) -1.12 [0.263] 0.94 [0.347] -0.44 [0.662] -1.26 [0.206] -0.39 [0.695] 0.72 [0.471] Number of Observation6491981831187668

20. Table 3: System GMM for Physical Investment, Health Investment, and Economic Competitiveness: Africa and Other Categories (1996 – 2012) Variables (1) Africa (7) Oil Producer (8) Non-Oil Producer (9) High Populated (10) Low Populated Initial GDP per Capita (log) -5.49*** (-3.01) -35.52** (-2.41) -4.31*** (-4.84) -4.19*** (-3.32) -6.6** (-2.36) Population Growth 0.37 (0.67) 2.23 (1.07) -0.17 (-0.38) -0.45 (-0.51) 0.24 (0.39) M2 0.9 (0.71) 0.24 (0.12) -0.17 (-0.29) -1.76 (-1.21) 0.57 (0.45) Openness 0.04*** (2.49) -0.02 (-0.32) 0.001 (0.08) 0.06** (1.93) 0.05*** (3.06) Inflation -0.004*** (-2.73) -0.01** (-2.11) -0.02 (-0.67) -0.004*** (-3.91) -0.01* (-1.85) Government Consumption 0.35 (1.39) 3.22 (1.37) 0.21 (0.81) 0.9** (1.96) 0.35 (0.97) Physical Investment 2.96*** (2.59) 20.59** (2.13) 2.71*** (2.85) 1.12 (0.76) 3.94** (2.39) Health Investment 0.26 (0.17) 4.9** (1.96) 1.56** (2.07) 4.43** (1.95) 0.44 (0.28) Hansen Test Chi-Sq 44.65 [1.000] 7.01 [1.000] 31.07 [1.000] 12.38 [1.000] 28.79 [1.000] AR(1) -2.42 [0.015] -1.83 [0.067] -3.76 [0.000] -1.66 [0.097] -2.01 [0.044] AR(2) -1.12 [0.263] -1.12 [0..264] -0.62 [0.534] -0.09 [0.929] -1.13 [0.261] Number of Observation649152488210439

21. Conclusion and Recommendation  Africa is relatively not competitive when compared to other regions of the world.  West Africa and East Africa are not competitive in Africa, thus, can be identified as the major regions dragging the Africa’s economy.  Physical and health investment influences economic competitiveness in Africa, however, physical investment’s influence is felt more than health investment in Africa.  There is evidence of convergence in Africa and its sub-regions.  Both types of investments need to be improved, especially health investment to boost its relative impact on economic competitiveness in Africa.  West Africa and East Africa need to put necessary things in place to boost their competitiveness in Africa. Specifically, they must improve the level of physical and health investments.

22. Thank you for listening