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Toward an Understanding of Economic Growth in Africa: A Re-Interpretation of the Lewis Model

Xinshen Diao, Margaret McMillan

NBER Working Paper No. 21018
Issued in March 2015
NBER Program(s):Development Economics, Economic Fluctuations and Growth

Africa’s recent economic growth is at a historical high. The patterns associated with this growth appear to be quite different from the Asian experiences where rapid growth was fueled by labor intensive, export-oriented manufacturing. Because this pattern differs with our typical view of structural transformation, a heated debate has begun over the sustainability of Africa’s growth. One thing is clear: the recent growth is not well understood. Against this background, we adapt Lewis’s (1954) dual-economy model to the economies of Africa to better understand the role that the “in-between” sector as defined by Lewis (1979) has played in Africa’s recent growth. Our framework incorporates the coexistence of a closed and an open modern economy and takes into account the diversity and heterogeneity of the activities that characterize modern African economies. We apply this framework to the economy of Rwanda to assess Rwanda’s future growth prospects based on different levels of foreign capital inflows. We find that higher foreign inflows lead to significantly more growth in the closed modern economy and stagnant growth in the open modern economy, a phenomenon consistent with recently observed patterns of growth across several African countries.

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Document Object Identifier (DOI): 10.3386/w21018

Published: Xinshen Diao & Margaret McMillan, 2017. "Toward an Understanding of Economic Growth in Africa: A Reinterpretation of the Lewis Model," World Development, .

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