# 21. PHYSICAL INVESTMENT, HEALTH INVESTMENT AND ECONOMIC COMPETITIVENESS IN AFRICA

Abiodun O. Folawewo, Ph.D and Adeniyi Jimmy Adedokun[1]

Department of Economics,

Faculty of the Social Sciences

University of Ibadan

NIGERIA

Competiveness is defined as the 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). In the same way, the organisation for Economic Cooperation and development (OECD) (1992) defined a nation’s competitiveness to mean the degree to which it 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. Given the two definitions, competitiveness has to do with understanding the drivers of economic prosperity shown in its per capita income. Studies have shown that there are several determinants of competitiveness (see Csath, 2007 and Szentes, 2005, among others). In a report on global competitiveness by World Economic Forum (2011), infrastructure being a component of physical investment, and health and primary education are both identified as parts of the 12 pillars of competitiveness. According to the report, extensive and efficient infrastructure is critical for ensuring the effective functioning of the economy, as it is an important factor determining the location of economic activity. Also, health is vital to a country’s competitiveness and productivity. Good health makes labour force to operate at full level of efficiency. However, bad health condition affects productivity negatively as ill workers absent from jobs or exert effort below full potential during production.

Based on the aforementioned, it becomes germane to investigate the role of physical investment and health investment on economic competitiveness in Africa. Thus, the basic questions in this study are: has health investment improved economic competitiveness in Africa? Has physical investment improved economic competitiveness in Africa? Is there evidence of economic convergence in Africa?

OBJECTIVES

The overall objective of this study is to examine the role of physical and health investment on economic competitiveness in Africa. Specifically, the study aims to:

(i)             examine the effect of physical investment on economic competitiveness;

(ii)           examine the effect of health investment on economic competitiveness; and

(iii)          investigate the evidence of  economic convergence in Africa.

METHODS

The model specification for this study is presented as follows.

                                                                                                                             

β1  < 0, β2 and β3 > 0                                                                                                              (1)

where ‘i’ indexes countries, ‘t’ indexes time, and ‘ln’ means variables are in their log form. ‘Yit is the growth rate of real GDP per capita, ‘Yit-1 is initial level of GDP per capita. ‘Pit is per capita physical investment, the variable ‘Hit’ measures per capita health investment, ‘popit is population growth employed as a proxy for labour force growth, ‘infit is inflation, ‘openit is openness defined as total trade as a percentage of GDP, the variable ‘m2it defined as broad money as a percentage of GDP measures the development of financial markets, ‘Cit is government consumption as a percentage of GDP.

            The a priori expectations of the major variables in the model are presented in equation (1). β1 investigates the evidence of economic convergence, β2 measures the effect of physical investment, and finally, β3 measures the effect of health investment.

The three specific objectives of the research will be investigated by employing a dynamic panel data estimation technique. As a result, this study will adopt the “system GMM” estimator, proposed by Arellano and Bover (1995) and Blundell and Bond (1998). Economic competitiveness variable will be proxiedby growth rate of gross domestic product (GDP) per capita, gross fixed capital formation will proxy physical capital, and health expenditure will be used to capture health investment.

To mitigate the effect of heterogeneity in this study, apart from the aggregate Africa model, various models will be estimated across 4 different categories within the continent. One, sub-regions category which comprises West Africa, East Africa, Central Africa, Southern Africa, and Northern Africa; two, oil producing category which consist of oil producing and non-oil producing countries - oil producers are countries that produce oil in commercial level and non-oil producer are those that do not produce oil in commercial level. Countries that newly discovered oil in commercial level are not included as oil producers in this study.  Three, income level category, determined by dividing Africa into two using the per capita income. To do this, the mid-income level across Africa is determined after which countries that fall below the mid-point are categorised as low income and countries above are categorised as high income. Four, population size category which is determined as in the case of income level category.  Also, for a robust analysis, health investment will be divided into private, public and aggregate to identify their different specific effects.

MAIN DATA AND INFORMATION SOURCES

Generally, data that will be used for estimation in this study will cover African countries from the period 1995 to 2012.  The choice of this period is due to data availability, especially data on health expenditure. The main data of the study are gross fixed capital formation (GFCF), health expenditure (HE) and per capita gross domestic product (PCGDP). All the three variables will be measured at 2005 constant prices, in US Dollars and will be sourced from the World Bank's World Development Indicators (WDI, 2014).

            Other variables that will be employed are population growth, broad money as a percentage of GDP, openness, inflation, and government consumption as a percentage of GDP. All will be sourced from WDI (2014).

EXPECTED RESULTS

It is expected in this study that physical and health investment will both have significant positive relationship with economic competitiveness in Africa. The same way, it is expected that  economic convergence will be evidenced in Africa.

REFERENCES

Csath, M. (2007). “The Competitiveness of Economies: Different Views and Arguments”, Society and Economy, Vol. 29(1), pp. 87-102.

OECD (1992). “Technology and the Economy: The Key Relationships”, Paris, Organisation for Econom ic Co-operation and Development

Szentes, T. (2005). “Interpretations, Aspects and Levels, Decisive Factors and Measuring Methods of competitiveness” Society and Economy, Vol. 27, No. 1, pp. 5-41

World Economic Report (2011). “The Global Competitiveness Report 2011-2012” , Edited by Klaus Schwab. The World Economic Report, Geneve Switzerland.




[1] Corresponding author: Adeniyi Jimmy Adedokun, Department of  Economics, Faculty of the Social Sciences, University of Ibadan, Ibadan, Nigeria, email: jimmyades2005@yahoo.com .

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