Can Africa Be a Manufacturing Destination? Labor Costs in Comparative Perspective

53 Pages Posted: 2 Nov 2017 Last revised: 30 Nov 2017

See all articles by Alan Gelb

Alan Gelb

Center for Global Development

Christian Meyer

European University Institute - Economics Department (ECO)

Vijaya Ramachandran

Center for Global Development

Divyanshi Wadhwa

Center for Global Development

Date Written: October 15, 2017

Abstract

Our central question is whether African countries can break into global manufacturing in a substantial way. Using a newly-constructed panel of firm-level data from the World Bank's Enterprise Surveys, we look at labor costs in a range of low and middle income countries in Africa and elsewhere. Using fixed effects and random effects models, we estimate a set of labor costs, both actual and hypothetical—what would labor costs for Sub-Saharan African firms look like if they were located outside of Africa? What would Bangladesh's labor costs be if it was located on the African continent? Our results suggest that for any given level of GDP, labor is more costly for firms that are located in Sub-Saharan Africa. However, we also find that there are a few countries in Africa that, on a labor cost basis, may be potential candidates for manufacturing—Ethiopia in particular stands out. We conclude with thoughts on the future of manufacturing in Africa.

Keywords: Africa, Industrialization, Labor, Manufacturing

JEL Classification: D2, L6, O14

Suggested Citation

Gelb, Alan and Meyer, Christian and Ramachandran, Vijaya and Wadhwa, Divyanshi, Can Africa Be a Manufacturing Destination? Labor Costs in Comparative Perspective (October 15, 2017). Center for Global Development Working Paper No. 466. Available at SSRN: https://ssrn.com/abstract=3062914 or http://dx.doi.org/10.2139/ssrn.3062914

Alan Gelb

Center for Global Development ( email )

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Christian Meyer

European University Institute - Economics Department (ECO)

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Vijaya Ramachandran (Contact Author)

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

Divyanshi Wadhwa

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

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