# 2 Literature Review

## 2.1 The state of African manufacturing

The overall performance of Manufacturing in sub‐Saharan Africa has not been good. The share of manufacturing in GDP for the continent as a whole has declined slightly over the last 30 years from around 11% in 1985 to 10% in 2010 (World Bank, 2018).

Several explanations have been put forward for the poor performance of African manufacturing. These include the lack of access to finance and the resultant lower levels of investment, high input and trade logistics costs (Dihn et al 2012) and more generally a business environment and investment climate that is not conducive to enterprise performance (Bigsten and Soderbom, 2006, Aterido and Hallward‐Driemeier, 2012).

This poor performance means that African economies have not managed to shift resources and people away from agriculture and towards manufacturing. Instead, Rodrik (2016) characterizes many countries, including most of sub‐Saharan Africa, as having experienced premature deindustrialization. This is a phenomenon in which the peak of the share of manufacturing in total GDP reaches its maximum at much lower levels of GDP than was the case for countries that industrialized earlier, both advanced economies and most South East Asian economies.

It is also important to be aware of what is meant by manufacturing employment in the African context. Policy makers are looking to grow access to relatively high paying wage jobs. But the vast majority of employment in manufacturing in most African economies is in own account work. This pays on average much less than wage employment or self‐employment when the own employs others (Falco et al 2011).

### Manufacturing in Ghana

The state of Ghanaian manufacturing is similar to the sub‐Saharan picture presented above. Whilst GDP growth between 2003 and 2012 was 7.5% per annum, the growth in manufacturing GDP was around 3.3%. These trends meant that manufacturing’s share of total GDP declined from 9.8% in 1990 to around 6.9% in 2012 (Davies and Kerr, 2018).

Ghana has several sources of manufacturing firm‐level data, which have led to a substantive body of research using firm‐level data. Firm‐level analysis using Ghanaian data has been made possible by the publicly available RPED firm panel surveys conducted by the World Bank and the Centre for the Study of African Economies at the University of Oxford between 1991 and 2002. More recently a Project for Enterprise Development in Low Income Countries (PEDL) funded project has resulted in the 1987 and 2003 firm censuses being put into the public domain, whilst the authors are working on a follow‐up PEDL‐funded project to put the 2014 firm census into the public domain and document the differences and similarities between the 1987, 2003 and 2014 censuses, as well as the 1962 census for which microdata does not exist. We discuss this further in section 3.

The paper closest to ours is Lall et al (2009), who investigate the effects of infrastructure, human capital, existing agglomeration and other factors on the location decisions and productivity of Ghanaian manufacturing firms, using the 1987 and 2003 industrial censuses and changes across regions between the two censuses. Lall et al (2009) find that there was a pattern of de‐concentration of manufacturing away from the dominant districts (Accra and Ashanti, which contains the 2<sup>nd</sup> largest city Kumasi) between 1987 and 2003. In doing so the authors take the firm censuses at face value. We discuss below that these censuses were actually not comparable in a number of important ways. The main concern about the results from the Lall et al (2009) paper is that the de‐ 3