**effect on GDP growth is more or less exclusively explained by growth in labor.** Figure 4 suggests that less output has been generated with additional units of input, that is, the growth of the residual TFP has been negative. In fact, Figure 4 shows a loss of almost two thirds in cumulative productivity since the end of the 1960s. Togo’s cumulative loss of productivity, as approximated by this residual, is the highest compared to a sample of benchmark countries (Bosworth and Collins, 2000). In what follows, we take a closer look at each of the proxy determinants of growth, namely, physical capital, labor, TFP and in later sections human capital.

# **4.2 Capital and Investment Dynamics**

**As Figure 5 shows, for the period 1981‐2005, the decline in output per worker has been largely explained by the fall in the capital‐labor ratio, and to a lesser extent by a shift of resources across sectors.** The former ratio has declined due to the significant increase in labor and the very low increase in capital (a total of only 9.5%, 1981 to 2005). The capital stock per unit of worker currently stands at the same level as in the 1960’s. It increased steadily in the 1960s and 1970s at a pace much faster than employment growth but was followed by a substantial deceleration in real investments.

**Figure 5: Decomposition of Changes in Output per worker, Togo 1981‐2005 (LHS), and Capital Stock Values per Unit of Worker, Togo, 1960‐2007 (RHS).**

<!-- Start of picture text --> 800<br>700<br>600<br>500<br>400<br>‐51.64 300<br>200<br>100<br>‐30.47 0<br>‐55.00 ‐45.00 ‐35.00 ‐25.00 ‐15.00 ‐5.00 5.00<br>Output per worker net of inter‐sectoral shifts Capital Labor Ratio TFP residual net of inter‐sectoral shifts<br>T h o u san d s o f CF A o f 2000<br>1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005<br><!-- End of picture text --> _Note_ : Capital stocks have been estimated following the perpetual inventory method, whereby the capital stocks values in a year “t” is obtained as the sum of capital stocks in year “t‐1” minus depreciation, plus the investment (gross capital formation) in “t”. In turn, the initial value of capital stocks is estimated under a steady state assumption on the growth rate of capital, as the value of initial gross capital formation divided by the sum of the depreciation rate and the growth rate of investment. _Source_ : Authors’ calculations based on WDI data, World Bank.

**Figure 6: Capital Formation in Togo and Benchmark Countries, averages 2000‐2005 (LHS) and Real Gross Capital Formation per capita (in logs) versus Real  per capita GDP growth, Averages 2000‐2008 (RHS).**

<!-- Start of picture text --> 45% 400 20%<br>40% 350<br>35% 300<br>30% 250 15%<br>25%<br>200<br>20%<br>15% 150 10%<br>10% 100<br>5% 50 5%<br>0% 0<br>0%<br>Togo<br>‐5%<br>0 2 4 6 8 10<br>Real Gross Capital Formation per capita (US$ of 2000) Real Gross Capital Formation (Real US$ of 2000) per capita,<br>Ratio of Gross Capital Formation to GDP (Real US$ of 2000) 2000‐2008, in logs<br>% of GDP Per capita<br>rate, 2000 ‐ 2008<br>Cape Verde Ghana Senegal Mali Benin Gambia, The Cote d'Ivoire Togo Burkina Faso Guinea‐Bissau Sub S. Africa Low Income<br>Real GDP per capita (US$ of 2000) growth<br>Lower‐Middle Inc.<br><!-- End of picture text -->

**_Source:_ WDI data, World Bank.**

**In terms of real gross capital formation per capita, Togo has the 11**<sup>**th**</sup> **lowest ratio out of 152 countries with data in the world.** The average for the period 2000 to 2005 was 46 USD per capita, compared to 99 USD per capita on average in SSA, and as much as 355 USD per capita in the lower part of the middle income country group (Figure 6,

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