# **1. Introduction**

The lessons from recent development success stories suggest that they have either been facilitated by export-orientation (e.g. Korea and Taiwan) or have in fact been export-led (e.g. Chile, Mauritius, Tunisia and South East Asia). On the other hand, the marginalization of Sub-Saharan Africa (Africa, henceforth) in world trade, especially in the global market for manufactured exports, is regarded as one of the manifestations of the relative lack of economic growth in the region over the last thirty years. In this context, a recent World Bank report advocates export diversification as one of the main elements of the development strategies that countries in the sub continent need to follow for sustained growth and poverty reduction (World Bank, 2000). Whether or not Africa has a potential for diversifying its exports into manufacturing beyond traditional trade in primary commodities has consequently been a subject of debate among development policy experts.

The debate is based on three distinct views about the determinants of comparative advantage for manufactured exports. Two of these emphasize the role of “geography and endowment”. The third stresses the role of “transaction costs”. According to some, Africa cannot have comparative advantage in labor-intensive manufactures because of its higher endowment of natural resources relative to human capital.<sup>1</sup> Others argue that there is huge unexploited potential for coastal African countries for the growth of exports of labor-intensive manufactures, provided that they concentrate economic activities along their coasts and turn their increasingly expanding urban centers into productive and efficient base for exports.<sup>2</sup> In a similar vain, Collier (1997, 1998) argues that, for at least the majority of Africa, unusually high, and policy-induced, transaction costs are the main cause of its comparative disadvantage in manufactured exports. Available evidence, based on the analysis of aggregate data on manufactured exports, lends support to both the “geography” and “transaction cost” theses, while the “endowment” thesis appears to fail to account for the extent of Africa’s marginalization in the market for manufactured exports.<sup>3</sup> However, as it currently stands, macro-econometric analysis of the determinants of Africa’s aggregate manufactured exports is fraught with conceptual and econometric problems. At the conceptual level, existing estimates of relationships between export performance and economy-wide macro indicators (of geography or of institutions) lack a trade-theoretic foundation. Such a foundation should explicitly model the mechanism through which the effects of geography or of institutions are transmitted to the exporting decisions of individual producers. At the level of estimation, macro-econometric modeling of the determination of Africa’s manufactured exports is bedeviled by the endogeneity of institutions and some aspects of economic geography, for which there do not seem to be convincing remedies as yet. This is partly because there are not that many countries with long enough time series of observations on comparable indicators of

> 1 See, especially, Wood 1997; Wood and Mayers 1998; and Wood and Berge 1997.

> 2 For example,Bloom and Sachs (1998), Gallup and Sachs (1998), Sachs and Warner (1997).

> 3 See for example, Elbadawi (1999) and  Elbadawi and Soludo (1999).

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