What explains the Algerian Economic Growth Record : Across-Country Approach over the peroid 1970-00

Abstract

The primary objective of this work is to focus on the question of economic growth in Algeria over the period 1970-00. It was motivated by the empirical observation that the comparatively high rate of investment that Algeria enjoyed over this period was not accompanied by a sufficiently sustainable rate of growth that would have led to major improvements in the standard of living, as reflected by per capita income. Other factors have certainly played a negative role in depressing per capita GDP growth in Algeria, and have thereby offset the positive contribution from the high investment rates witnessed over the three-decade period. This fact is easily established by examining the average rate of growth of per capita GDP over the period 1970-00 which stood at 1.19% per annum. This rate is so low that it implies that Algeria would double its initial per capita GDP in nearly six decades, which is quite a long period of time when compared with the average of 35 years that empirical studies of economic growth have established as a benchmark for countries that grow at an average of 2% per year. It is even much longer than the dozen of years associated with high rates of growth attained over the same period by some countries, such as South Korea, for instance. To investigate this matter, we designed a strategy that is based on three steps. The first was to benchmark Algeria's performance against that of other countries and groups of countries in terms of some economic variables known to be closely related to per capita GDP growth. The main idea here was to obtain some indications about the relative position of Algeria and to draw first conclusions about the factors behind Algeria's comparatively slow growth over a period of three decades.The second step in this work was to isolate the Algerian economy from the rest of the world and investigate the issue of productivity over the period 1970-00. The main result obtained in this step indicates that the poor rate of growth of GDP per capita was principally driven by negative growth of total factor productivity. The positive effect on growth from high investment rates was, therefore, completely offset by the inefficient use of capital in the production process. The third step consisted of running a set of growth regressions first and then using them to draw conclusions about Algeria's growth record over the period of study. The results are that high exposure of the Algerian economy to external shocks through heavy reliance on hydrocarbon exports, market distortions, poor basis of human capital, limited openness to international trade, and weak institutions, all contributed negatively to per capita GDP growth, either through investment or through total factor productivity