Urbanisation, education and the growth backlog of Africa

Abstract

Human capital accumulation and urbanization play a decisive role in the analysis of growth and development. Stylized facts reveal a positive association between human capital accumulation, urbanization and growth for both over time and across countries. While Africa has the fastest increasing human capital accumulation and urbanization growth, it is the region experiencing the slowest economic growth. This paper argues that the adjustment-costs resulting from rapid urbanization can explain this paradox. In other words, low or negative social return to education in the short-run might be due to transitory adjustment or urbanization costs. We build a simple growth model with two sectors, calibrate its parameters and then use it to simulate the African trajectory of human capital, urban population and GDP per capita. While we predict greater growth rates in future decades (backlog) convergence with high-income countries will be limited. The current levels of GDP per capita could have been reached 15 years earlier if it were not for the adjustment costs