Determinants of productivity in Africa: The role of economic freedom

This paper examines the determinants of multifactor productivity in a cross-country study of 33 African countries. Among others, we specifically focus on the role of economic freedom, and its subcomponents, as defined by the Heritage Foundation/Wall Street Journal Economic Freedom Index (EFI). The empirical results show that the economic freedom index (and most of its components) has a positive and statistically significant impact on the productivity of African nations. The components of economic freedom that are critically important to enhancing productivity of African countries are: Business freedom, investment freedom, financial freedom, property rights freedom and freedom from corruption. We also investigate ‘bivariate granger-causality’ between economic freedom and total productivity. The results show that economic freedom granger-causes total factor productivity in most of these countries, but the other way around is not true.