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Labour Market Flexibility and Economic Growth in Africa

Author

Listed:
  • Joseph Eshun
  • Emmanuel Acheampong
  • King David Kweku Botchway
  • Morié Guy-Roland N'Drin
  • Divine Adzove

Abstract

Africa is endowed with both natural resources and a young growing workforce. In light of this, it is obvious that regulations on labour markets will have significant impacts on economic growth, especially through effects on employment and productivity. This study provides information on labour market regulations (labour market flexibility) and their impacts on economic growth in Africa. In particular, this study examines the impact of labour market flexibility (regulations) on economic growth (real GDP per capita growth) relying on the Driscoll-Kraay fixed-effects estimator and the two-step system generalized method of moments (GMM) estimation techniques using data from 2000 to 2019 for 37 African countries. The results show a positive correlation, indicating that liberalizing rigid labour market regulations can lead to economic growth benefits. Specifically, it is observed that economic growth increases by approximately 0.16% resulting from a unit (one standard deviation) increase in labour market flexibility. The study also finds that economic growth (real GDP per capita growth) is high in countries that have flexible hour regulations, flexible mandatory costs of worker dismissal, and the absence of (or not strictly enforced) military conscription. These findings have important implications for African governments and policymakers as they may find it useful to liberalize the prevailing rigid labour market regulations to reap economic growth benefits.

Suggested Citation

  • Joseph Eshun & Emmanuel Acheampong & King David Kweku Botchway & Morié Guy-Roland N'Drin & Divine Adzove, 2023. "Labour Market Flexibility and Economic Growth in Africa," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(3), pages 320-349.
    • Handle: RePEc:prg:jnlpep:v:2023:y:2023:i:3:id:828:p:320-349
    DOI: 10.18267/j.pep.828
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    References listed on IDEAS

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    1. Katarina Keller & Panu Poutvaara & Andreas Wagener, 2009. "Military Draft And Economic Growth In Oecd Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(5), pages 373-393, October.
    2. Andrea Bassanini & Romain Duval, 2009. "Unemployment, institutions, and reform complementarities: re-assessing the aggregate evidence for OECD countries," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(1), pages 40-59, Spring.
    3. Agnello, Luca & Castro, Vitor & Tovar Jalles, João & Sousa, Ricardo M., 2014. "Fiscal adjustments, labour market flexibility and unemployment," Economics Letters, Elsevier, vol. 124(2), pages 231-235.
    4. Salah Ahmed & Ali Aljane, 2014. "Labor Regulation and Unemployment: The Case of Tunisia," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 3-13.
    5. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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    More about this item

    Keywords

    Labour market; military conscription; hiring and firing regulations; endogeneity; economic growth;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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