Private Sector Development and Economic Diversification: Evidence from West African States

The likely gains from economic diversification in developing countries have been well discussed in the literature. The general consensus is that a diverse economy, based on a wide range of profitable sectors instead of one or a few, is key to building sustainable development and providing new opportunities for growth, employment and development. In fact, it is accepted that economic diversity and sustainable development are linked. Economic diversification is an integral part of economic development and also a consequence of economic development. In addition, economic volatility of a nation can be reduced with increased real sector performance through economic diversification, thereby improving economic stability and job creation. Most West African countries are mono-cultural and dependent on commodity exports with all its attendant vulnerabilities. Despite efforts towards achieving a more diversified economy, countries in the sub-region have been hampered by a sea of challenges, prominent among which include limited market access, insecurity and political instability, rent seeking behavior, inadequate technological capabilities, etc. This paper seeks to investigate empirically the link between private sector development and economic diversification. Panel Data analysis was employed with data drawn from West African countries over the period 2007–2011. The findings from this study showed that economic diversification depends on the level of private sector development, quality of infrastructure and other non-economic factors such as quality of governance and political stability.