Prague Economic Papers 2023, 32(3):320-349 | DOI: 10.18267/j.pep.828

Labour Market Flexibility and Economic Growth in Africa

Joseph Eshun ORCID...a, Emmanuel Acheampong ORCID...b, King David Kweku Botchway ORCID...c, Morié Guy-Roland N'Drin ORCID...d, Divine Adzove ORCID...e
a Department of Economics, University of Hawai'i at Manoa, Honolulu, U.S.A.,
b Miami University, Educational Leadership Department, Oxford Ohio, U.S.A.
c Birla Institute of Technology and Science - K K Birla Goa Campus: Zuarinagar, Goa, India
d The Center for Economic Research, Shandong School of Development, Shandong University, China
e Department of Economics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

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.

Keywords: Labour market, military conscription, hiring and firing regulations, endogeneity, economic growth
JEL classification: J08, J10, J21, O43, O55

Received: July 2, 2022; Revised: February 9, 2023; Accepted: February 17, 2023; Published: June 28, 2023  Show citation

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Eshun, J., Acheampong, E., Botchway, K.D.K., Guy-Roland N'Drin, M., & Adzove, D. (2023). Labour Market Flexibility and Economic Growth in Africa. Prague Economic Papers, 32(3), 320-349. doi: 10.18267/j.pep.828
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