Labor Productivity and Economic Growth in a Hydrocarbon-Dependent Economy: The Algerian Case, 1984–2015

Abstract

This paper addresses the empirical question of whether productivity can help explain the economic growth dynamics in Algeria over the period from 1984 to 2015. The first aim of this article is to measure the productivity for both the economy as a whole and for different sectors. Then, original estimates of the capital stock are made using the permanent inventory method, which enables the evolutions of the total factor productivity to be inferred. On the basis of these estimates, it is shown that, while the Algerian economy as a whole performed fairly well in terms of economic growth, this was more the result of an increase in production factors, i.e., labor force, than of labor productivity growth, which was very limited. This partly reflects the weak performance of the hydrocarbons sector, which has experienced a decline in labor productivity since the early 2000s, while other sectors such as agriculture have experienced strong productivity gains.

Résumé

Cet article aborde la question empirique de savoir si la productivité peut aider à expliquer la dynamique de la croissance économique en Algérie sur la période 1984-2015. Le premier objectif de cet article est de mesurer la productivité à la fois pour l’économie dans son ensemble et pour différents secteurs. Ensuite, des estimations initiales du stock de capital sont effectuées à l’aide de la méthode de l’inventaire permanent, ce qui a permis de déduire les évolutions de la productivité totale des facteurs. Sur la base de ces estimations, il est montré que si l’économie algérienne dans son ensemble a enregistré une assez bonne performance en termes de croissance économique, cette performance résulte davantage d’une augmentation des facteurs de production, à savoir la main-d’œuvre, que de la croissance de la productivité du travail, qui était, elle, très limitée. Cela reflète en partie la faible performance du secteur des hydrocarbures, qui a connu une baisse de la productivité du travail depuis le début des années 2000, tandis que d’autres secteurs tels que l’agriculture ont enregistré de forts gains de productivité.

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Source ONS data, calculations of authors

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Source ONS data, calculations of authors

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Source ONS data, calculations of authors

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Source World Bank; https://data.worldbank.org/

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Source ONS data, calculations of authors

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Notes

  1. 1.

    “At end-2016, government external debt was equal to just US$1.6 billion (1.0% of GDP)” Auclair et al. (2017, p. 7).

  2. 2.

    Steel, metal, mechanical, electrical, and electronic industries.

  3. 3.

    But it was also during this period that Algeria experienced one of its most serious political crises, triggered by the cancellation of the second round of legislative elections in January 1992. The subsequent black decade was a major brake on economic growth process, even if this period was also one of greater openness of the oil sector to foreign companies.

  4. 4.

    GDP per capita based on purchasing power parity (PPP) are not available for the whole period.

  5. 5.

    The terminology “gross accumulation of fixed funds” adopted by the Algerian National Accounts Department is equivalent to the gross fixed capital formation (GFCF).

  6. 6.

    Berlemann and Wesselhöft (2013) present a review of different methods of implementing capital stock.

  7. 7.

    Stiroh (2001) provides a similar analysis for productivity per hour worked.

  8. 8.

    Similarities can be found with a French overseas territory, New Caledonia, which suffers from poor productivity performance, while the country is rich in nickel resources. In the same way as the Algerian hydrocarbon sector suffers from weak performance, the nickel sector is one of the least productive sectors of the New Caledonian economy (Rey and Ris 2018).

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Acknowledgements

The authors would like to thank two anonymous referees for helpful and constructive comments. Any remaining errors are the sole responsibility of the authors.

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Correspondence to Serge Rey.

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The views expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the institution to which they are attached. At the time of writing, Sofiane Hazem was Director General of Foresight at the Algerian Ministry of Finance.

Appendices

Appendix 1: Contributions to Labor Productivity Growth

See Tables 2, 3, and 4.

Table 2 Average annual growth in labor productivity (%)
Table 3 Average annual growth in labor productivity (%)
Table 4 Average annual growth in labor productivity (%)

Appendix 2: Data Sources

Annual data are available for 1984–2015. These data are produced by the National Statistical Office (ONS) of Algeria. Value added and capital stock are expressed in Algerian dinars at constant 2000 prices. Several deflators are used to calculate the series at constant prices: the Consumer Price Index, the GDP deflator, and the investment deflator (GFCF).

Appendix 3: Consideration of Human Capital

We assume that human capital H enters the production function by increasing the contribution of labor input, i.e., H =  h·L, where h is the amount of human capital per worker. The production function is reformulated as

$$Y_{t} = A_{t} \cdot K_{t}^{\alpha } \cdot (h \cdot L_{t} )^{1 - \alpha }$$
(A.1)

Now, the growth rate of labor productivity is

$$\Delta \ln q_{t} = \Delta \ln A_{t} + \alpha \cdot \Delta \ln k_{t} + (1 - \alpha ) \cdot \Delta \ln h_{t}$$
(A.2)

Suppose that human capital increases with the number of years of study (S) at a rate θ, i.e., \(h = \exp^{\theta \cdot S}\). Equation (A.2) becomes

$$\Delta \ln q_{t} = \Delta \ln A_{t} + \alpha \cdot \Delta \ln k_{t} + (1 - \alpha ) \cdot \theta S$$
(A.3)

The calculation of contributions to growth requires knowledge of S and θ.

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Rey, S., Hazem, S. Labor Productivity and Economic Growth in a Hydrocarbon-Dependent Economy: The Algerian Case, 1984–2015. Eur J Dev Res 32, 587–611 (2020). https://doi.org/10.1057/s41287-019-00229-z

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Keywords

  • Growth rate
  • Algeria
  • Hydrocarbons
  • Labor productivity
  • TFP

JEL Classification

  • D24
  • O14