FIRMS, PRODUCTIVITY, AND THE SEARCH FOR STRUCTURAL TRANSFORMATION

One important contribution came in ‘Why Do South Korean Firms Produce so Much More Output Per Worker than Ghanaian Ones?’ (Francis Teal and Simon Baptist, IZA Discussion Paper No. 9157, 2015). The paper tackled a striking puzzle in global productivity differences. Comparing manufacturing firms in Ghana and South Korea, the researchers found that median value added per worker was almost forty times higher in South Korea. 

Crucially, the research showed that these differences could not simply be explained by firms in Ghana being technologically inefficient. Once human capital was properly accounted for, differences in total factor productivity largely disappeared. Instead, one of the most important explanations lay in the returns to skills and education, which were far higher in South Korea. The findings highlighted the importance of skill-biased technological change and demonstrated that productivity growth depends not only on technology itself, but on firms’ ability to use skilled labour effectively. 

The paper helped shift attention toward the interaction between skills, technology and firm productivity, and away from narratives that framed African firms simply as inefficient or poorly managed.

A second major contribution came in ‘Firm Size, Employment and Value Added in African Manufacturing Firms: Why Ghana Needs Its 1%’ (Francis Teal, Journal of African Economies, 2023, first circulated as a working paper in 2016). Drawing on manufacturing census data spanning four decades, the paper examined the structure of Ghanaian firms and the distribution of employment and value added across the economy. 

The research challenged the widely used idea of Africa’s “missing middle” — the notion that there are too few medium-sized firms. Instead, the data revealed something more specific and more troubling: a sharp collapse in firm density at around nine employees, described by the authors as a “ravine” in the firm size distribution. 

The findings also highlighted the growing dominance of very small firms in Ghana’s economy. By 2003, around 95% of firms employed fewer than ten workers, yet together produced only 14% of manufacturing value added. Meanwhile, fewer than 1% of firms generated almost 80% of value added. 

The implications for policy were profound. The challenge was not simply to support more small enterprises, but to understand why so few firms were able to grow into larger, more productive businesses capable of generating substantial employment and output. The paper underscored the importance of structural transformation — creating the conditions for firms to scale, invest and become more productive over time.

CSAE research also examined the relationship between skills and employment more directly. In ‘Are Apprenticeships Beneficial in Sub-Saharan Africa?’ (Francis Teal, IZA World of Labor, 2016), Teal explored one of the most common pathways into work for young people across the region.

Apprenticeships are widespread in sub-Saharan Africa, particularly where access to formal education is limited. For many young people, they provide the main route into economic activity. Yet the research pointed to a paradox: despite the time and money invested in apprenticeships, average earnings gains were often limited. The explanation lay partly in the structure of African labour markets. Apprenticeships tended to provide traditional skills suited to self-employment rather than the kinds of technical capabilities associated with higher-productivity wage employment. In economies where productive firms remain scarce, training alone cannot generate better jobs. The research therefore challenged the assumption that expanding vocational training by itself would solve unemployment or underemployment. Instead, it argued that policy must focus equally on the creation of productive firms and wage jobs capable of absorbing skilled workers. Taken together, these papers reflect a distinctive contribution of CSAE research over the past forty years: combining detailed firm-level evidence with broader questions about structural transformation, productivity and economic change.

Rather than treating entrepreneurship or skills in isolation, the work has consistently emphasised the wider economic environment in which firms operate — including labour markets, industrial structure, technology and opportunities for growth.

The findings continue to shape debates about industrial policy and economic development across Africa today. They also reinforce a central insight running through much of CSAE’s work that sustained development depends not only on creating more firms, but on creating the conditions in which productive firms can grow, innovate and generate quality employment at scale.