Another note on the struggle to industrialise in Africa is this paper (2023) - suggesting that manufacturing firms fail to scale due to lack of labour specialisation which appears to be driven by demand for more personalised goods. In other words, the goods demanded hinder economies of scale and talent leveraging. I haven’t read the whole paper and I’m not sure why Africa (Uganda was the country studied) in particular is different, but it seems interesting.
This is a whole topic in the next post! I think the authors’ interpretation is probably wrong. There’s no clear reason why demand for more personalized goods would be different in Uganda, you’re right—my suspicion is that the root cause is the small size of the output market. The authors document that each firm sells to a very small output market, and one possible consequence of that is that firms don’t see any benefit to task specialization, because the benefits of specialization increase with the scale of goods you are selling. If you can only sell to a small number of people, then selling them personalized goods could be a way to get the maximum revenue out of this small market. Thus, firms would choose not to specialize even if there were no barriers to specialization.
The main evidence they provide for why personalized demand is the cause is that specialization is larger in grain milling, where grain is a homogeneous product. But grain is also more easily traded, so the output market is larger, which means their evidence is totally consistent with small output markets as the cause of low specialization and firm growth.
Small output markets are a problem everywhere but especially in Africa because transportation costs are higher than in other developing countries (this is something I’ve heard dev economists say casually a lot, but I’ve never seen an explicit citation).
Another note on the struggle to industrialise in Africa is this paper (2023) - suggesting that manufacturing firms fail to scale due to lack of labour specialisation which appears to be driven by demand for more personalised goods. In other words, the goods demanded hinder economies of scale and talent leveraging. I haven’t read the whole paper and I’m not sure why Africa (Uganda was the country studied) in particular is different, but it seems interesting.
This is a whole topic in the next post! I think the authors’ interpretation is probably wrong. There’s no clear reason why demand for more personalized goods would be different in Uganda, you’re right—my suspicion is that the root cause is the small size of the output market. The authors document that each firm sells to a very small output market, and one possible consequence of that is that firms don’t see any benefit to task specialization, because the benefits of specialization increase with the scale of goods you are selling. If you can only sell to a small number of people, then selling them personalized goods could be a way to get the maximum revenue out of this small market. Thus, firms would choose not to specialize even if there were no barriers to specialization.
The main evidence they provide for why personalized demand is the cause is that specialization is larger in grain milling, where grain is a homogeneous product. But grain is also more easily traded, so the output market is larger, which means their evidence is totally consistent with small output markets as the cause of low specialization and firm growth.
Small output markets are a problem everywhere but especially in Africa because transportation costs are higher than in other developing countries (this is something I’ve heard dev economists say casually a lot, but I’ve never seen an explicit citation).