Roles of Governance in Explaining Economic Growth in Sub-Saharan Africa

Fuje N. Habtamu

Abstract: 

Sub-Saharan Africa (SSA) has been growing at very low rates over the past few decades. The roles of malfunctioning institutions, geographic misfortune, and lack of integration in explaining this have been the subject of much debate. This article assesses the role of institutions in explaining the slow growth of Africa. In addition, it explores one of the possible transmission channels — aggregate technical inefficiency — through which institutions affect economic growth. In order to evaluate the impact of institutions on economic growth, the classical growth models have been estimated using difference and system generalized method of moments (GMM) using data from thirty-five selected SSA countries from 1996 to 2005. Rule of law, government effectiveness, regulatory quality, political instability, and voice and accountability are found to influence the growth of SSA. However, control over corruption has no relation to growth in the continent. Using stochastic frontier analysis, this study found that only two aspects of governance —regulatory quality and government effectiveness — matter in influencing technical efficiency. Political aspects of governance—voice and accountability and political instability—have no relation to technical efficiency. Therefore, Sub-Saharan Africa’s poor economic performance (slow growth and aggregate technical inefficiency) can in part be attributed to bad governance.