Institutional quality and economic growth in Sub-Saharan Africa: a panel data approach

Abstract

Purpose – The main purpose of this study is to examine the impact of different dimensions of institutional quality indices on the economic growth of Sub-Saharan African (SSA) countries. Design/methodology/approach – The study uses a panel data set of 31 SSA countries from 1991 to 2015 and employs a two-step system-GMM (Generalized Method of Moments) estimation technique. Findings – The study's empirical results indicate that investment-promoting and democratic and regulatory institutions have a significant positive effect on economic growth; however, once these institutions are taken into account, conflict-preventing institutions do not have a significant impact on growth. Practical implications – The study's findings suggest that countries in the region should continue their institutional reforms to enhance the region's economic growth. Specifically, institutions promoting investment, democracy and regulatory quality are crucial. Originality/value – Unlike previous studies that use either composite measures of institutions or a single intuitional indicator in isolation, the present study has employed principal component analysis (PCA) to extract fewer institutional indicators from multivariate institutional indices. Thus, this paper provides important insights into the distinct role of different clusters of institutions in economic growth.

Keywords

• Institutional quality
• Economic growth
• SSA
• Panel data
• PCA
• System GMM