Does economic complexity enhance governance quality in Africa?

Abstract

ABSTRACT The importance of governance in promoting economic growth and its crucial role in the achievement of other Sustainable Development Goals have been largely discussed in the literature. Given the importance of governance and the desire of all nations to ameliorate the level of governance, a growing literature has engaged in understanding its determinants. This study attempts to contribute to this literature by examining, for the first time, the effect of economic complexity on governance using data from 32 African countries over the period from 2002 to 2019. We elaborate four governance indicators based on a principal component analysis. Results provide strong evidence of a positive relationship, suggesting that moving to higher levels of economic complexity leads to better governance performance. We identify human capital, foreign direct investment, and income inequality as some transmission channels through which economic complexity promotes governance. Based on these results, several policy implications are discussed.