Government Expenditure, Good Governance, and Economic Growth in Sub-Saharan Africa

Abstract

Public expenditure has been on the rise for all countries. Whether this rise is desirable or not is a different issue, and whether or not the expenditure rise is effective is yet another issue for thought. Institutional quality has been the bane of high growth and development in sub-Saharan Africa (SSA). This chapter estimates the relationship between government expenditure, governance quality, and economic growth in SSA. The system generalized method-of-moment (GMM) approach of panel regression was used to estimate such relationships. The GMM approach solves endogeneity issues that might occur as a result of measurement error, omitted variable bias and reverse causality, unobserved heterogeneity, and other problems. The results show that past realizations of the gross domestic product per capita (GDPP) significantly affect the growth rate per capita, whereas government consumption expenditure and the governance indicators do not affect the growth rate of SSA countries. We therefore recommend that African countries should strictly follow the constitutions in their daily administrative activities so that the rule of law will determine who does what and how; political leaders should be accountable to their people; there should be transparency in the political system; the institutional environment should be set right such that government spending is effective and efficient for economic progress.