Innovation and Economic Growth in Sub-Saharan Africa: Why Institutions Matter? An Empirical Study Aross 37 Countries

Abstract

Based on empirical panel data for a sample of 37 sub-Saharan African economies for 1996–2016, this inquiry examines the extent to which institutional quality explains the existing cross-country difference in economic performance in sub-Saharan Africa. While most of the existing studies focus only on the direct effect of institutional quality, this article investigates the direct and indirect effects of institutions. It also reflects on impact of the interaction between institutional quality and innovation on economic growth in developing countries. The evidence provides very strong support for the direct effect of institutional quality development on economic performance as well as for its indirect effect via its impact on innovation. However, the results do not support theories that argue in favour of interaction between institutional quality such as democracy, governance quality and innovation, thereby pointing to the need for better calibration of the numerous existing theoretical postulations and related empirical measures.JEL: D70, D72, O15, O30, O31, O55