Poverty in Sub-Saharan Africa: The Role of Business Regulations, Policies and Institutions

Abstract

The study investigates the impact of business regulations, policies and institutions on welfare in Sub-Saharan Africa. The HDI and GDP per capita are used as measures of welfare or poverty. The World Bank doing business indicators are used as business regulatory measures and the Country Policy and Institutional Assessment are also used as policies and institutional quality measures. The study employs systems GMM estimation technique in examining these relationships. The results show improved welfare in SSA countries to be associated with less burdensome regulations on starting business. The results reveal that merely pursing regulations in respect of business operations and closure such as those related to getting electricity, protecting minority interest, paying taxes and resolving insolvency as a strategy to improve welfare directly does not work unless done within a milieu of sound policies and institutions. There are however threshold values at which policy and institutional quality indexes can complement regulations to improve welfare. Following a formal sample-splitting, the study finds some differences in these relationships explained by the income status as well as the legal origin of the countries. Policy implications are well discussed.