The three-dimensional impacts of governance on economic growth: Panel data evidence from the emerging market

Habtamu Legese Feyisa,Salah Mohammed Abdulahi,Dereje Degu Ayen,Frezer Tilahun Tefera

doi:10.22495/cgobrv6i1p3

Habtamu Legese Feyisa, Salah Mohammed Abdulahi + Show 2 more

Open Access

https://doi.org/10.22495/cgobrv6i1p3

Copy DOI

Abstract

In a modern economy, good governance is considered a prominent factor for economic growth (Liu, Tang, Zhou, & Liang, 2018). However, Sub-Saharan Africa has a poor track record of good governance and economic growth (Fayissa & Nsiah, 2013). Therefore, this study is aimed to investigate the impact of governance on economic growth in Sub-Saharan Africa. Panel data that covers a period from 2005 to 2019 for 34 countries and the principal component analysis (PCA) method are employed to achieve the stated objective of the study. The selected fixed- and random-effect estimations showed that among the six-governance quality indicators control of corruption, government effectiveness, regulatory quality, and rule of law positively affect real GDP per capita (economic growth) while political stability and absence of violence and voice and accountability are statistically insignificant to affect real GDP per capita. The estimations result of composite governance indicators confirmed that except for the political dimension of governance both the economic and institutional dimensions of governance, as well as overall composite governance indexes, positively affect the economic growth of the region. Besides, foreign direct investment, the government fixed capital formation and gross domestic product growth affect real GDP per capita positively in all models while government consumption expenditure and age dependency ratio negatively affect real GDP per capita. Therefore, in addition to the existing support in the improvement of the political activities in Sub-Saharan Africa, concerned bodies should also focus to enhance the economic and institutional dimensions of governance in the region

Highlights

Scholars describe governance in a variety of ways due to its complexity and breadth
The average score for Control of corruption (CC) is -0.66, with the lowest score of -1.83 is registered in Equatorial Guinea in 2017 and the highest score of 1.16 registered by Botswana in 2005
political stability and absence of violence (PSAV) has a mean of -0.57 in the region, a minimum score of -2.70 registered by Central Africa in 2015, and a maximum value of 1.20 which is registered by Namibia in 2008

Summary

Introduction

Scholars describe governance in a variety of ways due to its complexity and breadth. Some use broad definitions, such as “rules, enforcement methods, and organizations”. By considering the broad and narrow definitions of governance, Kaufmann and Kraay (2002) define it as a structural arrangement in which power is sourced, implanted, and governed in a country. They stated that governance can be defined in three ways: first, the power of a country’s government to source, apply, and change policies; second, the power of the government to formulate sound policies and effectively implement them, and third, the acceptance of the institutions that shape the social and economic relations between society and the state (Kaufmann, Kraay, & Zoido-Lobatón, 1999; Kaufmann, Kraay, & Mastruzzi, 2011). Governance, on the other side, is a sophisticated process of interactions between structures, traditions, functions, and procedures defined by accountability, transparency, and participatory principles (USAID, 2002, as cited in Fayissa & Nsiha, 2013)

Objectives

Results

Discussion

Conclusion