Generalized Method Of Moments Research Articles

Renewable energy, carbon footprints, natural resources depletion and economic growth in Africa

Purpose This study aims to examine the interplay between renewable energy consumption, carbon footprints, natural resources depletion and economic growth. Design/methodology/approach It engaged 45 African countries using the generalized method of moments (GMM) approach. Data from the World Development Indicators for the period 2000–2023 are used to analyse the relationships among these variables. Findings The result indicates a positive and significant effect of greenhouse gas emissions on economic growth in all regions of Africa, except for Southern Africa. Regarding the depletion of natural resources, the authors observe a dominant negative effect on economic growth. Thus, an increase in the depletion of natural resources contributes to the reduction of economic growth in most regions of Africa, notably West Africa, East Africa and sub-Saharan Africa as a whole. Moreover, the depletion of natural resources can also have negative social impacts, such as conflicts over access to remaining resources, which can indirectly influence economic stability and growth. Originality/value This study contributes to the existing literature by providing empirical evidence of the positive effects of renewable energy consumption on carbon footprints, natural resource depletion and economic growth. By quantifying these relationships, the study offers valuable insights into the potential of renewable energy to address pressing environmental and economic challenges.

Exploring the Relationship Between Technological Progress, Human Capital, Political Uncertain, Energy Consumption, and Economic Growth: Evidence from a Panel Data Analysis

AbstractThis study examines the determinants of economic growth by integrating technological progress, human capital, energy consumption, and monetary policy uncertainty in an extended theoretical model. The empirical investigation covers 18 economies from 2009 to 2019 and applies the Bias-Corrected Estimation (BC) and Generalized Method of Moments (GMM) techniques. The findings reveal that while gross capital formation is a significant growth driver, financial development has no meaningful impact. Notably, intermediate education contributes positively to growth, whereas advanced education surprisingly shows a negative effect. Additionally, the results indicate a direct relationship between renewable energy consumption and growth, with oil consumption having a negative impact. Political instability, measured by the Global Economic Policy Uncertainty (GEPU) index, also hinders growth.

Exploring Budget Surpluses: Budget Absorption Problems in Recently Decentralized Macedonian Municipalities

ABSTRACT This study treats operating budget surpluses as an absorption problem rather than a strategic fiscal policy. Applying a system generalized method of moments (GMM) model on panel data from 80 Macedonian municipalities for the period 2006–2020, the study examines the relation of decentralization and vertical fiscal imbalance with these systematic operating surpluses. The findings from the study are mixed. The findings from this study are relevant to all developing countries undergoing fiscal decentralization reforms, especially post-socialist countries. This study fills a void in the literature examining non-strategic surpluses in recently decentralized local governments.

Does ICT adoption influence the bank’s risk-taking behavior? Evidence from advanced, developing and emerging nations

PurposeThis is the first attempt to investigate the impact of information and communication technology (ICT) on the risk-taking behavior of banks.Design/methodology/approachThis study considers 74 advanced, developing and emerging countries in the period of 2010–2021. The study considers internet use, mobile subscriptions, broadband access and ATM availability as ICT indicators, while using bank Z_score as a proxy for risk-taking. To get comprehensive insights, pooled OLS, fixed effect models and generalized methods of moments (GMM) are applied.FindingsIt is found that ICT has a consistently positive influence on the risk-taking behavior of banks in advanced, developing and emerging countries. Notably, internet users and broadband access have a bigger impact in advanced economies, but mobile cellular subscriptions and ATMs are more significant in developing and emerging countries. Other factors, such as GDP growth and market capitalization, positively influence the bank’s risk-taking approaches, but the cost-to-income ratio and inflation have an inverse connection.Practical implicationsThis will provide useful advice to the government, bank executives, financial regulators, policymakers, regulators, academicians, technology developers and other relevant stakeholders who want to maximize the advantages of ICT in the banking sector while reducing related risks.Originality/valueThis is the first study to examine the impact of ICT on banks’ risk-taking approaches in advanced, developing and emerging countries.

The influence of blockchain technology on circular economy implementation in the automotive sector: From a GMM model to a new machine learning algorithm

AbstractThis investigation explores the integration of blockchain technology (BCT) with circular economy (CE) principles within the automotive sector, leveraging a dataset from the years 2011 to 2019. Employing advanced analytical techniques, including machine learning models and the system generalized method of moments (GMM), the study meticulously assesses BCT's impact on CE practices over the specified period. The dataset, curated from esteemed sources such as CSRHub, Thomson Reuters, and Bloomberg, enhances the reliability and validity of our analysis. Results indicate a positive influence of BCT on the adoption and effectiveness of CE practices in the automotive industry, suggesting that CE practices can bolster firm performance. Notably, the analysis reveals that support vector machines (SVM) and neural networks (NNs) exhibit superior efficacy over the random forest (RF) model in capturing the nuances of the BCT‐CE interplay. This is evidenced by their lower root‐mean‐square error (RMSE) and mean absolute error (MAE), signifying greater predictive accuracy. The findings illuminate BCT's potential to revolutionize CE practices, optimize resource use, and foster sustainability in the automotive field.

The synthesis of logistics performance and technological innovation on environmental quality

PurposeThis study aims to examine the impact of logistics performance and technological innovation on environmental quality in Africa, focusing on carbon dioxide (CO2) emissions and renewable energy consumption as indicators of environmental quality.Design/methodology/approachThe study employs a panel data analysis of 43 African countries over the period 1990–2021. Data on logistics performance, technological innovation, CO2 emissions, and renewable energy consumption are sourced from the World Development Indicators database of the World Bank. Grounded in the Triple Bottom Line (TBL) framework, which integrates economic, social and environmental dimensions of sustainability, the analysis utilises the generalised method of moments (GMM) technique to address the issue of endogeneity.FindingsThe regression results reveal significant relationships between logistics performance, technological innovation and environmental quality indicators. Logistics performance demonstrates a negative impact on CO2 emissions, while technological innovation positively influences renewable energy consumption. The interactive effect of logistics performance and technological innovation mitigates CO2 emissions, aligning with the TBL framework’s environmental dimension by promoting sustainability. Furthermore, trade openness exhibits a significant negative effect on both CO2 emissions and renewable energy consumption. The findings highlight the potential synergies between logistics performance and technological innovation in driving environmental sustainability while offering economic benefits and addressing social well-being.Practical implicationsThe findings suggest the importance of prioritising investments in enhancing logistics performance and fostering technological innovation to achieve environmental sustainability goals in Africa.Originality/valueTo the best of the researchers’ knowledge, this study presents an initial attempt to examine the nexus between logistics performance and environmental quality in Africa using the logistics performance index. Furthermore, beyond assessing the individual effects of logistics performance and technological innovation on environmental quality, we delve into their interactive dynamics, adding novelty to the study.

Still dare to be different? Peers' CSR engagement and analysts' response to focal firms' CSR strategies

AbstractThis study investigates how security analysts' response to focal firms' corporate social responsibility (CSR) strategies varies with the level of CSR engagement among peer firms, about which contradictory arguments can be drawn from the perspectives of legitimacy and competitive dynamics. Legitimacy theory underscores the importance of conformity to peers' behaviors, while the competitive dynamics perspective suggests that firms should differentiate from their peers. The optimal distinctiveness theory suggests an orchestration between CSR conformity and CSR differentiation, combining the arguments of legitimacy and competitive dynamics. Based upon a sample of Chinese listed companies from 2009 to 2018, this study uses a second‐hand panel dataset and employs three‐way interactions and the generalized method of moments (GMM) system. The empirical results show that as CSR engagement among peer firms increases, heavier legitimacy pressure is imposed on focal firms, and their CSR scope conformity attracts more analyst coverage, and this effect is more prominent for firms in institutionally developed regions. On the other hand, the competitive advantage gained from CSR emphasis differentiation is weakened by rivals' engagement in CSR, and the influence of CSR emphasis differentiation on analyst recommendation is weakened by peers' CSR engagement, and in highly competitive industries, this effect of peers' CSR engagement is stronger. We propose that peers' CSR engagement has different impacts on the importance of CSR conformity and differentiation. Finally, both the theoretical and practical implications are discussed.

Climate and political effects on agriculture: Empirical evidence from SSA

AbstractThe most of Sub‐Saharan African (SSA) countries have been affected by climate change and food insecurity problems due to the reduction of production and productivity of cereal crops in the continent. The purpose of this research was to examine the short‐run and long‐run effects of climate change on agricultural productivity in 24 selected SSA countries. In the study, a systematic Generalized Method of Moments (GMM) Model was used with recent data from 24 SSA countries from 2001 to 2020. The panel regression result revealed that temperature and precipitation showed positive significant effects whereas carbon dioxide emission had negatively influenced the cereal crop productivity in the region. Specifically, the empirical result indicates that a one percent increase in precipitation increases cereal crop productivity by 0.27%. The empirical result of the GMM model revealed that political stability, temperature, GDP per capita, trade openness, carbon dioxide emission, fertilizer consumption, and precipitation have both short‐run and long‐run effects, while precipitation has only a short‐run effect on agricultural productivity in the study area. A key implication of this work is the realization of the lagging effects of climate change in determining cereal crop production and productivity. This study was unable to include all SSA countries because the excluded countries did not have sufficient data on the selected variables in the study. Hence, adopting high‐temperature and drought‐resistant types of enhanced cereal crops is advised to combat the negative effects of climate change in the study area.

An analysis of the rebound impact of energy consumption and the factors that influence it in China's agricultural productivity

With China's agricultural sector being a major contributor to both the national economy and energy consumption, the rebound effect—the phenomenon where energy efficiency improvements lead to increased energy use—poses significant challenges to sustainable energy use. The motivation for this study stems from the need to understand the extent of this rebound impact and its underlying drivers, particularly in the context of China's agricultural modernization efforts. This study examines the rebound effect of energy consumption in China's agricultural productivity and the factors influencing it over the period from 1990 to 2023. Using a Generalized Method of Moments (GMM) model, this research analyzes the relationship between energy consumption, agricultural productivity, and several influencing factors, including technological innovation, rural-urban migration, and financial development. The results reveal that (1) energy efficiency improvements have led to a significant rebound effect in China's agricultural sector, limiting potential energy savings, (2) technological advancements have mitigated the rebound effect to some extent, but the effect remains substantial, (3) rural-urban migration has contributed to labor shortages, increasing mechanization and energy demand, and (4) financial development has positively influenced both agricultural productivity and energy use, exacerbating the rebound effect. The study suggests that policymakers should focus on developing stricter energy efficiency standards and promoting technological innovations that reduce energy intensity in agriculture, while also addressing labor migration challenges to curb the rebound impact and achieve more sustainable agricultural growth.

Tying energy resiliance and digital upgradation of technology transformation of electric power system: Does financial flexibility matters?

As the energy sector undergoes rapid technological transformation, the resilience of electric power systems has become a focal point in the context of climate change and energy security. This paper examines the interplay between energy resilience and the digital upgradation of electric power systems in China, with a particular emphasis on the role of financial flexibility. Using panel data from 2005 to 2023 across 30 provinces in China, we employ the Generalized Method of Moments (GMM) model to investigate how financial flexibility—measured through capital access and adaptive financial strategies—affects the integration of digital technologies such as smart grids, renewable energy systems, and advanced monitoring infrastructures. Our findings demonstrate that financial flexibility significantly enhances the resilience of electric power systems by facilitating quicker adoption of digital technologies and enabling systems to better withstand external shocks, such as fluctuating energy demands and environmental stressors. The study offers policy insights, underscoring the importance of supportive financial mechanisms to accelerate the digital transformation and sustainability of China's energy infrastructure. This research contributes to the ongoing discourse on energy resilience by highlighting the critical role of financial flexibility in enabling technological advancements within the power sector.

The role of government integrity in the impact of environmental taxes on comparative advantage in environmental goods and climate change in emerging markets

The goal of this study is to examine how environmental taxes influence the comparative advantage in environmental products and carbon emissions within emerging economies. To gain a better understanding, we examine whether this impact changes depending on the level of government integrity. This study utilizes panel autoregressive distributed lag (ARDL) techniques and a two-step generalized method of moments (GMM) dynamic panel model to ensure accuracy. The results indicate that increased environmental taxes mitigate the comparative advantage in environmental goods for emerging markets. However, for countries with high levels of government integrity, higher environmental taxes enhance their competitive edge in environmental goods. Additionally, our findings show that although a rise in environmental taxes is associated with higher carbon emissions, raising such taxes results in a reduction in carbon emissions for emerging economies with solid government integrity. These findings suggest that robust political institutions are crucial in promoting the comparative advantage of emerging markets in environmental goods and mitigating climate change. In the absence of substantial confidence in political or governmental institutions, the efficient implementation of climate taxes poses considerable challenges. Furthermore, we observe that an increase in the comparative advantage of environmental goods results in a decrease in carbon emissions.

Determinants of Banks Profitability: Evidence from Nigeria Banking Industry

The study, investigated determinants of banks profitability in Nigeria. Other studies in this area concentrated on other profitability notions, this study incorporated Economic Value Added (EVA). Due to the presence of endogeneity problems inherent in most panel data sets of this nature we employed a two-step system GMM estimator to produce a robust estimation and account for the endogeneity problem in the data. The study revealed that bank size has a positive and significant impact on all measures of bank profitability with the exception of Net Interest Margin (NIM). This result remained consistent after macroeconomic factors were introduced in the model. The outcome also indicated that capital adequacy significantly explains bank profitability in Nigeria, with a sign change in the case of Economic Value Added (EVA) only. It was also evident that financial structure (FS) has a positive and significant impact on Return on Assets (ROA), NIM, and EVA but no evidence of significant relationship was found with ROE. The result indicated that liquidity risk (LR) has a negative and significant impact on ROA and EVA but failed to provide a significant impact on ROE and NIM. The result of the macroeconomic factors included in the model indicated that Gross Domestic Product (GDP) has a positive and significant impact on NIM and EVA while no significant relationship was found when related to ROA and ROE. Inflation as a macroeconomic variable showed a significant relationship with ROA and ROE with no evidence of significant relationship with NIM and EVA. It was concluded that the impact of firm specific factors and macroeconomic variables on the profitability of the Nigerian banking sector differ according to the profitability measure employed.

Exploring the synergy of corporate gender diversity, sustainability committee, and reporting ESG practices: An international evidence

This study delves into how gender diversity on the corporate board shapes the reporting of Environmental, Social, and Governance (ESG) practices. Besides, it examines the moderating role of a sustainability committee in the nexus between gender diversity and reporting of ESG practices. It analyzes an international sample of the S&P Global 1200 index from 2011 to 2022. The ESG reporting is based on the Refinitiv disclosure index of the firm ESG scores. The study utilizes various statistical models to provide precise empirical evidence, including fixed effects, a two-stage least squares (2SLS), and a generalized method of moments (GMM). The results demonstrate that disclosing ESG practices is a positive function of the percentages of corporate female board members and executive female directors. This suggests that companies with greater gender diversity disseminate more information about their ESG practices. Besides, a corporate sustainability committee strengthens the positive nexus between reporting ESG performance and corporate female board members and executive female directors. This underscores the moderating role of the sustainability committee in simplifying the nexus between gender diversity and reporting ESG practices. The results offer substantial implications for the leverage of gender diversity on ESG reporting. Policy-setters should actively support and promote greater corporate gender diversity, recognizing its pivotal role in fostering transparency. Additionally, a dedicated sustainability committee is crucial in enhancing the reporting of ESG performance and aligning business practices with sustainable development goals.

Unveiling the Nexus: Foreign Ownership, Innovation Dynamics, and Firm Performance through a Resource-Based Lens in Vietnam

This study investigates the complex relationships between firm resources, innovation, foreign ownership, and firm performance in the context of Vietnam's emerging market. Using a comprehensive dataset of 17,430 firm-year observations from 1,245 manufacturing firms across Vietnam for the period 2010 to 2023, we employ system GMM estimation to address potential endogeneity concerns. Our findings reveal non-linear effects of firm resources and foreign ownership on performance, measured by both ROA and Tobin's Q. Specifically, we observe inverted U-shape relationships for human capital and foreign ownership, diminishing returns for physical capital, and a positive squared term for R&D intensity. Moreover, we find that foreign ownership positively moderates the effects of firm resources on performance. These results are robust to alternative measures and subgroup analyses. Our study contributes to the literature by providing a nuanced understanding of firm performance drivers in Vietnam's unique institutional context, extending the applicability of resource-based and knowledge-based views to this emerging market. The findings offer valuable insights for managers and policymakers in Vietnam, highlighting the importance of balanced resource allocation, strategic innovation investments, and the potential benefits of foreign ownership in enhancing firm performance.

Female CEOs and Green Innovation: Evidence from Asian Firms

This study aims to examine how female CEOs influence green innovation and whether firm size moderates this connection. Our paper focuses on CEOs, who are considered the strategic leaders of corporations, because of their crucial role in making important decisions. This research paper examines how female CEOs influence green innovation (GI) in the Asian industrial sector. The primary goal is to address these research questions: Do Asian industrial firms with female and male CEOs differ in their GI efforts? Is there a positive moderating influence of Asian industrial enterprises’ size on the nexus between women in CEO positions and eco-innovation? Based on our research questions, firm size is likely a determining factor in the GI of female CEOs. This research employs rigorous econometric modeling to analyze a substantial dataset of listed Asian industrial companies from 2013 to 2022. We have found a significant positive correlation between female CEOs and GI in Asian industrial firms. It has been proven that female CEOs in the industrial sector are more inclined to promote environmentally friendly practices. Furthermore, the size of an industrial firm amplifies the beneficial influence of a female CEO on the firm’s chances of engaging in GI initiatives. Regarding the moderating effect of size, the size of companies significantly magnifies the impact of female CEOs on GI. The effectiveness of female CEOs on environmentally friendly practices is more prominent in large corporations than in smaller ones. Our outcomes remain robust with respect to endogeneity issues using two-step GMM estimators. This study proposes that stakeholders, particularly in Asian countries, should promote the increased representation of females in CEO roles, particularly within large corporations. This is because women-led companies demonstrate superior performance in GI endeavors. Hence, regulators must establish policies that facilitate the participation of women in CEO positions within large-scale enterprises. These policies may strengthen the private sector’s capacity to foster sustainable innovation.

DYNAMIC ANALYSIS OF INNOVATION — PROFITABILITY NEXUS IN SERVICE FIRMS: AN OUTLOOK OF A SMALL SERVICE ECONOMY

Research suggests that while firms may make substantial investments in innovation to increase returns, they can still encounter unpredictable results that lead to financial setbacks. As the reason for this perception fuels an ongoing investigation, this research contributes to the discussion for improved understanding. Specifically, it investigates 1,847 Norwegian service firms using the Generalised Method of Moments (GMM) system estimators of dynamic panel data models. Its empirical findings indicate that innovation has an immediate and strong positive impact on profitability. Moreover, innovation impacts service firms with a negative short-term lag profit effect and a positive profit effect in the medium term. However, the medium-term positive impact of innovation on profitability is lower in magnitude than the immediate term. Suggesting that the lasting profit effects induced by innovation may be constrained, and continuous innovation management is essential to sustaining these benefits over time. Additionally, the analysis reveals a positive correlation between past and current profitability values. Suggesting an interesting dynamic: financial gains can act as a catalyst for further innovation.

Auditor’s opinion, future abnormal cash holdings and internal control quality: evidence from an Asian market in pre-COVID-19 and post-COVID-19 pandemic

PurposeThe present study aims to investigate the impact of the auditor’s opinion and internal control quality (ICQ) on future abnormal cash holdings for companies listed on the Tehran Stock Exchange (TSE).Design/methodology/approachInformation about 216 companies in 2014–2021 was examined. This study used the absolute value of abnormal cash holdings to test the research hypotheses. However, future extra abnormal cash holdings and future deficit abnormal cash holdings were also tested. Modified multiple regression method and ordinary least squares (OLS) were used. The present study also applied the generalized method of moments (GMM) for endogeneity concerns.FindingsThe results showed that an unqualified audit opinion negatively and significantly affects a firm’s future abnormal cash holdings. Moreover, ICQ significantly strengthens the impact of an unqualified audit opinion on a firm’s future abnormal cash holdings. These results remained robust even after several robustness tests. This study tested the robustness of results through data division into the pre-COVID-19 and post-COVID-19 years. The test confirmed previous findings; however, the strength of these effects decreased in post-COVID-19 years.Originality/valuePrevious studies could not answer how an auditor’s opinion affects a company’s future abnormal cash holdings. Moreover, no empirical study has addressed the moderator role of ICQ in the relationship between unqualified audit opinion and future abnormal cash holdings. This study helps stakeholders evaluate the performance of firms more accurately, especially in any global health crisis such as the COVID-19 pandemic and similar crises. Combined with the research findings from developed countries, this study can potentially contribute to the global community’s efforts in advancing international objectives.

Agency conflicts, product market competition and investment efficiency: new evidence from emerging market

PurposeThis study examines the influence of product market competition on investment inefficiency of Indian firms in context of agency problems. Additionally, this study also investigates whether intense competition is a substitute for or complementary to corporate governance in reducing investment inefficiency of firms.Design/methodology/approachUtilizing the residuals extracted from Biddle et al. (2009) investment model, investment inefficiency, overinvestment and underinvestment are measured for 506 non-financial Indian listed firms with 6,998 firm-year observations from 2009 to 2022. Product market competition is measured using various proxies such as the Herfindahl–Hirschman index, top-four firm concentration ratio, total number of firms in industry, industry market size, weighted average of entry costs and research and development (R&D) to sales ratio. Firms' internal governance is measured using a newly corporate governance index developed with 65 new governance stipulations. Several pooled ordinary least squares (OLS) panel regressions were estimated involving investment inefficiency of firms, product market competition, governance index and firm-specific variables. Endogeneity issues were addressed through two-stage least squares. Robustness checks were also conducted using a two-step system generalized method of moments (GMM).FindingsThe main finding of the study indicates that heightened product market competition reduces investment inefficiency, overinvestment and underinvestment among the selected Indian firms suggesting that firms facing intense competition are less prone to invest below or above optimal levels. This is primarily because in highly competitive industries, managers face greater liquidation risks, prompting more efficient capital investment decisions. The results also indicate that robust corporate governance significantly mitigates investment inefficiencies in non-competitive industries compared to competitive ones suggesting heightened competition reduces managerial slack, resulting in diminished benefits from good governance in competitive settings. Overall results indicate a substitution effect between corporate governance and competition in reducing investment inefficiency, with robustness across various empirical specifications, industry classifications and alternative competition and inefficiency measures.Practical implicationsThe evidence from this work emphasizes the pivotal roles of market competitiveness and corporate governance in shaping investment efficiency. Regulators must closely monitor monopolistic behaviors to safeguard stakeholder interests, enhance investment efficiency and foster value creation. Recognizing the positive impact of market competition, firms should prioritize initiatives to promote industrial openness and intensify competition while strengthening market mechanisms. Policymakers should consider implementing competition-centric governance policies, such as deregulation and antitrust laws, to stimulate market competition. These measures can mitigate governance-related costs and promote a competitive marketplace.Originality/valueThis study provides fresh evidence concerning the effects of product market competition on investment efficiency of Indian firms under new governance norms, an unexplored area in India as most of the existing work has primarily examined the association between competition and investment levels. To best of our knowledge, this is one of the earliest studies demonstrating the substitution effects of competitiveness and governance systems on lowering investment inefficiency suggesting a significant influence of corporate governance in non-competitive industries. Finally, this study contributes to the field of methodology by developing a new firm-specific governance index based on 65 governance indicators.

Study on the Impact of China’s Pension Insurance System on the Savings Rate of Urban Residents Based on the Preventive Saving Perspective

In the context of population aging, the study of the impact of the pension insurance system on the savings behavior of urban residents can help reduce preventive savings, increase current consumption, and promote the healthy development of the economy. This study constructs a two-period OLG model of the pension insurance system based on the preventive saving perspective using urban panel data of 31 provinces from 2002 to 2021 and conducts empirical analysis through the systematic generalized method of moments. The results show that the pension insurance participation rate was positively correlated with the savings rate, while the pension replacement rate was negatively correlated with the savings rate, and this effect varied significantly across income levels and different levels of aging. Increased participation in high-income areas promoted savings, while increased pension replacement rates in low-income areas reduced savings. The positive correlation between participation rates and savings rates was more pronounced in regions with higher levels of aging, while the opposite was true in regions with lower levels of aging. In addition, the negative correlation between pension replacement ratios and savings rates was particularly pronounced in high-aging regions.

Income inequality thresholds that should be avoided for governance to promote economic growth with evidence from Africa

AbstractThis paper examines the role of inequality on the link between governance and economic growth in 44 African countries with data running from 2008 to 2018. Using a system GMM and the generalized least square (GLS) estimators, we establish that the effects of governance on growth are rightly conditioned by inequality. The GMM and GLS estimates portray positive effects of inequality on growth, but only the GMM estimates are significant. For both estimators, the effect of institutions on economic growth is positive and significant. However, inequality retards growth when embedded in selected institutions, which implies a substitution relationship between institutions and inequality on growth. The turning point beyond which inequality begins to contribute negatively to economic growth ranges between 34% and 49% based on the GMM estimates or 40.15% and 44.5% for the GLS analysis depending on the institutional indicator used. Therefore, institutions can only be effective in economic development if income inequality levels of not less than 0.34 and not more than 0.49 are maintained to ensure that inequality does not negate growth. Policy makers of African countries should ensure better income distribution alongside good institutions to achieve sustainable economic growth in the region.