Institutions, Investment and Economic Growth: Evidence from SubSaharan Africa
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Date
2020
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Uva Wellassa University of Sri Lanka
Abstract
Sub Saharan African countries experience low private investment compared to other
developing countries in the world. For instance, private investment in the region averaged
15% of GDP from 2010 to 2016, as compared to 22%, 18%, and 17% for developing
countries in Asia, Europe, and Latin America respectively. This low investment level
constrained the region’s ability to grow and improve social outcomes such as; increase in
real wages and poverty reduction. Low-quality institutions could explain this
phenomenon. Therefore, this study aimed to examine the effect of institutions on
investment and economic growth of 37 SSA countries from 1996 to 2017 using a dynamic
panel data model. The data were retrieved from Worldwide Governance Indicators, World
Development Indicators and the Chinn-Ito index. System Generalized Method of
Moments was used to estimate the result. The key findings generated by the study
confirmed that these measures of institutional variables and their interaction with
investment yield a positive and statistically significant result. Indicating that
strengthening the quality of these institutions could positively affect investment and
economic growth of the region. For instance, a unit increase in controlling corruption
increases investment by 1.4%. Furthermore, there is evidence showing financial
development slows investment growth, which can be attributed to the weak institutional
arrangements, as the coefficient of financial development is negative and statistically
significant. The study recommended that SSA countries should pay greater attention to
institutional reforms particularly; control of corruption and political stability to drive
meaningful growth and development in the region.
Keywords: Institutions, Investment, Economic growth, Sub Saharan Africa
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Keywords
Economic, INVESTMENT MANAGEMENT, Economic growth, Management Sciences