Effects of Political Institutions and Human Capital on Economic Growth in Sub-Saharan Africa: A Panel Data Analysis

ABSTRACT  The economic performance in Sub-Saharan Africa has been unimpressive, particularly in comparison with other developing regions like East Asia. Using a panel data for 42 Sub-Saharan African countries for the period 2005-2016, this study investigates the effects of political institutions and human capital on the economic performance in the SSA countries. By using linear dynamic panel data and a fixed effect model, with growth of GDP per capita as the dependent variable, this study is finding that both institutional quality and human capital matters for economic growth in Sub-Saharan Africa. Moreover, Foreign Direct Investment, ELF and foreign aid is found to be significant for economic growth in Sub-Saharan Africa. Interestingly, findings showed that political institutions have first order effect on economic growth while human capital has second order effect on it in SSA countries. And hence, lawmakers/policy makers need to divert their attention in the formulation and implementation of proper policies from the sole target of human capital improvement to enhancing the weak institutional quality in the studied SSA countries. Table of contents
Contents                                                                                                                       page
LIST OF TABLES. iv
LIST OF FIGURES. v
ACRONYM... vi
ABSTRACT. vii
CHAPTER ONE.. 1
INTRODUCTION.. 1
1.1.   Background of the Study. 1
1.2.   Statement of the Problem.. 3
1.3.   Research Questions. 5
1.4.   Objective of the Study. 5
1.5.   Scope and Limitation of the Study. 5
1.6.   Significance of the Study. 6
1.7.   Organization of the Paper 6
CHAPTER TWO.. 7
LITERATURE REVIEW... 7
2.1.   Theoretical Literature Review.. 7
2.1.1.      Growth and Political Institutions. 7
2.1.2.      Political Power and Institutions. 8
2.1.3.      Corruption and Growth. 8
2.1.4.      Economic Growth and Aid. 9
2.1.5.      Aid and Political Institutions. 11
2.1.6.      Growth Theories. 13
2.1.6.1.      Classical Growth Theory. 13
2.1.6.2.      The Harrod-Domar Model 13
2.1.6.3.      Exogenous Growth: The Augmented Solow-Swan Model 13
2.1.6.4.      Endogenous Growth / New Growth Theories. 15
2.2.   Empirical Literature Review.. 19
2.2.1.      Political Institutions. 19
2.2.2.      Human Capital 20
CHAPTER THREE.. 22
OVERVIEW OF THE SSA COUNTRY’S SITUATION.. 22
3.1.   Democracy and Economic Growth in SSA Countries. 22
3.1.1.      Human Capital 23
3.1.2.      Political Capital 24
3.2.   Institutional Quality (IQ) in SSA Countries. 24
3.2.1.      Weak Institutional Quality in SSA.. 27
3.2.2.      Political Competition and Constraints. 29
3.2.3.      Political Stability and Fragility in SSA Countries. 30
3.2.4.      Significant Progress on Political Stability. 30
3.2.5.      Political Regime in SSA Country. 31
3.2.6.      Corruption Underlies Much of Institutional Weakness. 34
3.3.   Aid- Institutions Paradox. 39
3.4.   Ethnic Fractionalization in SSA.. 39
3.4.1.      Fractionalization and Government Quality. 40
3.4.2.      Colonial History and Regime Durability in SSA Countries. 41
CHAPTER FOUR.. 43
DATA AND METHODOLOGY.. 43
4.1.   Data Type Description and Sources. 43
4.2.   Method of Data Analysis. 43
4.3.   Model Specification, Techniques of Estimation and Tests. 43
4.3.1.      Model Specification. 43
4.3.2.      Techniques of Estimation. 45
4.3.3.      Econometric Tests of the Model 46
4.4.   Definition of Variables. 47
4.4.1.      Appropriate Proxy Variables for Health and Education. 47
4.4.2.      Institutional Quality Variables. 48
4.4.3.      Control Variables. 49
4.4.4.      GDP Growth per Capita (GGPC) 50
CHAPTER FIVE.. 51
RESULTS AND DISCUSSION.. 51
5.1.   Descriptive analysis. 51
5.2.   Econometric Result 54
5.2.1.      Econometric Tests of the Model 54
5.2.2.      Correlation analysis. 57
5.2.3.      Estimated Result 59
5.3.   Shortcomings in variables. 64
5.3.1.      Reliability of data. 64
5.3.2.      Resource Limitations of the study. 64
CHAPTER SIX.. 66
CONCLUSION AND RECOMMENDATION.. 66
6.1.   Conclusion. 66
6.2.   Recommendation. 68
REFERENCES. 69
APPENDICES. II