Sub Saharan Africa economic growth shows a stochastic growth performance in which highly interrelated with faulty and fragile governance problems associated in the region. Accordingly, this thesis examines the contribution of formal institution explained by aggregated index for the six governance clusters measured by World Governance Indicator and individual level of each indicator on the stochastic growth behavior of selected SSA countries using data from forty two SSA countries over a period of 1996 to 2014.
To examine the impact of institution and level of good governance, the study employed Arellano-Bond (1991) and Arellano-Bover (1995) dynamic panel generalized method of moments (GMM) technique of estimation. The estimated result suggested that variables such as foreign aid, public investment, consumption, imported capital good, inflation, control of corruption, rule of law, voice and accountability, political stability, government effectiveness, regulatory quality and the aggregate index governance measures (institution) are significant and positively contribute to stochastic growth performance in the region across each models. On the other hand, outward trade policy negatively contributes to SSA Stochastic growth behavior.
In addition, the study surprisingly resulted that though foreign direct investment has no significant contribution in the study period its impact is negative in the region. A major policy implication arising from the results is that the advancement of institution and individual level of good governance are fundamental to the realization of sustained economic growth in SSA.
Table of Contents
1. Introduction
1.1. Background
1.2. Problem Statement
1.3. Objectives
1.4. Research Questions
1.5. Hypothesis
1.6. Justification
1.7. Significance
1.8. Scope and Limitation of the study
1.9. Organization of the paper
2. Literature Review
2.1. Theoretical Literature
2.1.1. Definition of Institution
2.1.2. Institutional Theory
2.1.3. Stochastic Growth Theory
2.1.3.1. The Brock-Mir man Stochastic Growth Model
2.1.3.2. Real Business Cycle Model
2.1.4. The Nexus between Institution and Stochastic Growth
2.2. Empirical Literature
2.3. Conceptual Frame work
3. Methodology
3.1. Model Specification
3.2. Nature and Data source.
3.2.1. Data Source
3.2.2. Variable Definition
3.3. Estimation Techniques and Method of Analysis
3.3.1. Method of Analysis
3.3.2. Estimation Techniques
4. Discussion and Analysis
4.1. Data description and Summary statistics
4.2. Econometric Results
4.2.1. Discussion, Interpretation and Analysis
4.2.2. Post Estimation Test
4.2.2.1. Autocorrelation
4.2.2.2. Over identifying Restrictions
4.2.2.3. Heteroscedasticity
5. Conclusion and Policy Implications
Objectives & Key Research Topics
The primary objective of this research is to examine the relationship between formal institutions and stochastic economic growth across 42 selected Sub-Saharan African (SSA) countries. By analyzing data from 1996 to 2014, the thesis investigates how governance quality—measured through various indicators—impacts the volatility and performance of economic growth in the region.
- The impact of institutional quality and good governance on stochastic growth behavior.
- Transmission channels through which institutional variables influence macroeconomic outcomes.
- The role of external factors such as foreign aid, trade openness, and inflation in the growth process.
- A comparative analysis using dynamic panel data estimation techniques (Difference GMM and System GMM).
- Identification of policy recommendations to foster sustained economic growth in SSA.
Excerpt from the Book
2.1.1. Definition of Institution
One of the problem with institution school of thought is that, it's somewhat difficult to define the word “institution” because institution refers to many different things that academic literature is sometimes not clear about its definition (Acemoglu et al., 2005).
North (1990), defines institution “Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction." According to his definition institution captures three important elements that make up the institution. First, they are “humanly devised” meaning institution is a human made factors that are under the control of the human being. It is about the effect of society own choice on their own economic chances. Second, it is placing constraint on individual behavior. This indicates that policy, regulation and laws that punish certain types of behavior while rewarding others will naturally have an effect on behavior. Finally, institutional constraints placed on individual will shape human interaction and affect incentives.
Acemoglu et al. (2005), defined institutions as a combination of three interrelated concepts: Economic institutions-these are factors that influence the structure of economic incentives in society such as incentives of economic actors to invest, make transactions, distribution of resources and etc. It includes the structure of property right, functioning of the market and contractual opportunity available to the society. Political power- it clarifies the relative political power of different groups of society with conflicting interests that governs their capacity to decide the administration of resources and implement policies. Political institutions- these are institution that allocates political power across groups and related to the features of the government and the scheme of the constitution such as power distribution, decision-making and like.
Summary of Chapters
Chapter One: Introduction: Outlines the socio-economic context of Sub-Saharan Africa, defines the research problem, and states the thesis objectives regarding the nexus between institutions and stochastic growth.
Chapter Two: Literature Review: Examines theoretical frameworks, including institutional and stochastic growth theories, and reviews empirical evidence on the impact of governance on economic development.
Chapter Three: Methodology: Details the model specification, data sources, and dynamic panel estimation techniques used to analyze the institutional impacts on regional growth.
Chapter Four: Discussion and Analysis: Presents descriptive statistics and the empirical findings derived from GMM estimation models, interpreting the results for institutional and macroeconomic variables.
Chapter Five: Conclusion and Policy Implications: Summarizes the study’s findings and offers recommendations for policy makers to enhance institutional quality for sustainable economic growth.
Keywords
Stochastic growth, Institution, Good governance, Dynamic panel data, Sub-Saharan Africa, GMM, Economic growth, Policy, Institutional theory, Foreign aid, Trade openness, Inflation, Governance indicators.
Frequently Asked Questions
What is the central focus of this research?
The research examines the relationship between formal institutions (and good governance) and the stochastic nature of economic growth in 42 Sub-Saharan African countries between 1996 and 2014.
What are the primary themes discussed in this study?
Key themes include institutional economics, governance indicators (such as the Rule of Law and Control of Corruption), stochastic growth theory, and the impact of macroeconomic variables like foreign aid and inflation on regional stability.
What is the core research question?
The study asks whether and how institutional quality and good governance affect the stochastic growth behavior of Sub-Saharan African economies, and through which transmission channels these effects occur.
Which scientific methodology does the author employ?
The author uses dynamic panel data econometrics, specifically employing Arellano-Bond (Difference GMM) and Arellano-Bover (System GMM) estimation techniques to correct for endogeneity and unobserved heterogeneity.
What topics are covered in the main section?
The main part covers the theoretical background of institutions, empirical literature on growth factors, model specification, summary statistics of the data, and an in-depth econometric analysis of governance variables.
Which keywords define this work?
Essential keywords include Stochastic growth, Institution, Good governance, Sub-Saharan Africa, Dynamic panel data, and GMM.
How is the "Institution" variable constructed in this model?
The institution variable is created by aggregating indices from the six governance clusters measured by the World Bank's Worldwide Governance Indicators (WGI).
What does the study conclude about Foreign Direct Investment (FDI) in SSA?
Surprisingly, the study indicates that FDI in SSA has a negative and statistically insignificant impact on economic growth during the study period, potentially due to the substitutability between foreign and domestic investments.
How does the author define the "stochastic" nature of economic growth?
Stochastic growth is defined as the inter-temporal allocation of production resources in an economy subjected to random shocks, where growth performance is volatile and interrelated with fragile governance.
- Citation du texte
- Derese Kebede Teklie (Auteur), 2016, The nexus between institution and stochastic growth in selected Sub-Saharan African countries. Evidence from dynamic panel data analysis, Munich, GRIN Verlag, https://www.grin.com/document/354829
