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

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

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.

Keywords: Governance, Panel Data, Fixed-Effects Model, Random-Effects Model, Sub-Saharan Africa, Real GDP Per Capita

Authors’ individual contribution: Conceptualization — H.L.F., D.D.A., S.M.A., and F.T.T.; Methodology — H.L.F., D.D.A., S.M.A., and F.T.T.; Formal Analysis — H.L.F., D.D.A., S.M.A., and F.T.T.; Writing — Original Draft — H.L.F., D.D.A., S.M.A., and F.T.T.; Writing — Review & Editing — H.L.F., D.D.A., S.M.A., and F.T.T.; Supervision — H.L.F., D.D.A., S.M.A., and F.T.T.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: H110, O1, P510

Received: 30.07.2021
Accepted: 26.01.2022
Published online: 28.01.2022

How to cite this paper: Feyisa, H. L., Ayen, D. D., Abdulahi, S. M., & Tefera, F. T. (2022). The three-dimensional impacts of governance on economic growth: Panel data evidence from the emerging market. Corporate Governance and Organizational Behavior Review, 6(1), 42–55. https://doi.org/10.22495/cgobrv6i1p3