A Dynamic panel data analysis of democracy, political institutions and economic growth in Africa (1996-2016)

Abstract

Sub-Saharan Africa has a checkered record as far as democracy and institutional quality are concerned. Policymakers and development practitioners are increasingly becoming seized with the role of good institutional quality and democracy in promoting economic growth and development. Economic growth in Sub-Saharan Africa has largely been sub-optimal due to a plethora of challenges. This study empirically examines the effects of political institutions, with a specific focus on electoral disputes and democracy on economic growth in Africa from 1996 to 2016 to try to explain the poor economic performance. Electoral disputes are endemic in Africa as most elections either end up in constitutional courts or with violent clashes erupting between supporters of different political parties. The current electoral institutions do not seem strong enough to run credible, free, and fair elections whose processes and results are not controversial. The study employs the random and fixed-effects models using the Ordinary Least Squares (OLS) dynamic panel data estimation methodology. The Panel Granger causality test is also applied to determine the direction of causality between political institutions and economic growth. The study uses secondary data obtainable from the World Bank databases. A dummy variable was used to measure electoral violence, political institutions were measured using political violence and absence of violence and terrorism while democracy was measured using the Polity IV index. Empirical results have shown that electoral disputes are not significant in explaining economic growth in Africa, poor democracy levels in Africa are growth-stifling, and political institutions are significant and they positively impact economic growth. Furthermore, a unidirectional relationship is found to exist between economic growth and political institutions, with causality running from political institutions to growth. Therefore, I recommend that African governments invest time and resources in building strong institutions supportive of good economic performance.