Does Governance Affect Economic Growth? Evidence from SANE Countries

Uchechukwu Innocent Duru, Omoyokan Paul Ehidiamhen, Adanne Millicent Eze, Chikeziem Fortunatus Okorontah, Emmanuel Ejike Odeh, Kelechi Promise Uzoma, Toluwalashe Favour Ojo, Chukwuka Christian Ekechi

Rhema University Nigeria, University of Abuja, University Nigeria, University, Kabba

This study examined the link between the six World Bank World Governance Indicators of voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption and economic growth in SANE countries: South Africa, Algeria, Nigeria and Egypt from 1996 to 2023. Due to the multicollinearity brought on by a strong connection between some pairings of the governance indices, the unique determinants of governance from among the six dimensions of governance were chosen using the principal component analysis. Control of corruption was the only factor with an eigenvalue larger than one and accounted for over 74% of the variability in the initial data after the principal component analysis. It was termed the index of good governance. The relationship between the index of good governance and economic growth was studied in both the short and long-term using the Pooled Mean Group Panel Autoregressive Distributed Lag approach. The findings showed that the index of good governance had a negative and insignificant impact on economic growth. However, foreign direct investment and domestic credit to the private sector had a positive effect on economic growth. The study advises governments and policymakers in the SANE economies to sustain existing policies on foreign direct investment since it is yielding the desired outcome and foster an atmosphere that draws foreign direct investment. Policies for guaranteeing the growth of the private sector through domestic financing should also be sustained.

Article link: https://www.asianinstituteofresearch.org/JEBarchives/does-governance-affect-economic-growth%3F-evidence-from-sane-countries