Institutional Quality Differences Explaining Growth Differences between Sub-Saharan Africa and East Asia.
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Date
2009-01
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A.A.U
Abstract
The economic performance of most of the Sub-Saharan countries is not satisfactory as
compared to that of East Asian countries. The issue of economic growth has been the
concern of economists with the intent of answering the question as to why there are
differences in the growth rates across countries. The impact of quality of institutions on
economic performance is the subject of much debate among economists recently.
Many researches that have analyzed the factors causing difference in the rates of
economic growth have found factors such as quality of institutions, geographical
location, integration in international trade and culture among other things to explain the
observed differences in per-capita income. While some studies like Sachs and Warner
assign the prominent role to Geography, others concentrate on different factors such as
institutions and integrations for causing the difference in economic performance among
regions and countries.
This paper develops a case that differences in the quality of institutions is one of the
fundamental cause of differences in growth between SSA countries and some East Asian
countries. The Arellano-Bond (1991) and Arellano-Bover (1995) linear generalized
method of moments (GMM) is used to estimate the neoclassical growth model Solow
Augmented with institution to asses the impact of institutional quality difference on
growth difference.
The result of this study suggest that gross capital formation, population growth,
geography and the quality of institutions are the major factors causing differences in
growth rates. Mainly the study concludes that improvement in the quality of institution by
the same amount in the two regions under consideration has a higher impact on growth
for SSA countries than the East Asian countries considered. Thus the SSA countries
should also concentrate on building social infrastructure which is equivalent to improving
institutional quality to encourage productive behavior for registering higher economic
growth.
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Keywords
Africa and East Asia, Differences between Sub-Saharan, Quality Differences Explaining