GOVERNMENT EXPENDITURE, EFFICIENCY, INSTITUTIONAL QUALITY AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICAN COUNTRIES
Date
2021-12-16
Authors
WANDEDA, DICKSON ONYANGO
Journal Title
Journal ISSN
Volume Title
Publisher
University of Nairobi
Abstract
The aim of this thesis was threefold. First, the study scrutinized the role of government
spending on output growth for SSA countries. SSA countries’ economic growth has been low
compared to other developing regions. Empirical evidence has shown that government
expenditure is a significant driver of output growth. However, SSA economic performance
has largely lagged despite the increase in government expenditure. The second objective
assessed the efficiency of public spending and the sources of inefficiencies in spending across
Sub-Saharan African countries. The third objective analysed the role of institutional quality
on income variation among Sub-Saharan countries. The issues of institutional quality have
been considered to be fundamental in explaining income variation across countries.
Botswana’s growth miracle has been achieved by the strong institutions it embraced. This
thesis therefore analysed the effect of institutional quality on output growth. In addition, we
examined if income variation differs with the income level of SSA countries.
Objective one and three adopted dynamic panel data and were estimated using two-step
system GMM while taking into account the problem of instrument proliferation. Panel data of
35 SSA countries was considered for the periods 2006-2018. Efficiency score for objective
two was achieved by adopting two-step bootstrap output-oriented DEA technique. Both CCR,
BCC and scale efficiency were estimated.
The study provided evidence that education and health expenditure are key determinants of
income growth for SSA. The impact of education spending on cross-country income variation
is more effective in low income SSA countries than the middle income SSA countries.
However, military expenditure on output growth is more effective in improving income level
of middle income SSA countries than low income SSA countries. SSA countries should
allocate more funding towards education sector and should also avail compulsory and free
primary and secondary education. SSA should carry out health reforms which improve
primary health and universal health insurance coverage.
The average bias-corrected inefficiency score was 48percent between 2006 and 2018 and the
uncorrected spending inefficiency score averaged 32.3percent. Income per capita, secondary
school enrolment rate, domestic savings, rule of law, political stability, capital formation, and
accountability significantly determine the inefficiencies of government spending across SSA
countries. Spending efficiency can be improved through efficient management of public
resources. Distortions in SSA government expenditure can be eliminated by designing
policies that improve income per capita and institutional quality.
Institutional quality plays a significant role on output growth of SSA countries. Government
effectiveness contributes more to income growth in middle income countries than in low
income SSA countries. There exists regional difference on the effect of institutional quality
on economic growth across the four regions of SSA. The contribution of institutional quality
to output growth is more effective at the lower level of income and upper level of income
than the middle level of income of SSA countries. SSA countries should strengthen
institutional bodies that act as checks and balances for government operations. Strategic
partnership that promotes civil liberty and independence of institutions should be adopted by
SSA member states.
Description
Keywords
SSA , government spending , institutional quality , Income growth , Dynamic Panel Model