GOVERNMENT EXPENDITURE, EFFICIENCY, INSTITUTIONAL QUALITY AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICAN COUNTRIES
WANDEDA, DICKSON ONYANGO
University of Nairobi
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.
SSA , government spending , institutional quality , Income growth , Dynamic Panel Model