The linkage between economic complexity, governance economic growth for Africa's top performing country: a PARDL approach

Abstract

Several economists have identified economic complexity and governance to be significant engines for growth and development. Compared to governance, economic complexity is a relatively new concept that has gained attention from various authors and is considered to have a greater impact on economic growth, particularly in the African context. In the last decade, Sub-Saharan countries have experienced negative economic growth rates which have worsened in terms of good governance and economic complexity. Accordingly, the objective of this study is to analyse the linkage between economic complexity, governance, and economic growth for Africa’s top-performing countries by using panel data from 2002-2017.The results of the unit root tests show that the variables are integrated of order(0) and order(1), or a combination of both, which justified the use of the PARDL approach. Panel cointegration methods were employed to analyse the short and long run relationships of the variables of interest. These tests found that there is a long run relationship between GDP and the explanatory variables with the short run results depicting an error correction term of -0.59. The results show that economic complexity, government effectiveness, regulatory quality and political stability have a positive impact on economic growth whilst the control of corruption and voice and accountability have a negative impact on growth. The study further employed the impulse response function and variance decomposition tests to assess how shocks to the economic variables reverberate through an economic system. Furthermore, economic tests such as the Engle-Granger causality test were conducted to establish the causal relationship between GDP and other explanatory variables. Economic complexity, government effectiveness, regulatory quality and political stability are seen to be great contributors to economic growth; hence, policies aimed at increasing these variables should be made the primary objectives of these African countries.