Would Better Institutional Quality Contribute towards Reducing the Size of Government in Sub-Saharan Africa?

Sub-Saharan Africa is concurrently characterised by low institutional quality and large-sized government sectors and both may keep the cost of doing business high. This paper revitalises the political economy literature on growth of governments in highlighting the essence of upgrading institutional quality to trim down government size in several sub-Saharan economies. It particularly contributes to existing knowledge by showing that failure to control for idiosyncrasies would lead to serious biases in regressions that try to explain growth of governments. Moreover, this paper challenges factors such as globalisation and population dynamics, often perceived as major drivers, of the size of public sector in developing countries. Empirical findings based on 42 economies, pertaining to this region, clearly indicate that, besides level of development, the quality of institutions matters tremendously in reducing growth of governments. Contrary to previous studies, weak evidence is found of trade openness, urbanisation and dependency ratio determining public sector growth once idiosyncratic elements are accounted for. Of the six indicators of institutional quality applied in this assessment, ‘Control of Corruption’ is found to be most significant that policy reforms should address to reduce the overwhelming sizes of government in sub-Saharan economies.