The effects of policy, institutions and geography on economic growth in Africa: an econometric study based on cross-section and panel data

This paper use both single period cross-section data as well as panel data for the period 1970 to 1990 (largely obtained from version 6.1 of the Penn World Tables) to identify the determinants of Africa's growth in per capita GDP, as well as to evaluate the empirical relevance of recent contributions that stresses the potential importance of geographical vs institutional factors in Africa's growth. The paper further contributes by making use of recent cross-country data on institutional quality and geographical characteristics of African countries. To address the danger of using an inappropriate estimation method, a number of estimation methods was used, namely OLS, LAD, GLS-random effects, fixed effects as well as a dynamic GMM-estimator. The results confirmed that the more efficient and dynamic GMM-estimator is superior and that controlling for unobserved heterogeneity, dynamic effects and endogeneity of the regressors is important. It is concluded that there is conditional convergence in Africa, and that literacy, investment, FDI and urban agglomeration have a significant positive effect on GDP per capita growth in Africa. Growth is negatively affected by government expenditure, settler mortality, malaria, landlockedness and landarea. These results support Acemoglu et al.'s (2001) 'reversal of fortune' thesis, namely that settler mortality is inversely related to economic growth. It further suggests that it is not one of either institutions or geography that are more important than the other, but rather that geography may have an important impact on institutions. The robust finding that the incidence of malaria has a particularly large impact on economic growth in Africa supports this conclusion. Copyright © 2004 John Wiley & Sons, Ltd.