THREE ESSAYS ON POLITICAL ECONOMY OF INSTITUTIONS AND INNOVATION: EVIDENCE FROM SUB-SAHARAN AFRICAN ECONOMIES

This thesis considers the question of how institutions (i.e. political and governance), and innovation affect economic performance in sub-Saharan African economies– a context in which democratic and governance institutions are underdeveloped. To address this fundamental question this dissertation draws on the theories of institutions by North, D. C.(1990), and Acemoglu, D., & Johnson, S.(2005), and the indigenous growth theories by Romer(1986), Lucas(1988), and Schumpeter(1934). To this effect, three different but related in depth investigations are conducted using a panel of sub-Saharan African economies. Using data for a sample of 35 sub-Saharan African economies for 1995–2015 the first article, examines the extent to which political institutions identified as belonging to democratic or autocratic regimes explains the existing differences in innovation across sub-Saharan Africa. While the very few existing studies focus only on the direct effect of institutions, this article examines the impact of the interaction between different regime types and human capital development on innovation in developing countries. The evidence provides very strong support for the direct effect of democratic development on innovation as well as for its indirect effect via its impact on human capital development. However, the results do not support theories that argue in favour of interaction between democracy and human capital, thereby pointing to the need for better calibration of the numerous existing theories and related empirical measures. The second article examines the effect of quality of governance institutions on innovation in 37 sub-Saharan African countries for the period 1996–2016. The empirical analysis followed the ordinary least square and general methods of moment’s regression technique. The motivation for using general methods of moment’s estimation technique is to provide special focus to the issue of endogeneity by estimating general methods of moment’s model. The following general findings are presented. First, governance quality does, in fact, appear to promote innovativeness. Second, for all governance indicators, the effect of the quality of governance institutions follows two channels: directly and indirectly through its positive impact on human capital development. The empirical findings suggest that countries with better quality of governance infrastructure are able to promote innovation in better ways. That is, the results do support theories that argue in favour of the development of governance quality and the improvement of human capital infrastructure to foster national innovation system. These results are found to be robust across alternative empirical specifications tested. Based on empirical panel data for a sample of 37 sub-Saharan African economies for 1996–2016 the third article, investigates the extent to which institutional quality explains the existing cross-country difference in economic performance in sub-Saharan Africa. While most of the existing studies focus only on the direct effect of institutional quality, this article investigates the direct and indirect effects of institutions. It also reflects on impact of the interaction between institutional quality and innovation on economic growth in developing countries. The evidence provides very strong support for the direct effect of institutional quality development on economic performance as well as for its indirect effect via its impact on innovation. However, the results do not support theories that argue in favour of interaction between institutional quality such as democracy, governance quality and innovation, thereby pointing to the need for better calibration of the numerous existing theoretical postulations and related empirical measures. A final epilogue provides explanation on how some of the key trends emerging from the three empirical studies are contributing to both continuity and change in institutional development as well as economic growth in sub-Saharan Africa and what this might mean for African states into the future.