Domestic Resources, Governance, Global Links, and the Economic Performance of Sub-Saharan Africa

Abstract

This paper uses a simple production function to show that the economic performance of a group of African countries in 2007 depended on three broad sources: domestic resources, governance, and global links. The results reveal that investment plays the most important part. The effects of education (knowledge) as a component of human capital is modest, while the health (life expectancy) part of human capital is negative. At the aggregate level external relations, measured as openness, are positively correlated with per capita income. However, disaggregated as integration, aid dependency, and net tourism, all three global links have a negative effect on performance. Also, two indicators of institutional quality (governance) show that average improvement in the quality of institutions has helped economic performance. Considering different dimensions of institutions, the rule of law, and safety and security of property rights are the most constraining aspects of institutions in this group of countries. The findings leave enough room technical for fine-tuning and sophisticated estimators, which cautions interpretation. However, it seems clear that developing countries do better improving domestic resources and institutions than relying for performance on external relations, even though such links cannot be dismissed lightly.