Innovation, Institutions and Economic Growth in Sub-Sahara Africa – an IV Estimation of a Panel Threshold Model

Forson, Joseph Ato and Opoku, Rosemary Afrakomah and Peng, Zhen (2017): Innovation, Institutions and Economic Growth in Sub-Sahara Africa – an IV Estimation of a Panel Threshold Model. Published in: Journal of Economic and Administrative Sciences (10 September 2020): pp. 1-28.

Abstract

In this paper, we investigate the relationship between innovation and economic growth in sub-Sahara Africa taking into account the role of institutional development. This is against the backdrop that institution is the oil that greases the wheels of development. Using the number of scientific journals published as proxy for innovation and GDP per capita for economic growth, we assess a panel of 25 economies in sub-Sahara Africa with dataset (1996-2016) from reliable agencies such as World Bank, Polity IV, Heritage foundation, Elsevier Scopus (Scimago) and Economic Freedom of the World Project (EFW). Our evidence suggest among other things that innovation has a positive and significant effect on the growth trajectory of sub-Sahara Africa although the impact seems negligible. Institutional quality is seen to dampen innovation and the relation is persistent regardless of when the focus is on aggregate or decomposed institutional factors. While most countries in the region have offered financial support in strengthening institutions, we find barriers to the design and implementation of STI policies to be responsible for the sluggish contribution of innovation to the growth pattern in the region. Therefore a lot more has to be done in the area of coordination and finding the right mix of financing option in supporting the activities of public organizations and parastatals when it comes to the design and implementation of STI policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation; sub-Sahara Africa (SSA); Science, Technology and Innovation (STI); Institutional Quality; Economic Growth.
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

References

Acemoglu, D., Johnson, S., & James, A. (2001). The Colonial Origins of Comparative Development: An Empirical Investigation. America Economic Review, 91(5), 1369–1401. https://doi.org/10.1257/aer.91.5.1369

Acemoglu, D., Johnson, S., Robinson, J., Yared, P. (2008). Income and Democracy. American Economic Review, 98(3), 808–842.

Adeyinka, A., Salau, S., & Vollrath, D. (2013). Structural change in the economy of Nigeria (No. 24). Lagos. Retrieved from https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.364.913&rep=rep1&type=pdf

Alence, R. (2004). Political institutions and developmental governance in sub-Saharan Africa. The Journal of Modern African Studies, 42(2), 163–187. https://doi.org/10.1017/S0022278X04000084

Alesina, A., & Weder, B. (2002). Do Corruption Governments Receive Less Foreign Aid? American Economic Review, 92(4), 1126–1137. Retrieved from http://dems.unimib.it/corsi/644/altro/alesina_wederaer02.pdf

Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., & Wacziarg, R. (2002). Fractionalization (No. 9411). Cambridge. Retrieved from http://www.nber.org/papers/w9411

Alonso, J.A., & Garcimartin, C. (2013). The determinants of institutional quality. More on the debate. Journal of International Development, 25(2), 206–476.

Amsden, A. H. (1989). Asia’s next giant: South Korea and late industrialisation. New York: Oxford University Press.

Aristizabal-Ramirez, M., Canavire-Bacarreza, G. and Rios-Avila, F. (2015). Revisiting the effects of innovation on growth: a threshold analysis. Applied Economic Letters, 22(18), 1474–1479.

Aryeetey, E., & Kanbur, R. (2008). The Economy of Ghana: Analytical Perspectives on Stability, Growth and Poverty. (R. Aryeetey, E., & Kanbur, Ed.). Accra: Woeli Publishing Services.

Aubert, J. E. (2004). Promoting Innovation in Developing Countries: A Conceptual Framework (No. 3554). Washington. Retrieved from https://openknowledge.worldbank.org/handle/10986/8965

Awoonor, A. K., & Forson, J. A. (2020). African Perceptions of Trade Partners : A Ghanaian and Togolese Perspective of Sino- African Relations. Insight on Africa, 12(2), 104–128. https://doi.org/10.1177/0975087820923995

Ayyagari, M., Demirguc-Kunt, A., Maksimovic, V. (2012). Firm innovation in emerging markets: the role of finance, governance, and competition. Journal of Financial Quantitative Analysis, 46(6), 1545–1580.

Barasa, L., Knoben, J., Vermeulen, P., Kimuyu, P., & Kinyanjui, B. (2017). Institutions, resources and innovation in East Africa: A firm level approach. Research Policy, 46(1), 280–291. https://doi.org/10.1016/j.respol.2016.11.008

Barro, R.J., & Sala-i-Martin, X. (2003). Economic Growth (2nd ed.). Cambridge: MA: The MIT Press.

Bingab, B. B. B., Forson, J. A., Abotsi, A. K., & Baah-Ennumh, T. Y. (2018). Strengthening university governance in sub-Sahara Africa: the Ghanaian perspective. International Journal of Educational Management, 32(4). https://doi.org/10.1108/IJEM-02-2016-0039

Boudreaux, C. J. (2017). Institutional quality and innovation : some cross-country evidence. Journal of Entrepreneurship and Public Policy, 6(6), 26–40. https://doi.org/10.1108/JEPP-04-2016-0015

Carayannis, E.G., Popescu, D., Sipp, C., Stewart, M. (2006). Technological learning for entrepreneurial development (TL4ED) in the knowledge economy (KE): case studies and lessons learned. Technovation, 26(1), 419–443.

Casu, B., Girardone C., & Molyneux, P. (2008). Introduction to Banking law (2nd ed.). London: Pearson.

de la Mothe, J. (2004). The institutional governance of technology, society, and innovation. Technology in Society, 26(2–3), 523–536. https://doi.org/10.1016/j.techsoc.2004.01.009

DeLong, B. & Shleifer, A. (1993). Princes and Merchants: European City Growth before the Industrial Revolution. Journal of Law and Economics, 36(5), 671–703. https://doi.org/10.3386/w4274

Dollar, D., & Kraay, A. (2003). Institutions , trade , and growth. Journal of Monetary Economics, 50(1), 133–162. https://doi.org/10.1016/S0304-3932(02)00206-4

Ductor, L., & Grechyna, D. (2015). Financial development, real sector, and economic growth. International Review of Economics & Finance, 37, 393–405. https://doi.org/10.1016/j.iref.2015.01.001

Durusu-Ciftci, D., Ispir, M.S., & Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence. Journal of Policy Modeling, 39(2), 290–306. https://doi.org/10.1016/j.jpolmod.2016.08.001

Earle, L., & Scott, Z. (2010). Assessing the Evidence of the Impact of Governance on Development Outcomes and Poverty Reduction. London. Retrieved from www.gsdrc.org/docs/open/EIRS9.pdf‎

Evans P., & Reuschemeyer, D. (1985). The State and Economic Transformation: toward an analysis of the conditions underlying effective intervention. In Evans, P., Rueschemeyer, D., and Schocpol, T. Bringing the state back in. Cambridge: Cambridge University Press.

Feng, Y. (1997). Democracy, Political Stability and Economic Growth. British Journal of Political Science, 27(3), 391–418. Retrieved from http://www.jstor.org/stable/194123

Forson, J.A., Braimah, A.I., and Awoonor, A. K. (2020). African Perceptions of Donor Agencies: emerging developments in Sino-African relations. ILIRIA International Review, 10(1), 106–133. https://doi.org/10.21113/iir.v10i1.551

Forson, J.A., Buracom, P., Baah-Ennumh, T.Y., Chen, G., & Carsamer, E. (2015). Corruption , EU Aid Inflows and Economic Growth in Ghana : Cointegration and Causality Analysis. Contemporary Economics, 9(3), 299–318. https://doi.org/10.5709/ce.1897-9254.171

Forson, J.A., Buracom, P., Chen, G., & Baah-Ennumh, T. Y. (2017). Genuine Wealth Per Capita as a Measure of Sustainability and the Negative Impact of Corruption on Sustainable Growth in Sub-Sahara Africa. South African Journal of Economics, 85(2), 178–195. https://doi.org/10.1111/saje.12152

Forson, J. A. (2016a). A “recursive framework” of corruption and development: comparison between economic and sustainable outcomes. World Journal of Entrepreneurship, Management and Sustainable Development, 12(4), 282–298. https://doi.org/10.1108/WJEMSD-05-2016-0027

Forson, J. A. (2016b). Corruption and Sustainable Growth: Comparative Analysis of Sub-Sahara Africa and East Asia. National Institute of Development Administration (NIDA).

Forson, J. A. (2019). West African states have a science and technology plan. But it’s going nowhere. Retrieved June 8, 2020, from https://theconversation.com/west-african-states-have-a-science-and-technology-plan-but-its-going-nowhere-121273

Forson, J. A. (2020). Innovation financing and public policy dilemmas in the Economic Community of West African States (ECOWAS). Journal of Science, Technology, Innovation and Development, 12(1), 1–11. https://doi.org/10.1080/20421338.2019.1599575

Forson, J. A., Baah-Ennumh, T. Y., Buracom, P., Chen, G., & Peng, Z. (2016). Causes of corruption: Evidence from sub-Saharan Africa. South African Journal of Economic and Management Sciences, 19(4). https://doi.org/10.17159/2222-3436/2016/v19n4a7

Freeman, C. (1982). The Economics of Industrial Innovation. Cambridge: MIT Press.

Ganau, R. (2017). Institutions and economic growth in Africa: a spatial econometric approach. Economia Politica, 34(1), 425. https://doi.org/https://doi.org/10.1007/s40888-017-0057-3

Glaeser, E.L., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2004). Do Institutions Cause Growth? Journal of Economic Growth, 9(3), 271–303. https://doi.org/10.3386/w10568

Greif, A. (2006). Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. Journal of Political Economy. New York: Cambridge. Retrieved from http://www.stanford.edu/~avner/Greif_Instutions/0 1 Chapter 1 Introduction.pdf

Hadjimanolis, A., & Dickson, K. (2001). Development of national innovation policy in small developing countries: the case of Cyprus. Research Policy, 30(1), 805–817. https://doi.org/10.1016/S0048-7333(00)00123-2

Han, C., & Phillips, P. C. B. (2010). GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity. Econometric Theory, 26(1), 119–151. https://doi.org/10.1017/S026646660909063X

Harris, J. M. (2000). Basic Principles of Sustainable Development (No. 00–04). Medford. Retrieved from http://ase.tufts.edu/gdae/publications/working_papers/Sustainable Development.PDF

Huang, C.Y., Shyu, J.Z., & Tzeng, G. H. (2007). Reconfiguring the innovation policy portfolios. Technovation, 27(1), 744–765. https://doi.org/10.1016/j.technovation.2007.04.002

Kaufmann, D., Kraay, A., & Zoido-Lobaton, P. (1999). Governance Matters.

Kaufmann, D., Kraay, A., & Zoido-Lobaton, P. (2002). Governance Matters II: Updated Indicators for 2000/01. (No. 3106). Retrieved from http://siteresources.worldbank.org/DEC/Resources/WPS2772_2002.pdf

Kaufmann, D., Kraay, A., & Mastruzzi, M. (2013). Worldwide Governance Indicators. Retrieved from http://info.worldbank.org/governance/wgi/index.aspx#home

Knack, S. & Keefer, P. (1995). Institutions and Economic Performance: Cross Country Tests Using Alternative Institutional Measures. Economics and Politics, 7(3), 207–227. https://doi.org/10.1111/j.1468-0343.1995.tb00111.x

Leblang, D. A. (1997). Political Democracy and Economic Growth: Pooled Cross-Sectional and Time Series Evidence. British Journal of Political Science, 27(3), 453–466. Retrieved from http://www.jstor.org/stable/194125

Lepage, M. (2017). Innovation for development in Africa: Focus on the public sector. Retrieved February 12, 2018, from http://www.undp.org/content/undp/en/home/blog/2017/5/23/Innovation-for-development-in-Africa-Focus-on-the-public-sector.html

Matthews, R. (1986). The economics of institutions and the sources of growth. The Economic Journal, 96(903), 18.

Mcmillan, M.S., & Rodrik, D. (2011). Globalisation, Structural change and productive growth (17143).

Moghalu, K. C. (2014). Why has Africa fallen behind the rest of the World’s Economy? Retrieved August 19, 2017, from https://www.theguardian.com/global-development/2014/aug/04/africa-fallen-behind-economies-science-technology

Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49(6), 1417–1426. https://doi.org/10.2307/1911408

North, D. (1991). Institutions. Journal of Economic Perspectives, 5(1), 97–112.

North, D. C. (1993). The New Institutional Economics and Development. Retrieved October 10, 2013, from http://www.deu.edu.tr/userweb/sedef.akgungor/Current topics in Turkish Economy/north.pdf

Nunoo, F. (2018). Bank of Ghana merge five local banks which dey struggle into Consolidated Bank. Retrieved September 13, 2018, from https://www.bbc.com/pidgin/tori-45041522

Ohler, H., Nunnenkamp, P., & Dreher, A. (2012). Does conditionality work ? A test for an innovative US aid scheme. European Economic Review, 56, 138–153. https://doi.org/10.1016/j.euroecorev.2011.05.003

Oyelaran-Oyeyinka, B. (2012). Institutional capacity and policy for latecomer technology development. International Journal of Technological Learning Innovation and Development, 5(1/2), 83–110.

Oyelaran-Oyeyinka, B. (2014). The State and Innovation Policy in Africa. African Journal of Science, Technology, Innovation and Development, 6(5), 481–496. https://doi.org/10.1080/20421338.2014.983731

Padilla-Perez, R., & Gaudin, Y. (2014). Science, technology and innovation policies in small and developing economies: The case of Central America. Research Policy, 43(1). https://doi.org/10.1016/j.respol.2013.10.011

Pellegrini, L. (2011). Causes of Corruption: A Survey of Cross-Country Analysis and Extended Results. In Corruption, Development and the Environment (pp. 29–49). Berlin: Springer. https://doi.org/10.1007/978-94-007-0599-9

Peng, Z., Lian, Y., &, & Forson, J. A. (2020). Peer effects in R&D investment policy: Evidence from China. International Journal of Finance and Economics, 1–18. https://doi.org/10.1002/ijfe.2028

Perlman, M., and Heertje, A. (1991). Evolving Technology and Market Structure: Studies in Schumpeterian Economics. Michigan.: University of Michigan Press.

Phillips, P.C.B., & Sul, D. (2007). Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence. Journal of Econometrics, 137(1), 162–188. https://doi.org/10.1016/j.jeconom.2006.03.009

Plumper, T., & Martin, C. W. (2003). Democracy, Government Spending and Economic Growth: A Political- Economic Explanation of the Barro-Effect. Public Choice, 117(1/2), 27–50. Retrieved from http://www.jstor.org/stable/30025887

Prasad, B. C. (2003). Institutional Economics and Economic Development: The Theory of Property Rights, Economic Development, Good Governance and the Environment. International Journal of Social Economics, 30(6), 741–762. https://doi.org/10.1108/03068290310474120

Prochniak, M., & Witkowski, B. (2012). Baysian Model Averaging in Modeling GDP Convergence with the use of Panel Data. Roczniki Kolegium Analiz Ekonomicznych SGH, 26, 45–60.

Próchniak, M., & Witkowski, B. (2013). Time stability of the beta convergence among EU countries : Bayesian model averaging perspective. Economic Modelling, 30, 322–333. https://doi.org/10.1016/j.econmod.2012.08.031

Próchniak, M. (2013). To What Extent Is the Institutional Environment Responsible for Worldwide Differences in Economic Development. Contemporary Economics, 7(3), 17. https://doi.org/10.5709/ce.1897-9254.87

Qamruzzaman, Md., & Janguo, W. (2017). Financial Innovation and Economic growth in Bangladesh. Financial Innovation, 3(19), 1–24. https://doi.org/https://doi.org/10.1186/s40854-017-0070-0

Rasiah, R., Shahrivar, R. B., & Yap, X.-S. (2016). Institutional support, innovation capabilities and exports: Evidence from the semiconductor industry in Taiwan. Technological Forecasting and Social Change, 109, 69–75. https://doi.org/10.1016/j.techfore.2016.05.015

Rivera-Batiz, F. L. (2002). Democracy, Governance and Economic Growth. Review of Development Economics, 6(2), 225–247. https://doi.org/10.1111/1467-9361.00151

Roeder, P. G. (2001). Ethnolinguistic Fractionalization (ELF) Indices, 1961 and 1985. Retrieved December 25, 2014, from http://pages.ucsd.edu/~proeder/elf.htm

Rothwell, R., & Zegveld, W. (1982). Industrial Innovation and Public Policy: Preparing for the 1980s and the 1990s. London: Printer.

Rycroft, R., & Kash, D. (1999). The complexity challenge. London: Pinter.

Salmenkaita, J.P., & Salo, A. (2002). Rationales for government intervention in the commercialisation of new technologies. Technology Analysis and Strategic Management, 14(1), 183–200.

Schumpeter, J. (1942). Creative Destruction. Capitalism, Socialism and Democracy. New York, NY.: Harper and Brothers.

Segarra-Blasco, A., García-Quevedo, J., & Teruel-Carrizosa, M. (2008). Barriers to innovation and public policy in Catalonia. International Entrepreneurship and Management Journal, 4(4), 431–451. https://doi.org/10.1007/s11365-008-0086-z

Sen, A. K. (2000). Development as Freedom. New York: Anchor Books. Retrieved from http://blog.lib.umn.edu/ipid/ipid/Dev. as Freedom-Sen-Ch.1.pdf

Seputiene, J. (2009). The Impact of Institutional Environment on Economic Development of the European Union Countries. Retrieved October 10, 2013, from http://www.icabr.com/fullpapers/Seputiene Janina.pdf

Stock, J.H., & Watson, M. W. (2007). Introduction to Econometrics (2nd ed.). Hong Kong: Pearson Education Inc.

Sundbo, J. (2003). Innovation as Strategic Reflexivity. New York: Taylor & Francis.

UNCTAD. (2006). Least Developed Report: Developing Productive Capabilities. New York. Retrieved from http://unctad.org/en/Docs/ldc2006_en.pdf

Willie, S., Adedamola, A., Olawale, O., Hassan, & O. (2016). Science, technology and innovation indicators in policy-making: the Nigerian experience. Palgrave Communications. https://doi.org/10.1057/palcomms.2016.15

Woolthuis, R.K., Lankhuizen, M., & Gilsing, V. (2005). A systemic failure framework for innovation policy design. Technovation, 25(6), 609–619. https://doi.org/10.1016/j.technovation.2003.11.002

World Bank. (2009). World Development Indicators. Retrieved May 18, 2010, from www.data.worldbank.org

World Bank. (2013). World Development Indicators. Retrieved December 9, 2017, from www.worldbank.org