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INSTITUTIONS AND GROWTH DRAG: Evidence from Major Crude Oil-Producing African Economies

INSTITUTIONS AND GROWTH DRAG: Evidence from Major Crude Oil-Producing African Economies


Abstract: Neoclassical growth models attribute growth differentials across countries to differences in the level of technology, accumulation of physical and human capital, as well as research and development; while neglecting the role of institutions and states. This study therefore investigates the responsiveness of output to institutional and other variables, and explores the extent of growth drag among crude-oil producing African economies using a simple extended Solow growth framework. The model is estimated using a panel estimation technique with annual data from 1996 to 2011. The results show that what really explains output growth among the selected major oil-producing African economies is the amount of human capital they possess. However, regulatory quality, among the five selected institutional variables, was found to significantly influence output. Besides, growth drag among these economies is huge but decreases with increases in the share of physical capital. The study suggests that the ability of the governments of the selected economies to formulate and implement sound policies and regulations that permit and promote private sector development, within the framework of regulatory quality, is crucial to growth. Also investment in physical capital is very important in order to reduce growth drag among these economies.

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