Determinants of Economic Growth in Southern Africa Development Community: The Role of Institutions

Abstract

The study focuses on economic growth in SADC by examining the role of institutional variables; determining the key drivers and finding out the strength of the marginal effects of institutional quality. The study used a GMM estimator by Arellano and Bond (1991) and annual country data covering the period 1996-2010. Good quality institutions have an indirect impact on growth by working through trade openness, gross fixed capital formation, financial openness, human capital and savings ratio. Government stability, improved government effectiveness and absence of conflicts have direct effect on economic growth. High inflows of foreign direct investment are beneficial in the presence of low levels of political violence. The generic determinants of economic growth are necessary but not sufficient in explaining economic growth. Thus any reforms meant to enhance economic growth in SADC should give priority to putting in place good quality institutions which are a vital precondition.