Effect of Governance on Macroeconomic Instability in Sub-Saharan Africa: Does Regional Analysis Matter?

Abstract

Macroeconomic instability is a growth blockage in any contemporary societies, businesses, and governments. However, how to achieve macroeconomic stability remains a gap in extant literature for most developing countries. This study examines the effect of governance on macroeconomic instability in a sample of 42 Sub-Saharan African countries over the period 1996-2019. Four governance indicators, namely political governance, economic governance, institutional governance and general governance are constructed with the use of principal component analysis. Empirical evidence based on the Generalized Method of Moments and alternatively by Two-Stage least Squares technique for regional analysis reveals that the selected governance indicators do not have the same reducing influence on macroeconomic instability in Sub-Saharan Africa. Considering sub-regional analysis, evidence of a positive effect of political governance over growth instability in Central Africa is sparingly apparent in Voice and Accountability, and liberal democracy. This finding therefore recommend, improved local contents of governance policies toward economic sustainability, redesigning and returning the content of democracy in line with the demands, peculiarities and realities of central Africa state.