Socioeconomic Performance in Sub-Saharan Africa with Reference to Southeast Asia :Natural Resources or Institutions?

Abstract

This study addresses three questions: (1) how Sub-Saharan Africa (SSA) performs in economic and social indicators relative to Southeast Asia (SEA)

(2) whether and how abundance in natural resources and institutional quality influence patterns of socioeconomic performance across and within the two regions

and (3) to what extent interactions between institutional quality and abundance in natural resources determine economic and social outcomes. It covers the period from 1990 to 2015 for a set of forty-five SSA and nine SEA countries. The analysis applies three measures to capture socioeconomic performance: (1) per capita GDP growth

(2) foreign direct investment (FDI) inflows

and (3) infant mortality rate. It uses the World Banks Regulatory Quality (RQ) indicator as the institutional quality measure

and the share of natural resource exports in percentage of total merchandise exports as a measure for resource abundance. Further, the analysis controls for a range of variables that may potentially influence per capita GDP growth, FDI, and infant mortality. These variables include inflation rates, government expenditure, official development aid (ODA), population growth, and the share of urban population in percentage of total population. The interest in such analysis originated in the observation that poor institutional quality or governance and abundance in natural resources, often argued to explain SSAs development problems, are in fact also present in a large part of SEA. For instance, many countries in both regions are among the worlds most corrupt according to the Transparency Internationals Corruption Perceptions Index (CPI) and are similarly richly endowed in natural resources such as oil and gas. Another motivation for this analysis is that no empirical work has been done using cross-national longitudinal statistics to address the question on how certain factors, in particular institutions and natural resources, influence economic and social outcomes in the two regions. For that purpose, the study draws upon two analytical perspectives: (1) the institutional perspective (institutions as the fundamental cause of good economic performance)

and (2) the resource curse perspective (abundance or dependence on natural resources, especially minerals and oil, adversely affects economic performance). In addition, the study accounts for the explanation according to which socioeconomic performance, especially in SSA, may be linked to physical or geographic causes. The main findings can be summarized as follows: first, keeping constant institutional quality, abundance in natural resources, and other variables, a country located in SSA has lower per capita GDP growth, lower flows of inward FDI, and higher infant mortality relative to a country located in SEA. In other words, despite similarities in the measured institutional level in both regions, SEA experiences better economic and social outcomes compared to SSA. Second, a country that improves its institutional quality—RQ—is likely to experience higher per capita GDP growth, larger FDI inflows, and lower infant mortality, irrespective of whether it is located in SSA or SEA. Better-performing-countries in both regions tend to have higher RQ scores compared to the poor-performing-countries. Among the countries with better RQ, however, those located in SEA perform somewhat better than their counterparts located in SSA. Finally, abundance in natural resources does not necessarily have adverse effects on economic outcomes. In SSA for instance, per capita GDP growth and FDI inflows are greater for resource-abundant countries than for their resource-scarce counterparts. Further, resource-abundant countries with good RQ have higher economic growth and receive more FDI than either countries with abundant natural resources and poor RQ, or no resources with good RQ, or non-resources with poor RQ. Overall, these findings have important implications for empirical research on the role of institutional quality in explaining differences in economic and social outcomes across countries. This studys main contribution is to understand how countries that display similar measured level of institutional quality or governance may experience different economic and social outcomes.