Income and Democracy in Sub-Sahara Africa

Abstract

This paper assesses impact of democracy on per capita income in Sub-Saharan Africa (SSA). Key gaps this paper addresses are two. First, response of per capita income to democracy has not been examined for SSA in empirical terms. Two, we include key drivers of income in SSA as controls which recognise African resource-dependent peculiarity. Data for the study include per capita income (dependent variable), democracy (indicators: DEMO and POLITY2), controls (natural resource rent, labour and gross capital formation). Panel data estimation techniques (Pooled, Fixed Effects and Random Effects and System GMM) were adopted. The results reveal positive but weak impact of democracy on per capita income. However, using system GMM developed by Arellano and Blundell, democratic impact on income becomes stronger as previous level of income is automatically included. Hence, we conclude that certain previous level of income is necessary for sustaining present level of democratic norms and governance to enable it drive present level of per capita income. Our results are robust across different estimates and different indicators of democracy.

Keywords: Per Capita Income, Democracy, Panel Data Estimation Techniques, Sub-Saharan Africa.

JEL Code: N3, C23, N34