Examining the Impact of Human Capital Development and Governance Institutions on Economic Growth in Sub-Saharan Africa

Abstract

This study examines the effects of human capital development and governance institutions on economic growth in Sub-Saharan Africa. Using annual panel data from 41 countries covering the period 2010–2022, the study applies the System Generalised Method of Moments (System GMM) estimator to account for the dynamic nature of economic growth, unobserved country-specific heterogeneity, and potential endogeneity. The study measures human capital development with the Human Capital Index and life expectancy, and captures institutional quality through government effectiveness, control of corruption, regulatory quality, political stability, rule of law, and voice and accountability. The findings reveal that the Human Capital Index has a positive and statistically significant effect on economic growth in one model specification, although the relationship is not statistically significant in the alternative specification. Among the governance indicators, government effectiveness shows the most consistent positive relationship with economic growth, while control of corruption and rule of law are significant only in selected specifications. Foreign direct investment contributes positively and significantly to economic growth in both models, whereas government expenditure on education and several governance indicators remain statistically insignificant. Furthermore, the COVID-19 pandemic has a substantial negative effect on economic growth. The findings show that human capital development and selected dimensions of institutional quality matter for economic performance in Sub-Saharan Africa, although their effects vary across model specifications. The study highlights the importance of strengthening human capabilities, government effectiveness, institutional capacity, and productive investment to support sustainable economic growth in the region.