The effects of governance on economic complexity in Sub-Saharan Africa: identifying transmission channels

The role of governance in promoting economic growth has been strongly demonstrated in contemporary literature. To this end, several studies argue that economic complexity helps to explain the global distribution of long-term economic growth. This study examines the effect of governance on economic complexity in 29 sub-Saharan African countries over the period 2002-2019. We construct four composite governance indices based on principal component analysis. The results provide strong evidence of a positive relationship between governance and economic complexity. To this end, we identify human capital, foreign direct investment, and innovations as transmission channels through which governance promotes economic complexity. Thus, in order to highlight the effects of governance for better economic complexity, Sub-Saharan African countries should develop better institutions that can improve the quality of governance by giving pride of place to human capital, FDI and innovations; the main consequence of which would be to improve economic growth.