Investment and inclusive growth in sub-Saharan Africa

Abstract

Purpose

This paper examined the inclusive growth position of sub-Saharan Africa (SSA) through the metrics of poverty-gap, bottom20 and employment. Through these indicators, the study investigated the effects of domestic-investment on inclusive-growth and established the moderating impact of governance in the domestic investment-inclusive growth nexus. It further accounted for potential nonlinearity and investigated the governance threshold that moderates domestic investment-inclusive growth relationships.

Design/methodology/approach

Using a sample of 41-SSA countries, the paper employed the fixed effect (FE) with the Driscoll and Kraay nonparametric consistent covariance matrix estimator, the generalized method of moments (GMM) and the dynamic-panel threshold techniques.

Findings

The poverty-gap metric showed that with increasing GDP-growth, the income of the poor falls below the poverty-line, suggesting that GDP-growth episodes may have widened the poverty-gap and contributed minimally to reducing it. Findings revealed insignificant effects of GDP-growth on the bottom-20 metric while the employment-metric indicated that the “jobless-growth” phenomenon remained valid. The authors essentially established that economic growth has not been inclusive but the complementary roles played by domestic-investments and governance are essential requirements for achieving inclusive growth. The threshold-modeling indicated that countries in the upper-regime of governance gained more in reducing poverty gaps, increasing income shared by the bottom-quintile and improving employment for every percentage increase in investment. The authors confirmed nonlinearity and showed that there exists a governance threshold that respective governments in Africa must reach for domestic-investment to enhance inclusive growth.

Originality/value

The paper accounted for cross-sectional dependence, nonlinearity and the governance threshold needed for domestic-investment to stimulate inclusive growth.

Citation

Adeosun, O.A., Olomola, P.A., Tabash, M.I. and Anagreh, S. (2022), "Investment and inclusive growth in sub-Saharan Africa", African Journal of Economic and Management Studies, Vol. 13 No. 4, pp. 525-550. https://doi.org/10.1108/AJEMS-11-2021-0504