The African Financial Review July-August 2014 | Page 66

Table 3: GMM results of the growth model
Dependent Variable - Grgdp
SYSTEM - GMM
Regressors

Pooled OLS

One-step Collapsed

Two-step Collapsed

LSDV

LGrgdp(-1)

-

0.265*** (0.000)

0.197*** (0.000)

-

0.140** (0.037)

0.486*** (0.000)

(1)

LLab

LGkap
LSsenr

LnPsenr
LOpen
Polrig

Reprisk

Ethsion
LTaxes

(2)

0.229* (0.080)

0.372*** (0.000)
0.171* (0.063)

0.257** (0.048)

0.091** (0.026)

0.264** (0.045)

0.232** (0.081)

-0.372*** (0.007)
0.214***(0.004)

(3)

0.436** (0.045)
0.159* (0.083)

0.073** (0.045)
0.279* (0.067)

0.057** (0.011)

0.291** (0.026)

0.147** (0.028)

-0.375** (0.038)
0.219** (0.042)

(4)

1.380* (0.072)

0.160** (0.040)

0.118** (0.048)

0.076** (0.034)

0.235** (0.029)
0.188* (0.070)

-0.483*** (0.003)
0.098** (0.040)

0.631* (0.080)

0.314* (0.059)

0.474** (0.039)
0.133* (0.067)

0.362*** (0.001)
0.292* (0.073)

-0.754** (0.044)
0.298* (0.074)

LNare

0.074***(0.002)

0.024* (0.055)

0.040* (0.056)

0.143* (0.087)

No. of Instruments

-

30

30

-

Constant

Country Effects

F-stat (Wald χ2 )
F-stat (p-value)
AR(1)

AR(2)

AR(3)

No of Observations

Sargan Test (OIR) -

Hansen Test (OIR) -

Number of Countries

0.397** (0.027)
No
-

[0.000]
-

-

-

713
-

-

30

-3.716*** (0.006)
No

66.41

[0.000]

[0.000]

[0.957]
-

605

[0.023]
-

30

-8.260*** (0.006)
No

1849.28
[0.000]

[0.001]

[0.761]

[0.531]
605

[0.023]

[0.528]
30

2.169* (0.098)
Yes
-

[0.000]
-

-

-

713
-

-

30

Source: Estimated by the Author. Notes: The standard errors are robust and consistent in the presence of any pattern of heteroskedasticity and autocorrelation. Robust standard errors are with Windmeijer (2005)
finite- sample correction for the two-step covariance matrix which are reported in braces. Probability values are in parenthesis.

that labour does significantly contribute to economic growth
in the selected SSA countries. The implication of this is that
when labour increases, aggregate output increases and hence an
improvement in the level of economic growth.

Surprisingly, capital input (gross fixed capital formation) is
statistically significant when the one-step and two- step system
GMM with collapsed instrument options are considered. Capital
input in this sense turns out to be a major consideration in driving
economic growth in the sampled SSA economies. Though, some
of these SSA countries are still relatively characterized with the
dominance of the labour intensive sectors in most SSA economies
but there are still huge capital investments in these countries. In
terms of the trade liberalization variable – degree of openness
(Open), it is statistically significant at 5 percent. From the
result, a one percent change in the degree of openness under the
two–step system GMM estimates brings about a less than one
percent change in economic growth across the study group. The
implication of this is that international trade plays an important
role in the growth of the selected SSA countries.

66 | The African Financial Review

In terms of the influence of economic institutions on economic
growth, the result of repudiation risk (Reprisk) shows that it is
statistically significant at 10 percent. From the result, a one percent
change in repudiation risk under the two–step system GMM
estimates brings about 29.2 percent change in economic growth
across the study group. This implies that economic institutions
affect economic growth positively in the selected SSA countries.
In terms of cultural institutions, the result for ethnic tensions
(Ethsion) reveals that it is statistically significant at 1 percent.
The impact of Ethsion on economic growth is fairly large as
revealed in the result (about 75.4 percent change in economic
growth across the sampled SSA countries). This may be due to
the fact that some of these SSA countries e.g. Sudan, Nigeria
had been plagued with ethnic crises which have hindered trade
liberalization and economic growth. Furthermore, the political
institution s variable – political rights (Polrig) has a statistically
significant positive impact on economic growth across the sampled
countries over the study period. From the result, a one percent
change in the political rights under the two–step system GMM