Economic Freedom, Democracy, and Economic Growth in Africa
Sylvain H. Boko, Wake Forest University
The paper pursues two objectives. The first is to refocus the analysis of the role of institutional factors in the growth process in Africa by attempting to study the impact of each of the components of the Fraser Institute economic freedom measures on economic growth in the region. If it is found that certain aspects of economic freedom show a higher degree of correlation with growth in Africa than others, then policy-making can be targeted to those particular areas of polity that must be enhanced in order to promote faster growth. The second objective of the paper is to investigate whether, controlling for the degree of economic freedom, greater political and civil liberties significantly enhance economic performance in Africa. Since many African countries are currently implementing the two types of reforms simultaneously, this paper incorporates into one conceptual framework the interplay between the democratic reform and economic liberalization processes in Africa, and studies their impacts on economic growth.
The paper employs three sets of institutional indicators: the Fraser institute index of economic freedom, the Freedom House survey of political rights and civil liberties; and the Polity98 indicators of democracy. Data on the growth rate and initial level of real GDP per capita for the twenty-seven countries in the sample are obtained from the World Bank’s Africa Key Indicators Reports, and the primary school enrollment data come from the Barro and Lee (1994) data set, extended by data from the World Bank.
The growth model is estimated using a panel data approach, and a GLS estimator. On the whole, the study finds that promoting economic freedom, political rights and civil liberty is beneficial for growth. The positive and significant impact of civil liberty and democracy on economy growth in Africa contrasts with the findings of at least one previous study, conducted in the context of a large multi-country, and multi-regional sample.
Analysis of the different components of economic freedom indicates that there is not a statistically significant correlation between the legal structure of countries and economic growth in African countries. A revision of the “legal and property rights” component of the Fraser Institute index itself is suggested in order to take account of the particularities of the legal structures in Africa. Finally, the study finds that increased political freedom, in the presence of economic freedom, is growth promoting.