Fisyo FAGBEMI , Gerldine Ejik NZERIBE, Tolulope Temilol OSINUBI,Simplie ASONGU

a The European Xtramile Centre of African Studies (EXCAS), Liège, 4031, Belgium

b Department of Economics, Nnamdi Azikiwe University, Akwa, 420218, Nigeria

c Department of Economics, Obafemi Awolowo University, Ile-Ife, 220282, Nigeria

ABSTRACT

Given that challenges on the issue of socioeconomic development faced by countries in sub-Saharan Africa (SSA) have been identified as critical to strengthening the inherent link between governance and socioeconomic conditions, this study examines the interconnections between governance and socioeconomic conditions in SSA. With a focus on 25 countries in SSA between 2005 and 2019, we conduct the analysis based on the Panel-Corrected Standard Error and System Generalized Method of Moments estimations and panel causality tests. The results show that SSA does not seem to have the means of effective governance to spur improved socioeconomic conditions. Moreover, the pervasiveness of institutional problems in many countries of SSA has been responsible for the poor socioeconomic conditions in the region. Likewise, governance quality and socioeconomic conditions are found to influence each other. An improvement in socioeconomic conditions could result in better governance quality. On the other hand, governance quality is viewed as a vital ingredient in achieving needed socioeconomic development outcomes. Thus, it is suggested that there is a need for countries in SSA to streamline governing systems toward engendering improved well-being. The introduction and implementation of transformative policies through effective governance are also necessary for ensuring critical structural changes and increasing social service provision. Overall, there should be a proactive identification of ineffective policies and procedures by policymakers to enhance meaningful impacts in the region.

ARTICLEINFO

Keywords：

Governance quality

Socioeconomic

conditions

Economic development

System Generalized

Method of Moments

Sub-Saharan Africa

1. Introduction

Public discourse on the issue of critical governance has revealed the need for the adoption of an effective approach to addressing institutional problems for meaningful development to take place (South African Institute of International Affairs, 2009). In this respect, understanding the link between governance and socioeconomic conditions in sub-Saharan Africa (SSA) remains crucial in the literature, because effective development may not depend on the type of government, but on the quality of governance or on the character of the state. It should,therefore, be noted that the extent to which the interconnection between governance and socioeconomic conditions is perceived would depend on how socioeconomic crisis is understood. Broadly, socioeconomic crisis means the factors or conditions that have an adverse influence on individuals’ social and economic activities, including health issues, lack of education, disaster, racial and religious discrimination, poverty, overpopulation, unemployment,political unrest, and corruption. In this case, growing poverty and a dysfunctional economy with massive unemployment, exacerbated by a lack of even the most basic human rights and fundamental freedoms, could place the concerned economy at a low level of human development in the long run. This view is most notably advocated by Merton (1949). The successful track record of economic development is well known. However, based on extant studies, we can conclude that Africa’s institutional environment appears to be weak and unchanged in the past few decades (Fayissa and Nsiah, 2013; Al Mamun et al., 2017). Does this imply that a governance framework and some policy measures do not matter for economic performance? A deeper understanding of Africa’s development gap is essential given the paucity of development-oriented decisions and the necessary capacity that could allow for improved economic performance; the latter is facilitated by significant changes to the mechanism of accountability and transparency in the public sector and by collective leadership. Indeed, Africa’s experience indicates the need to give more attention to how public institutions perform and less attention to the specific forms the institutions take.Because Africa now faces a huge institutional gap, maintaining accelerated growth and avoiding “socioeconomic crisis” require the political will to switch to effective institutional arrangements that could guarantee a sustainable development model (Governance and Social Development Resource Centre, 2010).

The literature widely recognizes the adverse effects of weak governance systems on the poor. The failure to institute effective pro-poor social policies is the outcome of the unresponsiveness of state institutions (The World Bank, 2001); governance failings are most inimical for the poor, and the increasing frequency of humanitarian crises is inevitable. It is therefore implied that the significance of governance quality seems to have become almost axiomatic (Kadhim, 2013) based on the indispensability of governance in the maintenance of sustainable growth and development. Within the context of developing countries, ineffective governance is the root cause of numerous economic, political, and social crises (Jreisat, 2002). Effective governance, which entails proper monitoring and better coordination of economic activities, is lacking in most African countries, including inadequate enforcement of contracts and the failure to establish propriety rights for the promotion of economic development (Lahouij, 2017).Governance improvement is vital to addressing overwhelming socioeconomic challenges in SSA (Fagbemi and Asongu, 2020). Hence, as Africa’s Agenda 2063 gains traction, coupled with the attainment of the United Nations Sustainable Development Goals (SDGs), the state of governance in African countries has been a timely issue in view of the fact that the major obstacle of development in the continent is poor institutional quality (AlBassam,2013; African Capacity Building Foundation, 2016). Indeed, the availability of the required standards to successfully implement and enforce provisions depends largely on the prevailing institutional factors. Considering the prominent role of institutions, the link between institutional arrangements and socioeconomic development needs to be given more practical and scholarly attention. State capabilities should be conceived as the ability to coordinate policies that could drive structural change in economic and social fields and are critical to ensuring long-term economic growth and development (Mira and Hammadache, 2017).

In this context, good governance1Good governance means the consolidation of market-oriented reforms and the key prioritization of social service provisions to Africa’s poor (African Capacity Building Foundation, 2018).is a fundamental component of Africa’s resurgence, as the structural change and tremendous task of socioeconomic development seem related to it (African Capacity Building Foundation, 2018).Africa’s peculiarities and socioeconomic conditions require the adoption of optimal strategies to reform governing systems and attain sustainable socioeconomic development. There is a consensus recognizing that, to improve efficiency and social service delivery in Africa, raising accountability and maintaining political stability (POL) have become more central in recent times given the increased poverty, poor governance, growing insecurity, and pervasive corruption (African Capacity Building Foundation, 2018). Despite this, studies on the link between governance quality and socioeconomic development are limited, as much of the literature on the quality of institutions is concerned with its effect on economic growth, not on socioeconomic conditions themselves. For instance, several scholars (Dahlström et al., 2012; Fayissa and Nsiah, 2013; Liu et al., 2013; Shao, 2016; Adedokun, 2017; Setayesh and Daryaei, 2017)commonly based their discussions and findings on how economic growth is influenced by governance, indicating that limited attention has been given to the linkage between institutional quality and socioeconomic development in the literature. In addition, Tang and Abosedra (2014) and Ramadhan et al. (2016) stressed the relationship between POL and economic growth, while Gani (2011) and Salahodjaev (2015) explained the nexus between voice and accountability(ACC) and economic growth. Thus, a more focused approach to research on how socioeconomic conditions areinfluenced by governance in Africa’s context is crucial. This will help further an understanding of the continent’s development challenges, thereby harnessing what stakeholders can proffer to facilitate good governance.

In spite of the fact that a number of points have been raised in the literature on the relationship between governance and economic performance, African Capacity Building Foundation (2018) affirmed that there has been uncertainty on the issue of causal direction. Some previous studies have proved a positive causal relationship from institutional quality to economic development as well as positive causality in the opposite direction (Chong and Calderon, 2000;Emara and Jhonsa, 2014). However, Kaufmann and Kraay (2002) argued that there only exists unidirectional causality from improved governance to higher per capita income. It remains unclear whether economic development has led to improved governance or vice versa. Based on this, investigating the causal direction could give a more pertinent understanding of what constitutes Africa’s governance challenges. Consequently, besides finding the nexus between governance quality and socioeconomic conditions in the African context, the direction of causality between the variables is also examined.

In this study, we selected two governance indicators (POL and ACC) out of six indicators of good governance(POL, ACC, government effectiveness, rule of law, regulatory quality, and control of corruption) based on the World Governance Indicators developed by Kaufmann et al. (2010). These indicators were chosen following the growing centrality of the political issue and democratic accountability (Pereira and Teles, 2011). The governance indicators were rated on a scale, as appropriate, ranging between -2.5 and 2.5. The causality test developed by Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996) was used to find the interrelationship, while the System Generalized Method of Moments (System GMM) and Panel-Corrected Standard Error (PCSE) estimations were employed to examine the effects of governance on socioeconomic conditions. The key significance of the study is to extend knowledge of the role of governance in African socioeconomic development trajectories; the major contribution to the extant literature is to provide an empirical justification for the link between governance quality and socioeconomic conditions in SSA to enhance the understanding of the region’s main challenge. Furthermore,the study’s objective is essential for explaining the cause of the current socioeconomic development outlook in SSA.

2. Empirical evidence

In the face of the precariousness of governance and the state of the economy, the African Union (AU) has listed seven key aspirations in its 50-a development and transformation program (i.e., Agenda 2063), tagged “The Africa We Want” (African Union Commission, 2015). Out of the seven key aspirations, in terms of interlinks, “an Africa of good governance”2In this context, good governance entails democracy, respect for human rights, justice, and the rule of law (Gisselquist, 2012).is indeed critical. In Agenda 2063, although challenges remain, progress on the goodgovernance framework has been encouraging, as the key to Africa’s political and socioeconomic transformation revolves around it. The AU recognized that, for the African continent to realize its full potential, good governance,which is arguably the single most significant factor in reducing poverty and achieving sustainable development,should be well entrenched across countries (South African Institute of International Affairs, 2009). However, this development and transformative program seem not to have yielded meaningful and sustainable outcomes following the series of institutional problems that continue to thwart development efforts in the continent. While the state must guarantee the adequate provision of social services—basic healthcare, education, and perhaps, the expansion of infrastructure, including communication, transport, and electricity—these characteristics have seriously eroded in Africa today due to bad governance (Mbaku, 2020). Indeed, the types of reforms that can preclude dictatorship,corrupt behaviors, inefficiency, and economic decline are yet to be firmly embraced and achieved by many countries.Poorly functioning governance structures have persistently saddled countries (Mo Ibrahim Foundation, 2018).

The pervasiveness of poor governance in most African countries has overwhelmingly frustrated the government’s corrective intervention role in improving economic development. For instance, used to combat poverty and improve human development, the maintenance of peace and security, as well as growth enhancement and wealth creation,have remained elusive. No doubt, if Africa is to attain its developmental goals, it is pertinent that African countries entrench mechanisms that engender good governance (such as constitutionalism, accountability and transparency,and democracy). Due to the ineffectiveness of governance, from 1990 to 2015, the number of African people living in poverty rose from 2.78×106to 4.13×106(Mbaku, 2020). It is worrying that the African continent has the largest share of people in extreme poverty (Brookings Institute, 2019). In terms of security and health, the greatest proportion of Africans lack access to social protection and good health care (International Labor Organization,2017). Only effective pro-poor policies can curb this terrible poverty trend in the continent (The World Bank, 2019).In addition, according to the United Nations Development Program’s Human Development Index, the least developed countries in the world are African countries, including the Central African Republic, Chad, the Democratic Republic of Congo, Equatorial Guinea, Eritrea, Libya, Somalia, South Sudan, and Sudan. This classification, as determined by the Ibrahim Index of African Governance, is based on countries with relatively dysfunctional or weak governance structures (United Nations Development Program, 2018).

Good and inclusive governance, which is a necessary for attaining sustainable development, is unlikely to be widely practiced and entrenched by many African countries due to a lack of political will and bad leadership (Mbaku,2020). When governance quality is eroded, the state will be unable to put in place policy measures that can foster socioeconomic development and thus favor long-term investment (South African Institute of International Affairs,2009). Empirically, it has been found that both a low gross domestic product (GDP) per capita and a poor quality of governance are predominant features of many African countries (Fayissa and Nsiah, 2013; Al Mamun et al., 2017).Hence, the successful and effective implementation of socioeconomic development policies critical to achieving the SDGs in 2030 or Agenda 2063 is likely to be a mirage without sound institutional reforms to enforce optimal practices in the public sector (Mbaku, 2020). It is therefore suggested that African countries with progressive and inclusive constitutions (such as Ghana, Kenya, and South Africa) secured through the separation of powers can promote national dialogues to better understand their citizens on good governance to achieve sustainable development (The World Bank, 2019; Mbaku, 2020). However, among the remaining issues is that many other countries in SSA have persistently lacked the remedial mechanisms for discussing and charting ways to ensure that besetting governance problems are addressed and cease to undermine the effectiveness of the state in promoting more progressive social policies (African Capacity Building Foundation, 2016).

Given that an understanding of governance is a critical determinant of socioeconomic development, apparent contradictions in the institutional context in explaining development trajectories across countries have attracted global attention. In view of this, researchers including Knack and Keefer (1995), Hall and Jones (1999), and Kaufmann and Kraay (2003) demonstrated that some governance indicators, such as control of corruption, stability of property rights, or democracy, are strongly associated with the GDP per capita, human capital development, or investment, buttressing the argument that a market-enhancing governance framework and economic performance are closely correlated. Nonetheless, these researchers emphasized that improved indices of good governance positively influence economic growth and offer long-term convergence with countries regarded as developed.However, Khan (2004) argued that the enhancement of good-governance indicators could lead to better economic growth rates when developing countries could create efficient good-governance policies only after the period of learning in the states and after attaining a certain level of development.

Several studies support the hypothesis that governance quality influences economic performance. For example,Olson et al. (2000) affirmed that governance quality is significant to enhancing investment rate, suggesting that improving investment climate and the capital market are central to stimulating economic growth. In addition, other conditions identified as promoters of improved economic performance through good governance include: a wellcoordinated economic power structure that can engender the optimization of the allocation of resources (Zhang and Yu, 2009); corruption reduction that encourages productive investment (Dahlström et al., 2012); a political power structure that can affect the economic system and policy (Liu et al., 2013); and fiscal decentralization that enhances official incentives and regional competition, which can also affect economic performance (Shao, 2016). Overall, the aforementioned conditions indicate that governance can be viewed as social infrastructure, which is critical to the growth of economy (Fayissa and Nsiah, 2013; Al Mamun et al., 2017) through governmental systems and policies.Indeed, Adedokun (2017) and Setayesh and Daryaei (2017) stated that by hindering the “grabbing hand” of power while inducing the “helping hand” of power, good governance can be a positive determinant of growth and economic development. In addition, Ahmad et al. (2012) tested whether or not corruption influences economic growth using panel data for the period 1984-2009 for 71 developed and developing countries. The results indicated that high corruption lowers countries’ growth performance, suggesting that the quality of institutions has a significant effect on the examined economies. Similarly, Cebula and Foley (2011) argued that for Organization for Economic Cooperation and Development countries, economic growth during the period 2003-2006 was positively affected by better regulatory quality as it allows for effective functioning of the market and businesses.

Aisen and Veiga (2013) used a System GMM estimation for linear dynamic panel data models and stressed that,for 169 countries examined between 1960 and 2004, POL and lower GDP per capita are strongly connected. Other studies conducted by Tang and Abosedra (2014) and Ramadhan et al. (2016) showed a significant relationship between POL and economic growth, while Gani (2011) proved that the indicator of ACC has a significant effect on economic growth. In contrast, Pere (2015) reported that there is a non-significant association between corruption and economic growth. In terms of causality, it was found that there is a relationship between institutional quality and economic development indicator (per capita income). Chong and Calderon (2000) contended that, although there is a bidirectional causation between governance quality and economic growth, the causal effect of institutional quality on economic growth is stronger. Emara and Jhonsa (2014) also examined the interrelationship between governance quality and per capita income for 197 countries, and found a bi-directional causality between them.

Regarding Africa, in particular, AlBassam (2013) showed support for the argument that institutions of political representation and accountability determine the level of political and economic development in the continent. Aikins(2009) and Reinhart and Rogoff (2009) also suggested that policy responses should be based on an effective and efficient governing system to promote sustainable development in Africa. Gray and Khan (2010) found that the provision of adequate public goods and the possibility of strong socioeconomic conditions are the key elements of the developmental role of improved governance. On the other hand, Fagbemi et al. (2020) stated that governance quality contributes to the level of poverty in Nigeria. However, African Capacity Building Foundation (2018)confirmed that, so far, there seems to be no consensus on the development of an optimal strategy that is fundamental to proffering a lasting remedy to Africa’s poor governance. Hence, the above review opens the door for further investigation as the need to explain how African governance systems affect the continent’s socioeconomic state becomes imperative. The argument that the pervasive socioeconomic crisis in Africa could be significantly determined by the level of governance remains a subject of debate.

3. Methodology

3.1. Theoretical framework

The Solow model and new growth theory can directly or indirectly elucidate the improvement in economic performance resulted from high institutional quality in the global economy. The explanation for this assertion is as follows. In the Solow model, a rise in the availability of technology through improved quality of governance could contribute to economic performance. It is plausible that any form of poor governance can adversely affect citizens’psychological state or mental health as well as their productivity. For example, irregular political changes can lead to uncertainty for investors and thus cause decreased economic growth. Consequently, in both the short run and the long run, many negative effects may surface in the economy (Feng, 1997). However, with the mitigation of the country’s risk, and the offering of goods and consistent policy measures by the new government—which can guarantee the creation of a better environment for local and foreign investors—major government changes may result in increased economic growth. In this context, the stability of the political environment stimulates an increase in both human and physical capital accumulation, thereby positively inducing the growth trajectory (Younis et al.,2008). In another argument, to properly enforce contracts, safeguard law and order, and for market expansion to attain sustainable economic growth, democracy and political freedom are recognized as prerequisites (Sirowy and Inkeles, 1990)3For detailed discussion on three main schools of thought (such as conflict perspective, the compatibility perspective, and the skeptical perspective) about how democracy impacts economic performance, see Sirowy and Inkeles (1990), Feng (1997), and Younis et al. (2008).. In contrast, the operation of an authoritarian system—with its limited capacity as a centrally controlled system that encourages corruption and wasted resources—negatively affects enterprise development(Sirowy and Inkeles, 1990). In view of these propositions, it can be reasonably assumed that good governance eliminates the physical and mental constraints associated with bad governing systems and thus improves labor productivity. In addition, improved institutional quality offers an environment conducive to both local and foreign investors. Arguably, the increased investment is brought about by improved institutions that could be in the form of physical and human development. Through the learning process, human capital development (a factor that is closely related to improved socioeconomic conditions), which entails the knowledge and skills acquired by individual workers, results in increased output per worker (Romer, 2001). On the other hand, compared with the initial condition, increased investments in physical capital cause a rise in the capital per worker. Through the process of capital accumulation, it is plausible that economic growth will eventually be enhanced (Romer, 2001).

Regarding new growth theory, technology is identified as the harbinger of economic growth (Romer, 2001;Mankiw and Ball, 2011). Under this condition, a rise in technological progress occurs in addition to the rate of knowledge accumulation. In this argument, knowledge is generated by research and development (Romer, 2001). It can therefore be argued that sound institutions in the form of the proper enforcement of property rights will stimulate investment in research and development, thereby leading to increased knowledge accumulation and productivity.Overall, good governance may offer a conducive economic condition for technological enhancement, in relation to human and physical capital formation, which is fundamental to socioeconomic development.

3.2. Conceptual analysis of the interconnections between governance quality and socioeconomic conditions

In Figure 1, the possible interconnections between governance quality and socioeconomic conditions are presented in conceptual form. It is assumed that good governance will result in the entrenchment of a conducive business environment, which can give rise to proper contract or copyright enforcement and market expansion. Consequently,this could engender the promotion of research and development with the increased public investment in infrastructure,thereby resulting in improved human and capital accumulation. The improvement in the level of workers’ skills, coupled with enhanced technologies, would lead to increased productivity and, hence, improved aggregate economic performance. Based on the previous section, as economic performance improves, socioeconomic conditions are likely to improve as well, which in turn may potentially stimulate the governance quality. However, these propositions are only tenable if efficient public spending is maintained (International Monetary Fund, 2015); as countries tackle the 2030 Agenda for Sustainable Development, increasing efficiency seems critical to ensuring positive outcomes. Hence,the effective mitigation of poor-governance risks (i.e., those in the socioeconomic cycle that involves a proactive approach toward addressing the perceived weak quality of institutions) is viewed to be the major precondition for a functional governance-socioeconomic improvement framework (International Monetary Fund, 2014).

This analysis is anchored in the Public Investment Management Assessment (PIMA) framework developed by the International Monetary Fund to assist countries in strengthening critical infrastructure governance areas. The PIMA provides a holistic diagnostic tool for measuring the state of infrastructure governance across countries with the assessment of economic development levels. In a macroeconomically sustainable pattern, this framework stresses that public investment promotes growth. It identifies areas that governments can focus on (including the strengthening of institutional quality) to ensure better spending on public investment to improve socioeconomic conditions. The PIMA framework adopts a systematic procedure to assess governance that helps countries to measure and benchmark their institutional practices against those of their peers. Following International Monetary Fund (2018), from a macro perspective, three key stages are considered critical for effective institutional processes:sustainable investment planning, the right allocation of investment, and ensuring that projects are implemented on time and within the budget. Links between governance quality and socioeconomic conditions point to the significance of having strong institutions for the enhancement of public investment that will guarantee improved social welfare and, in turn, all development in the economy. The pervasive weak governance structures in SSA,therefore, may pose a great challenge to the region’s socioeconomic development efforts.

Fig. 1. Interconnections between good governance and socioeconomic development in sub-Saharan Africa.

3.3. Econometric techniques and data source

In view of the fact that socioeconomic development indicators could be dynamic in nature, the explanatory variables could jointly determine socioeconomic conditions, suggesting that endogeneity needs to be controlled for.Given this condition, and for a dynamic panel data model, the suitable estimation is the System GMM proposed by Arellano and Bover (1995) and Blundell and Bond (1998). This technique accounts for country-specific effects as well as the possible endogeneity of the explanatory variables. To deal with endogeneity, we use instruments based on the lagged values of the independent variables. A model involving lagged dependent variables among the regressors ought to be applied for the dynamic nature of the socioeconomic indicators. In this study, one lag period is adopted for the dependent variable:

where SOC represents the socioeconomic indicators, which include socioeconomic conditions (SOCD), a variable for the International Country Risk Guide (ICRG), and income per capita (INC; USD); GOV denotes the governance indicators, containing POL and voice and ACC; SOCitis the socioeconomic indicators in the current period; SOCit-1represents socioeconomic indicators in the previous period; GOVitis the governance indicators in the current period; γ is a scalar; β1and β2are the unknown parameters; Xitdenotes the vector of control variables, including GDP per capita (USD), domestic credit to the private sector (DCP; percentage of GDP), and foreign direct investment (FDI), net inflows (percentage of GDP). It is assumed that ϑit, an error term, follows a one-way error component model.

where μiis the unobserved country-specific effects; and νitis the disturbance error term. μiand νitare independent of one another. Because SOCit=f(μi), likewise, SOCit-1=f(μi), hence, SOCit-1is correlated with the error term. Under this condition, the ordinary least squares (OLS) estimation seems to be biased and inconsistent. With the System GMM, the first-difference transformation eliminates the possible individual effect. Specifically, taking the first difference of Equation 1 and generalizing to an equation containing a lagged dependent variable as the regressor will lead to:

where Δ is the difference operator. First differencing wipes out country-specific effects, but in terms of construction,it results in an association between the differenced lagged socioeconomic development variable and the differenced error term. Consequently, lagged levels of the independent series, with the incorporation of the lagged dependent variable as instruments (socioeconomic conditions indicators), are employed for the analysis. This technique(System GMM) is considered to be more consistent and efficient, as the lagged levels of explanatory variables are valid instruments for the differenced independent variables. For example, Windmeijer (2005) argued that,considering the asymptotic standard errors, the System GMM estimation performs much better than other panel estimation techniques. In addition, we adopt PCSE estimation to enhance the robustness of the estimated results.Both techniques (System GMM and PCSE) are appropriate because the number of time periods (T) is less than the number of cross-sections (N). It can also be argued that the appropriateness of PCSE is ensured when disturbances create serial and contemporaneous correlations simultaneously; this approach offers better and more efficient estimated outcomes (Parks, 1967). PCSE estimation, therefore, provides more reliable results compared to panel regression analyses (such as OLS or random- and fixed-effects estimations) since the latter are highly susceptible to possible endogeneity and simultaneity issues that are common features of most independent variables and that often result in biased and inconsistent estimates (Deaton, 1995).

Given the importance of knowing the causal direction, the Granger causality test is explored within the framework of the panel vector autoregressive model based on Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996)using the following set of equations:

whereμitandμ2itare the error terms;k=1 represents the minimum lag length selection starting from 1;pindicates the maximum lag selected for the estimation;α1jandα2kare unknown estimated parameters for GOV and SOC,respectively. The error terms of the transformed versions of Equations 4 and 5 satisfy the conditions of orthogonality.The analysis involves two models since the governance indicators could be highly corrected. Model 1 includes ACC only, while POL is incorporated in Model 2. This was done to avoid multicollinearity and to ascertain the respective effects of the variables on socioeconomic conditions in SSA.

Regarding the data used, the study covers the period 2005-2019 for 25 countries in SSA, including Angola,Botswana, Burkina Faso, Cameroon, Congo, DRC, Cote d’Ivoire, Gabon, Gambia, Ghana, Guinea, Guinea Bissau,Kenya, Liberia, Malawi, Mali, Mozambique, Niger, Nigeria, Senegal, Sierra Leone, South Africa, Tanzania, Togo,and Uganda. The scope and number of countries considered are largely determined by data availability. We incorporate the control variable, GDP per capita, in the model based on Ehigiamusoe and Lean (2019), who indicated that human capital development could be influenced by the variable. DCP is also included following the assertion that financial sector development is critical to human capital development (Quartey, 2008; Odhiambo, 2010). Finally, FDI is chosen because the variable has been considered significant to economic development (Kheng et al., 2017; Zhuang,2017; Fagbemi and Osinubi, 2020). The description and sources of the data employed are stated in Table 1.

Table 1Description, measurement, and source of variables used in the study.

4. Results and discussion

4.1. Descriptive statistics

Given the summary statistics in Table 2, specific features of the variables are known. The mean value of SOCD is 3.15 and INC is 3667.13 USD in the selected countries, whereas ACC and POL are -0.78 and -1.00, respectively.These values reflect poor socioeconomic conditions and weak institutions in the region. The mean GDP per capita is 1853.79 USD, and its fluctuation rate (i.e., standard deviation) is 2410.66 USD. The minimum values of SOCD,INC, ACC, and POL are 1.00, 518.84 USD, -1.47, and -2.18, respectively, while their maximum values are 6.00,17,260.46 USD, 0.65, and 1.10, respectively. All of the variables are significant (P＜0.05), suggesting the potential of robust estimated outcomes. Regarding the correlation matrix presented in Table 3, the variables are positively correlated with one another, with the exceptions of FDI and DCP, which are negatively correlated. This shows the possible direction of correlation among the variables.

Table 2Statistical features of the variables.

Table 3Correlation analysis among the used variables.

4.2. Analysis of the unit root test

Before beginning the analysis of the model, a set of unit root tests is generated to ascertain the order of integration of the series. Because Levin and Lin (LL) requires a balanced panel as well as an independently generated time series, and for practical purposes, the LL alternative hypothesis is overly restrictive. Thus, Im, Pesaran, and Shin test is considered for the study as it is less restrictive and more suitable. Furthermore, following Maddala and Wu(1999), augmented Dickey-Fuller test and Phillips-Perron Fisher test are also conducted. Based on the test results presented in Table 4, we can conclude that the variables are appropriate for the study.

Table 4Results of the panel unit root tests.

4.3. Panel-Corrected Standard Error (PCSE) and System Generalized Method of Moments (System GMM) estimations

In Table 5, both governance quality indicators (ACC and POL) are positive and significant across models, suggesting that institutional quality is by far the key driver of socioeconomic conditions (SOCD and INC). These results confirm that better governance quality could promote improved socioeconomic conditions, emphasizing the need for stronger institutions to improve the socioeconomic state. Promoting accountability and ensuring a stable political system can result in the betterment of the standard of living, pointing out that regions or countries with a lower governance quality could have a bigger and more challenging socioeconomic crisis. The findings indeed show that higher governance quality could engender a high-quality socioeconomic development effect in Africa. This assertion can be corroborated by the “spending effect hypothesis”. Based on Entelis (1976), to improve living conditions, government may use resources more efficiently by ensuring sustainable spending on citizens’ critical needs, thereby reducing pressure for promoting improved welfare practices. Using PCSE and System GMM, the evidence explains the fact that many African countries continue to experience poor socioeconomic conditions due to a lack of democratic accountability and unstable governance, buttressing the argument that a continent (e.g., Africa) beset with problems of governance is likely to experience a paucity of social service provision considered instrumental to well-being (African Capacity Building Foundation, 2018). Examples of weak governance abound in almost all African countries and reducing socioeconomic challenges remain a critical issue (i.e., the need to stimulate improved socioeconomic conditions is pressing, while the means to effect the needed change through governance is limited due to the efficiency gap). In this context, these results corroborate the argument that institutions of political representation and accountability could be strong determinants of the level of socioeconomic development in SSA (Gray and Khan, 2010; AlBassam, 2013; Fayissa and Nsiah, 2013; Al Mamun et al., 2017). Based on the analysis, SSA seems not to have the means of effective governance to seriously spur improved social welfare. In this context, the strong nexus found between institutional quality and socioeconomic conditions has helped the relevance of good governance in enhancing citizens’ well-being to gain further traction.

Table 5Results of Panel-Corrected Standard Error (PCSE) and System Generalized Method of Moments (System GMM).

Regarding the control variables, the results indicate that GDP per capita and DCP, using the two techniques (PCSE and System GMM), positively and significantly influence socioeconomic conditions, including INC, while FDI—although the estimates are positive—is found to be significant only when the PCSE approach is used. The nonsignificance of FDI under the System GMM could be a result of inadequate FDI inflows or the misallocation of foreign capital inflows in some countries (Fagbemi and Osinubi, 2020). The direction of the relationship between the control variables (GDP per capita, DCP, and FDI) and socioeconomic conditions is similar to the anticipated outcome.This suggests that the improved well-being of Africans could be driven by these variables (GDP per capita, DCP, and FDI). In accordance, the argument that improving economic performance can result in improved living conditions(Ehigiamusoe and Lean, 2019) has been further established by the study. Furthermore, increased access to credit in the economy can stimulate business activities, thereby leading to improved human capital development, which is in line with previous estimates (Quartey, 2008; Odhiambo, 2010), while increasing FDI inflows can catalyze accelerated socioeconomic development in SSA. Indeed, these findings point to the significance of increasing the efficiency and effectiveness of these variables—both the governance quality indicators and the control variables.

In the diagnostic test (see Table 6), Pesaran cross-sectional dependence (Pesaran, 2004) test is carried out as well as a heteroskedasticity test. Both tests satisfy the required condition of the absence of serial correlation and heteroskedasticity. Regarding the System GMM, the results of the Arellano-Bond test for the second-order serial correlation show that there is no second-order serial correlation, while the number of instruments is smaller than the number of observations. The test of overidentifying restrictions (Sargan test) also indicates the validity of the instruments in the model. Overall, these tests validate the rule and the robustness of the estimates.

Table 6Results of diagnostic test.

4.4. Panel causality test

To identify and further understand the instrumental interconnections between governance quality and socioeconomic conditions in SSA, we present the results of a panel causality test in Table 7. The results show that both institutional quality indicators used in the model (ACC and POL) are Granger cause socioeconomic indicators (SOCD and INC)employed in the model. Similarly, causation also holds in the opposite direction, suggesting that bi-directional causality exists between socioeconomic conditions and governance quality. These results reveal that the state of governance(either weak or strong) could play a key role in triggering serious socioeconomic crises. Moreover, strong socioeconomic conditions could enhance public-sector performance through improving efficiency and productivity,thereby stimulating governance effectiveness. This argument is in line with the findings of Chong and Calderon (2000)and Emara and Jhonsa (2014) who contended that governance quality and socioeconomic conditions are mutually reinforcing. These conclusions are also buttressed by the PIMA framework, which explains how governance can be strengthened to enhance public investment in infrastructure, in turn stimulating overall economic performance. On the other hand, an improvement in socioeconomic conditions could result in better governance andvice versa. In light of this, governance quality is viewed as a vital ingredient in achieving necessary development outcomes.

Table 7Summary of the panel causality test results.

In sum, the findings suggest that ACC as well as POL are important for the improvement of socioeconomic conditions in countries of SSA. They explain how, in countries with stronger governance, citizens could enjoy better living conditions, while in countries with weaker governance, citizens might experience the opposite. These results are important and reasonable, as they are critical to strengthening our understanding of the impact of governance on socioeconomic conditions in countries of SSA. For example, where governance deficiencies affect the allocation and implementation of social and physical projects, the resulting misallocation and poor implementation would also impede the delivery and impact of such projects. Hence, governance problems besetting many African countries could be responsible for the continent’s socioeconomic conditions. Meaningful development outcomes could be difficult to attain with the pervasiveness of political instability and the lack of transparency and accountability across countries in SSA.

5. Conclusions and recommendations

Given that governance quality plays a critical role in determining the socioeconomic conditions across countries,this study examines the interconnections between governance and socioeconomic conditions in SSA. Based on the analysis, we can conclude that the pervasiveness of institutional problems in many African countries has been responsible for the poor socioeconomic conditions in the continent. Indeed, the findings indicate that bad governance results in poor living conditions across countries. In this context, the paucity of good social services could be exacerbated by bad governance, as sustainable socioeconomic development depends on governance quality. Hence,understanding major challenges in Africa is of utmost importance for addressing the issue of governance in African development. The study’s findings, therefore, identify governance problems in SSA as a big challenge to the development of the region’s socioeconomic conditions. A state that can effectively manage its affairs and implement the policies it devises is in need of good governance quality.

It is suggested that African countries need to streamline governing systems toward engendering improved socioeconomic conditions. The introduction and implementation of transformative policies through effective governance are also necessary for ensuring critical structural changes and increasing social service provision, and there should be a proactive identification of ineffective policies and procedures by policymakers to enhance their meaningful impact. Unless these recommendations are considered, the worst socioeconomic conditions around the globe may be increasingly found in Africa.

This study has covered how socioeconomic conditions are influenced by governance quality in SSA. However,while the data based on the governance index from the World Governance Indicators are employed, alternative data could be obtained from other sources to further research in this area. This will help broaden the literature on the governance-socioeconomic development linkage. In addition, employing other relevant estimation techniques to provide additional evidence is necessary for the advancement of good governance in Africa.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.