Investments, Governance Quality, and Industrial Development in Africa

Abstract

This study examines the role of governance quality in the relationship between investment and industrial development for a panel of 25 African countries between 1996 and 2019. The study explores the endogenous growth model used by Grigorian and Martinez (2000). To provide a detailed policy mix, four investment indicators such as structure, machinery, transport, and others are explored using a random-effects estimation approach. The findings from our estimated models reveal that some measures of investment exerted a positive impact on industrial development. Similarly, all governance indicators exert a positive impact on industrial development. However, these governance indicators do not play an intermediating role in amplifying the industrial development in the region. Specifically, the interaction between investment and governance indicators has negative effects on industrial development. The result points to the fact that the region needs to initiate a developmental policy that will facilitate the importation and installation of machinery and transport equipment as well as the expansion of structures that are needed for industrial activities.