Construction, institutions and economic growth in sub-Saharan Africa

13 December 2016
Publication Type: Policy Brief

Key results and implications

After accounting for the effects of institutional set up, cross sectional heterogeneity and non-linearity, the results of the study revealed that the construction sector affects growth positively and most importantly, institutional capabilities play a key role in the development process by aiding in the effective realization of the benefits from infrastructural growth. The intrinsically non-linear relationship between construction and output growth is very mute in our sample, suggesting that, sub-Saharan African countries have not yet reached the stage of development where construction industry’s contribution to economic growth becomes trivial. The results further show that East Africa experienced a robust impact of construction on economic growth compared to West and Southern Africa.

The implication is that reducing the burden of bureaucracy, enforcing laws that protect property rights, economic freedom and a corruption-free environment could further enhance the impact of the construction industry on economic growth; developing such institutions to set the rules and norms could help reduce the transaction cost associated with construction activities. The lack of evidence to support the intrinsically non-linear relation between the construction and output growth is an indication of the unsaturated nature of the industry in SSA countries. Thus, the need for governments in SSA countries to work towards removing the bottlenecks that stifle the industry’s growth. Replacing outmoded statues and codes with forward-looking ones, providing access to credit facilities as well as enforcing rules that forfend sub-standard work quality will ultimately engender a quality and growth-enhancing industry across the region.

Concluding Remarks

The conclusion drawn from this paper is that despite the growth-enhancing evidence of the construction industry across sub-Saharan African countries, strengthening current policies as well as institutional frameworks as it relates to construction, including enforcement of property rights, reducing the burden of bureaucracy, fostering economic freedom and ensuring a corruption-free environment could help make the sector much more effective. 

Series title: Research Brief 96
1 December 2016
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