DOES GOVERNANCE QUALITY FOSTER INCLUSIVE GROWTH? EVIDENCE FROM NORTH AFRICAN COUNTRIES
DOES GOVERNANCE QUALITY FOSTER INCLUSIVE GROWTH? EVIDENCE FROM NORTH AFRICAN COUNTRIES

Summary/Abstract: This study examines whether governance quality fosters inclusive growth in North African countries by analysing both short-run dynamics and long-run equilibrium relationships between institutional quality and inclusive development outcomes. The analysis relies on annual data for five North African countries covering the period 1996–2022. Composite indices for governance quality and inclusive growth are constructed using Principal Component Analysis (PCA) to capture their multidimensional nature. A Vector Error Correction Model (VECM) is employed to assess long-run cointegration relationships and short-run adjustment dynamics. The results provide strong evidence of a stable long-run relationship between governance quality and inclusive growth, underscoring the fundamental role of institutions in shaping inclusive development trajectories in North Africa. However, a notable temporal asymmetry is identified. While improvements in governance generate positive and statistically significant effects on inclusive growth in the short run, these effects weaken or become insignificant in the long run, suggesting that governance reforms remain insufficiently consolidated. Moreover, the effects of investment and foreign direct investment on inclusive growth are found to depend on governance quality and countries’ absorptive capacity. Policymakers should move beyond short-term governance improvements toward deep, coherent, and sustained institutional reforms to ensure durable and broad-based inclusive development. By integrating multidimensional measures of governance and inclusive growth within a unified empirical framework, this study provides new evidence on the conditional role of governance in fostering inclusive growth in institutionally fragile economies.

• Details
• Contents