Economic Growth and Democracy in Africa: Revisiting the Feldstein-Horioka Puzzle

The debate on the relationship between economic performance (sustained economic growth, saving and investment) and democracy remains unsettled. This article provides a critical review of the arguments by relying on the Feldstein-Horioka puzzle. A generalized method of moments (GMM) using 37 African countries from 1960 to 1998 reveals a close relationship among indicators of economic performance but no relationship between economic performance and democracy. Co-integration and vector error correction models contradict GMM results, however. Democracy fosters investment in eight countries, enhances saving in three other countries and sustains economic growth in five. Therefore, single country analyses using appropriate methodologies seem warranted to avoid putting forth ecological fallacies with detrimental policy implications.