Economic Complexity and Sectoral Performance in Africa: The Role of Economic Governance Institutions

ABSTRACT In line with earlier research on economic development, which viewed development as a process of structural modification of the productive structure, this study concentrates on economic complexity and its role in the developmental process. We studied how economic complexity and economic governance institutions affect sectoral performance in Africa, and how economic governance institutions are moderating the economic complexity‐sectoral performance nexus in the region. The study covered a sample of 30 African countries over the period 2010–2021, and used both the dynamic system GMM and the Driscoll and Kraay (1998) standard errors fixed effect estimation techniques. We find that economic complexity and economic governance institutions individually have negative unconditional effects on the agricultural, manufacturing, and services sectors in Africa. We also find that economic governance institutions on the continent failed to moderate the adverse effect of economic complexity on sectoral performance. These findings indicate that the low level of economic complexity in African economies and the weak governance institutions that have plagued the continent have both contributed to its poor sectoral performance. In line with these findings, we provided policy recommendations, which emphasized the need for economic diversification and governance institutional reform in Africa.