Global Governance Index (G) Global Governance Index GGI Global Governance

Index: measured as the average of six indicators: control of corruption,

government effectiveness, political stability and absence of violence/terrorism,
regulatory quality, rule of law, voice and accountability (Kaufmann, et al., 2005,
2010) (-2.5=bad governance to 2.5=good governance) source World Bank
(WGI)
Ibrahim Index of African Governance (IBR) The Ibrahim Index of African
Governance (on a scale of 0–100) (< 50 bad governance; ≥ 50 good
governance) source MoIbrahim Foundation
Poverty POV
Economic Growth (GDP) The annual GDP per capita growth rate (%) is
calculated as the percentage change in the GDP per capita between two
consecutive years.
Corruption CPI
Foreign Direct Investment FDI FDI net infows are the value of inward direct
investment made by non-resident investors in the reporting economy, including
reinvested earnings and intra-company loans, net of repatriation of capital and
repayment of loans. We used the net FDI inflows as a share of GDP (%)
Ln Domestic Investment INV Domestic Investment is measured Gross capital
formation (GCF) in % of GDP. Gross capital formation (formerly gross domestic
investment) consists of outlays on additions to the fixed assets of the economy
plus net changes in the level of inventories.
 Table Error! No text of
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Correlation matrix.
Mean Median Maximum Minimum Std. Dev.
- - -0.2102 -1.5826 0.47937
0.747 0.7778
G 7
3.923 4.0181 4.2891 3.3286 0.28635
LIBR 8
0.434 - 2.8106 -2.3025 1.41993
LPOV 1 0.0618
0.159 1.2887 6.8807 -9.6607 3.32659
GDP 1
3.410 3.5835 3.7612 2.3978 0.42376
LCPI 3
2.883 2.9661 3.4713 0.7785 0.51850
LINV 6
1.777 1.6288 3.6575 -0.3241 0.90338
FDI 2
Note: Std. dev.: indicates standard deviation.
L: data is log transformed.

Sample: 2012 2022

Periods included: 11
Cross-sections included: 5
Total panel (balanced)
observations: 55

1. Literature review
2. Methodology
The empirical analysis is based on annual data of 55 observations for 5
countries in North Africa. The period of the study spans from 2012 to 2022. The
choice of our variables was suggested by previous studies such as Wan et al.
(2021); Eichsteller et al. (2021); Ravallion and Chen (1997); Dollar and Kraay
(2002); Fowowe and Shuaibu (2014); Kaufmann et al. (2010); and Globerman
and Shapiro (2003). T
2.1. Research Variables and Their Definitions
2.2. Econometric Model

3. Econometric steps and procedures

4. Results And Empirical Findings

Table 1.2
Correlation matrix.
G LIBR LPOV GDP LCPI LINV FDI
G 1
LIBR 0.9856 1
LPOV -0.8528 -0.8977 1
GDP 0.5458 0.5139 -0.6773 1
LCPI -0.9179 0.9399 -0.7907 0.5254 1
LINV 0.6062 0.4996 -0.5025 0.1702 -0.0536 1
FDI 0.5059 -0.0451 0.3295 -0.2007 -0.1314 0.5221 1

The strong positive correlation of 0.9856 between the G and the LIBR for North
Africa shows how effective governance is crucial for shaping economic
outcomes in the North African region. Economic theories like institutional and
development economics explain this close link between governance institutions
and economic performance. These theories suggest that institutions form the
foundation for economic activities to thrive or fail, with governance structures
having a significant impact on resource distribution, investment choices, and
overall economic vigor. Nations in North Africa with better governance
effectiveness, based on the Ibrahim Index, likely have stronger governance
frameworks. This means more transparency, less corruption, and better
regulations. These qualities create an environment good for economic growth,
attracting investment, and sustainable development in the region.

Effective governance relates to reducing poverty sharply. A strong negative

correlation of 0.8528 exists between the G and LPOV. Essentially, better
government effectiveness is associated with lower poverty levels. This supports
the idea that effective governance contributes to poverty alleviation through
various mechanisms. Good governance frequently relates to better economic
policies and regulations that foster growth and development. Nations with
robust governance structures likely implement policies stimulating investment,
entrepreneurship, and job creation, lifting people out of poverty. Effective
governance brings economic policies that boost growth. Countries governed
will establish regulatory frameworks promoting development. Individuals often
escape poverty, where governance drives policies aiding investment,
entrepreneurship and job opportunities. Good governance plays a crucial role. It
helps provide social welfare programs and services. These are aimed at the
most vulnerable people in society. Transparent institutions allocate resources
well. They can use resources better for poverty alleviation. Things like
education, healthcare, and social safety are important. Accountable
governance is key to addressing society's needs properly. Furthermore,
effective governance promotes an equitable distribution of resources, ensuring
that the benefits of economic growth and development reach all segments of
society.
The positive correlation of 0.5458 between the G and GDP suggests a
significant relationship between governance effectiveness and economic
growth. This result is similar to the results presented by (Saidi, Labidi, & Ochi,
2023). This correlation reinforces the theoretical argument that effective
governance is conducive to fostering economic development and prosperity
within a country. Countries with stronger governance structures are more likely
to create an environment that encourages investment, innovation, and
productivity growth. Effective governance frameworks are associated with
greater regulatory clarity, reduced bureaucratic barriers, and enhanced policy
stability, all of which are favorable conditions for businesses to thrive and for
economies to expand. Furthermore, good governance can lead to increased
investor confidence, both domestic and foreign, which in turn can attract more
investment capital and stimulate economic activity. Transparent and
accountable governance institutions are perceived as less risky environments
for investment, encouraging businesses to invest in productive ventures that
contribute to GDP growth. Moreover, effective governance can facilitate
efficient resource allocation and public expenditure management, ensuring that
public investments are directed towards projects and sectors that yield the
highest returns and contribute most effectively to economic growth.
The strong negative correlation of -0.9179 between the G and LCPI underscores
the significant relationship between governance effectiveness and corruption
levels. This correlation supports the prevailing theories that posit good
governance as a key factor in combating corruption within countries. Effective
governance systems, characterized by transparency, accountability, and rule of
law, create an environment that discourages corrupt practices and fosters
integrity in public institutions. Countries with stronger governance structures
are better equipped to implement anti-corruption measures, enforce
regulations, and hold public officials accountable for their actions. The negative
correlation suggests that as the quality of governance improves, corruption
levels tend to decrease. This is because strong governance institutions act as a
deterrent to corrupt behavior and provide mechanisms for detecting and
prosecuting corruption cases. Additionally, transparent governance practices
promote public trust and confidence in government institutions, reducing
opportunities for corruption to thrive. Furthermore, countries with lower levels
of corruption are more likely to attract investment, both domestic and foreign,
as investors perceive them as safer and more stable environments for
conducting business. Thus, effective governance not only contributes to
reducing corruption but also stimulates economic growth and development.
The positive correlation of 0.6062 between the G and LINV indicates a
significant relationship between governance effectiveness and investment
levels. This correlation is consistent with theories that propose effective
governance as a key determinant of investment attractiveness, both
domestically and internationally. Countries with stronger governance structures
tend to offer a more stable and transparent regulatory environment, providing
greater assurance to investors regarding property rights protection, contract
enforcement, and overall business stability. Effective governance also facilitates
infrastructure development and public investment, which are essential factors
in attracting private investment and fostering economic growth. Moreover,
good governance fosters investor confidence by reducing political risk and
uncertainty, promoting transparency in decision-making processes, and
ensuring fair and impartial treatment for all market participants. Investors are
more likely to allocate capital to countries with strong governance institutions,
as they perceive lower investment risks and higher potential returns.
The positive correlation of 0.5059 between the Global Governance Index (G)
and Foreign Direct Investment (FDI) suggests a significant relationship between
governance effectiveness and the inflow of foreign investment. This correlation
aligns with theories that propose a positive association between good
governance and FDI inflows, highlighting the importance of strong governance
institutions in attracting foreign investors. Countries with stronger governance
structures are often perceived as more stable, transparent, and predictable
environments for investment. Effective governance frameworks provide greater
assurance to foreign investors regarding property rights protection, contract
enforcement, and overall business stability, reducing perceived risks associated
with investing in these countries. Moreover, good governance fosters investor
confidence by minimizing political risk, ensuring fair and impartial treatment for
 all market participants, and promoting transparency in decision-making
processes. Foreign investors are more likely to allocate capital to countries with
strong governance institutions, as they perceive lower investment risks and
higher potential returns in such environments.
For any empirical investigation, variables must be stationary to avoid spurious
results. All five variables of this study are subjected to KPSS, PP, and IPS. The
unit root null hypothesis cannot be rejected if the test statistic for these tests is
insignificant. The result is represented in Table 1.3.

Table 1.3
Stationarity tests.
Variables IPS PP KPSS
At level At first At level At first At level At first
difference difference difference
G -0.0551 -5.5122*** -1.4567 -6.9847*** -1.4299 -6.9857***
LIBR 2.4531 -3.3541*** 1.2763 -5.6525*** 1.2743 -5.6525***
LPOV 2.1891 -3.2734*** 1.5372 -6.6983*** 1.5323 -6.6919***
GDP 2.3212 -3.9833*** -1.6857 -6.3283*** -1.6834 -6.3222***
LCPI 1.6252 -2.4521*** -1.7832 -5.7635*** -1.7823 -5.7698***
- -4,3232** -
LINV 5.5161*** 4,3299**
FDI 2.3762 -4.7635*** -2.8372 -6.2212*** -2.8333 -6.2249***
Note: ***,**,* denotes null hypothesis rejected at 1%, 5% & 10% significance level respectively.

Based on the data in

Based on the data in Table 1.3, our sample group includes both the I(0) and I(1)
series. Results from all three analyses corroborated previous results on G, LIBR,
LPOV, GDP, LCPI, and FDI. All variables except LINV are stationary at the first
difference, or I(1). At level or I(0), LINV is stationary.

Table 1.4
Bounds cointegration
test.
Test
statistic Value Sig. I(0) I(1)
8.273
1% 3.462 5.038
F-statistic
5% 2.763 4.276
10% 2.437 3.276

The results of the bounds cointegration test are shown in Table 1.4. It is obvious
that for the normalized equation, the respective calculated F-statistic is above
the upper bound critical value of 8.273 at the 5% significance level. Therefore,
the null hypothesis of no cointegration is not supported, and consequently,
there is a steady long-run cointegration among the set of variables.
Based on the assumption that the model of the study considers the global
governance index as the dependent variable, we estimated a log-linear long-
run for North Africa. The assessed log-linear long-run coefficient is derived from
the subsequent estimations of the Autoregressive Distributed Lag (ARDL)
model, as presented in Table 1.5 below.

Table 1.5
Long run estimates using ARDL approach.
T- Prob.
Coefficient Std. Error statistic
LIBR 3.3871 0.7869 4.4754 0.0482
LPOV -3.2833 2.2873 2.8736 0.0402
GDP 0.3728 0.7649 2.8736 0.0283
LCPI -1.8729 0.68746 4.8732 0.0128
LINV 1.7332 0.5583 3.1187 0.0052
FDI 1.0000 2.2833 0.4567 0.0983
C -18.7362 3.9844 3.8726 0.0193
R-squared 0.9938
Adjusted R-
squared 0.9398
F-statistic 18.3841
Prob. (F-
statistic) 0.0189
Note: The maximum lag length was set [Link] ARDL (3,4,3,4,4,3) was
based on the AIC.

From Table 5, the results suggest that the LIBR influences the G. The coefficient
for the LIBR variable is positive and statistically significant at the 5% level.
Specifically, the coefficient of LIBR indicates that with every 1% increase in the
Ibrahim Index of African Governance, the Global Governance Index increases by
approximately 3.3%. This suggests that improvements in governance, as
measured by the Ibrahim Index, contribute to enhancing overall governance
quality in the region, which can have positive implications for economic
development and stability. This finding are consistent with prior study..
Higher levels of poverty are associated with lower scores on the Global
Governance Index in North Africa. The coefficient for the LPOV variable is
negative and statistically significant at the 5% level. Specifically, the coefficient
of LPOV indicates that with every 1% increase in LPOV, G decreases by
approximately 3.28%. This underscores the detrimental impact of poverty on
governance quality and highlights the importance of addressing poverty as a
crucial factor in improving overall governance standards in North Africa. This
finding are consistent with prior study..
Higher economic growth is actually associated with higher scores on the global
governance index in North Africa. The coefficient for the GDP variable is
positive and statistically significant at the 5% level. Specifically, the coefficient
of GDP indicates that with every 1% increase in GDP, the G increases by
approximately 0.37%. This suggests that improvements in economic
conditions, as reflected by higher GDP growth rates, are associated with
enhancements in governance quality in North Africa. As economies experience
growth, they often witness improvements in various aspects of governance,
including transparency, accountability, and the effectiveness of institutions.
Therefore, fostering economic growth can potentially contribute to
strengthening governance frameworks and institutions, ultimately leading to
better governance outcomes in North Africa.

Higher corruption is actually associated with lower scores on the G in North

Africa. The coefficient for the CPI variable is negative and statistically
significant at the 5% level. Specifically, the coefficient of CPI indicates that with
every 1% increase in CPI, the G decreases by approximately 1.87%. This
suggests that improvements in governance quality, such as reducing
corruption, are crucial for enhancing overall governance standards and
achieving higher scores on the Global Governance Index in North Africa. By
addressing corruption and promoting transparency, accountability, and
integrity in governance practices, countries in North Africa can foster a more
conducive environment for sustainable development, economic growth, and
social well-being.
Also, the results suggest that investment influences the G. The coefficient for
the LINV variable is positive and statistically significant at the 5% level.
Specifically, the coefficient of LINV indicates that with every 1% increase in
LINV, the G by approximately 1.7%. This suggests that improvements in
investment levels contribute positively to governance quality in North Africa.
Increasing investment opportunities can lead to the development of
infrastructure, job creation, and economic growth, which in turn can enhance
governance standards by fostering stability, transparency, and effective public
administration.

The R-squared value of 0.9938 suggests that approximately 99.38% of the

variance in the global governance index is explained by the independent
variables included in the model.
The F-statistic of 18.3841, along with its associated p-value of 0.0189, indicates
that the overall model is statistically significant at the 5%. This suggests that
there is strong evidence to reject the null hypothesis that all coefficients in the
model are equal to zero. In other words, the independent variables collectively
have a significant impact on explaining the variation in the global governance
index.

Table 1.6
Log-linear short-run estimates
and ECM.
dLIBR dLPOV dGDP dLCPI dLINV dFDI ECT
- 1.3847 1.2982 -
0.8372** -
Coefficient 3.2812* *** *** 2.9817*
3.8737***
0.2321** ** * (0.091 (0.1432 **
(0.3847)
(0.0063) (0.2837) (0.0887) 1) ) (0.4569)
R-squared 0.9938
Adjusted R-
squared -0.9123
F-statistic 62.8736
Prob. (F-
statistic) 0.0001
Note: The ARDL (3,4,3,4,4,3) was based on the AIC. Standard errors are in the
parentheses. ***, **, * indicates 1%; 5%; & 10% significance level.
 Table 1.7
Diagnostic test for ECM based ARDL model.
Test statistic F-statistic Prob.
a: Serial
Correlation 0.2211 0.7693
b: Functional
Form 1.8982 0.2282
c: Normality 2.7621 0.3821
d:
Heteroscedasticit
y 0.5638 0.8172
e: CUSUM Stable
f: CUSUMS Stable
a: Lag range multiplier test of residual
serial correlation.
b: Ramsey's RESET test using the square of
the fitted values.
c: Based on a test of skewness and
kurtosis of residuals.
d: Based on the Breusch-Pagan-Godfrey
Test.
e: Stability test by Cumulative Sum.
f: Cumulative Sum of Squares.

Figure Error! No text of specified style in document..1. Plot of cumulative

sum of recursive residuals.
Figure Error! No text of specified style in document..[Link] of cumulative
sum of squares of recursive residuals.
5. Conclusion