Fiscal Policy, Governance and Human Development in the Common Market for Eastern and Southern Africa

Abstract

This study set out to empirically test the impact of fiscal policies and governance on human 
development (HD). In the context of this objective, this paper analyses the impacts of government expenditures and various indicators of governance on three indicators of HD for 19 Common Market for Eastern and Southern Africa (COMESA) countries. Dynamic panel data analysis is employed, and random effect models, fixed effect model, and two-step generalised method of moments (GMM) estimation techniques are adopted. The results show that fiscal policy and governance play a significant role in HD among the COMESA countries. The results imply that in order to ensure HD, not only do the countries need to focus on economic conditions but also on the improvement of social conditions as well. However, to ensure effective implementation of fiscal policies, other policy interventions may also need to be integrated to achieve the necessary improvement in social indicators. In particular, strengthening governance can have a strong pay off for social indicators. Therefore, reducing corruption and increasing accountability for public spending are just as important as increasing spending.