The relationship between institutional reforms and economic performance is now the subject of several studies that analyze empirically or theoretically the impact of reforms on the indicators of economic performance of countries, especially on their private sector.
Often defined as all private enterprises whose capital is majority owned by private individuals or private companies, the private sectors is a powerful driver of real rapids growth.
It is also understood through indicators like the share of private sector investment in gross domestic product (GDP), changes in foreign direct investment (FDI), manufacturing exports, and the evolution of domestic credit to private sector.
Institutional brakes to these indicators of dynamism of the private sector can give a fatal blow to a country’s economic performance. Through the Doing Business program, the World Bank provides a quantification assessment of regulations that apply to SMEs in various fields, notably regulations for starting a business, dealing with construction permits, employing workers, registering property, arranging credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.
These indicators, elaborated to measure the reform of the institutions, became fundamental to a successful development and have significant effects on the economic performance of the countries.
Even if the business climate indicators are clearly defined and vary considerably from one African country to another, many questions remain about their relevance in explaining differences in economic performance between countries and differences in the size of the private sector.
This paper aims to determine the impact of positive changes in business environment indicators of the Doing Business program and the Economic Freedom Index of the Heritage Foundation on the private sector development indicators and economic performances of African countries.
The paper evaluates the progress in economic reforms and the status of recent economic performance in African countries. It reviews the economic literature on the relationship between institutions and private sector growth.
Results of the study show the following:
differences across countries over time in terms of private investment, FDI, domestic credit to private sector, and the growth rate of GDP, are significantly influenced by differences in efforts of institutional and economic reforms
institutional reforms are sources of job creation, attraction of foreign investors, and growth for African countries
the revival of African economies also depends on improving economic and legal institutions