Social Protection and Economic Growth

Abstract

The study deals with the relationship between social protection for workers and economic growth in twenty-five sub-Saharan African (SSA) countries for 2005 and 2006. The regression estimation (using instrumental variables and random effects techniques) includes the logarithm of real GDP, the logarithm of the gross capital formation GCF to GDP (GCF/GDP) ratio, the logarithm of population, the logarithm of the export/GDP ratio, tertiary school enrollment (SET), and social protection rating (SPR). The results show the coefficient of the proxy for capital (GCF/GDP) is insignificant, but the labor variable was shown to have a positive effect on economic growth. Human capital entered the model as tertiary school enrollment (SET). However, the coefficient of SET was not statistically significant, implying that human capital played no part in economic growth in SSA in 2005 and 2006. The SPR variable implies that labor seeks protection and employers resist granting it. Both labor and employers lobby the government and the level of protection achieved is a Nash equilibrium outcome. The income gains to workers if they win cause efficiency losses for society. The SPR variable is positive and statistically significant, indicating that the efficiency losses are less than the income gains by workers. Government promotion of labor, exports, and social protection policies can increase productivity and economic growth.