The Twin Edges of Human Capital in Fostering Structural transformation in Sub-Saharan Africa: An Institutional Perspective

The main objective of this study is to examine the dual role of human capital in fostering structural transformation, considering institutions as mediating channels in Sub-Saharan Africa. We have used a panel dataset of 43 Sub-Saharan countries, spanning from 200 to 2022. The data were obtained from four international sources: the World Bank, UNCTAD, UNSTAT, and UNDP. To provide a more comprehensive and simultaneous test of direct and indirect pathways, we used both the traditional causal-steps approach and the contemporary mediation framework. The findings show that human capital is an important driver of structural change through both direct and indirect channels. These results imply that human capital not only affects economic transformation directly through labor productivity or innovation, but also plays a more fundamental role by creating the favorable institutional environments required to drive structural changes in the economy. This finding is highly consistent with the postulations of endogenous growth theory, in which human capital is relevant to productivity and innovation, and with modernization theory, which argues that socio-economic development, including human capital development, plays a significant role in institutional development. Therefore, human capital development should be considered among the core strategies of structural change by policymakers, acknowledging its dual role in directly improving economic outcomes and indirectly promoting institutional advancement. JEL Classification : 010, 015, 040, 041, E02