Institutional Quality and Growth in West Africa: What Happened after the Great Recession?
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Institutional Quality and Growth in West Africa: What Happened after the Great Recession? Jonathan E. Ogbuabor 1 & Anthony Orji 1 & Charles O. Manasseh 2 & Onyinye I. Anthony-Orji 1
# International Atlantic Economic Society 2020
Abstract This paper examines the impact of institutional quality on economic growth in West Africa after the Great Recession using a panel of 13 countries. In addition to the traditional institutional variables documented in the Worldwide Governance Indicators, such as government effectiveness, control of corruption, rule of law, regulatory quality, political stability, voice and accountability, and absence of violence/terrorism, the paper also derived an institutional-quality variable from the Freedom House database. To address the methodological shortcomings in the extant literature, the study used region-specific variables and adopted both the system generalized method of moments and the panel two-stage least squares estimation techniques under the framework of a cross-country growth model. The results predominantly showed a significant negative relationship between institutional quality and growth in West Africa. Specifically, corruption, government ineffectiveness, weak regulatory quality, political instability, lack of rule of law and absence of accountability were found to hinder growth in the sub-region. However, the empirical findings also showed an initial level of gross domestic product per capita, capital, labour and foreign direct investment as important drivers of growth in the sub-region. Therefore, the study concludes that the sub-region needs improved institutions that can attract higher levels of investment to promote sustained economic growth and development. Keywords Institutional quality . Economic growth . GMM regression . Great recession JEL N20 . F43 . C23 . E32
* Onyinye I. Anthony-Orji onyinye.anthony–[email protected]
1
Department of Economics, University of Nigeria, Nsukka, Nigeria
2
Department of Banking and Finance, University of Nigeria, Enugu Campus, Enugu, Nigeria
Ogbuabor J.E. et al.
Introduction The nexus between institutional quality and macroeconomic performance has been the subject of growing literature in both developing and developed economies. This is because no economy exists in a vacuum. Certain institutional issues play important roles in the growth of every economy. For instance, no respect for the rule of law, poor government regulations, obstructions of civil liberties (such as the right to organize demonstrations, freedom of speech, freedom of religious association, education, travel and other individual rights), lack of freedom to exercise political rights and participate in the political process and high level of corruption have been blamed for the economic stagnation in most developing countries (Siba 2008; Ogbuabor et al. 2019). Egbetunde and Akinlo (2015) argued that Sub-Saharan African (SSA) economies cannot experience sustainable growth without strong institutions. Anthony-Orji et al. (2019) and Benyah (2010) agreed that institu
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