Institutional Quality and Growth in West Africa: What Happened after the Great Recession?

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.