Institutions and economic growth in ECOWAS: an investigation into the hierarchy of institution hypothesis (HIH)

Abstract

PurposeThe purpose of this paper is to examine the relationship between the quality of different dimensions of institutional and economic growth in a panel of 15 member ECOWAS.Design/methodology/approachThe study adopts Driscoll and Kraay′s nonparametric covariance matrix estimator, and the spatial error model to account for cross-section dependency, cross-country heterogeneity and spatial dependence inherent in empirical modelling, which has largely been ignored in previous studies. This is because, the likelihood that corruption and human capital cluster in space is very high because factors that affect these phenomena disperse across borders. Similarly, to test the threshold effect, the study adopts the more refined and more appropriate dynamic panel data which models a nonlinear asymmetric dynamics and cross-sectional heterogeneity, simultaneously, in a dynamic threshold panel data framework.FindingsThe empirical evidence supports findings by previous researchers that better-quality political and economic institutions can have positive effects on economic growth. Similarly, our results support a nonlinear relationship between political institutions and economic institution, confirming the “hierarchy of institution hypothesis” in ECOWAS. Specifically, the findings show that economic institutions will only have the desired economic outcome in ECOWAS, only when political institution is above a certain threshold.Originality/valueUnlike previous studies which assume cross-sectional and spatial independence, the authors account for cross-section dependency and cross-country heterogeneity inherent in empirical modelling.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-10-2019-0630