Political institutions and economic performance in Ethiopia: an auto regressive distributed lag bound approach to co-integration

Abstract

PurposeThe main objective of this study is to examine how political institutions affect economic performance in Ethiopia over the 1980–2019 time periods.Design/methodology/approachMainly, the impact of political institution indicators including, level of democracy, political violence, democratic accountability and regime durability have been examined using auto regressive distributed lag (ARDL) bound test approach to co-integration and the error correction model.FindingsThis study confirms that level of democracy and democratic accountability has an adverse long effect on the economic performance of Ethiopia. On the other hand, political violence has a negative short-run causal effect on economic performance in Ethiopia. The study concluded that the deterioration of political institutions harmfully affected economic performance in Ethiopia.Practical implicationsGovernment policymakers should primarily pay attention to promoting and changing those political institutions that harm economic performance. Additionally, better management of political violence has important implications for fostering the economic performance of Ethiopia.Originality/valueThis study provides some valuable evidence on the nexuses between political institutions and economic performance in Ethiopia. Likely, this is the first investigation on the subject under the consideration to use time analysis and will vigorously contribute to the literature as well by employing the ADRL bound test. Previous studies have examined the impact of the institution on economic growth on a cross-country basis. Further analysis is required to understand the effects of institutions such as level of democracy, political violence and democratic accountability on economic development.