Probing Further the Impact of Political Institutions on the Quality of Economic Institutions in Sub–Saharan Africa
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Abstract
Evidence in recent literature underscores the fact that political institutions
are key determinants of the quality of economic institutions, particularly in Africa.
However, the question of which political institutions matter most remains unresolved.
This paper probes the evidence further by investigating the relative effect of four different
categories of political institutions on different components of economic institutions in
Sub-Saharan Africa. The Im-Pesaran-Smith (IPS) panel unit root test technique is used
to evaluate the stationarity property of the variables. Three alternative long-run panel
cointegration regression techniques, namely mean group (MG), pooled mean group
(PMG) and dynamic fixed effects (DFE), are used to gauge the specified model. The
most efficient among them is chosen using the Hausman specification test. The findings
reveal that political institutions do not have short-run effects on the quality of economic
institutions. However, they have significant positive impacts on both the overall economic
institution and its components in the long run. Rule of law has the most consistent
impact, followed by government effectiveness, while quality of democracy is the least
consistent. Therefore, policymakers need to intensify efforts to ensure adherence to rule
of law, and efforts should also be directed towards improving government effectiveness.
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