The Inter-linkage between Institutional Quality and Economic Development in Some Selected African Countries Panel Data Approach

Abstract

This paper examines the inter-linkage between economic development and institutional quality of
some selected countries in Africa. Data for 27 African countries over the years 1996 – 2016 are
used in a dynamic panel model of System GMM estimation. Consequently, the results show that
institutional quality significantly and positively affects development (real GDP per capita)
indicating better governance enhance economic progress and vice versa. The causal link
between governance and development is found to be bidirectional running both from governance
to development and from development to governance. Except voice and accountability all
institutional quality indicators significantly affect economic development in Africa. Also, the
result suggest that good governance have positive and significant impact on economic
development of all countries under consideration regardless of their level of growth, but it is
highly desirable for lower income economies. However, there is no significant relationship
between institutional quality and HDI. Furthermore, the regression result depicts that the
colonial background of the countries was one of the factors for cross country variation of
institutional quality in Africa. Policies formulated to improve governance and development
should not be treated as different strategies, rather it has to be treated as integral components of
the same strategy.