Institutional Quality and Development Nexus in Africa : ARDL Panel Approach

This study examines short and long run links between institutional quality and development in 51 African countries panel from 1972-2020 by estimating Panel Autoregressive Distributive Lag (ARDL) model. The study employs principal component analysis to generate data for political institution, economic institution and legal institution as well as total/overall institution. Using real GDP per capita and GDP per capita growth rate to proxy development, the study finds evidence of long run relationship between the quality of institutions and development in African countries. Generally, the empirical results from this study reveals a weak institutional effect on development in Africa. Also, the coefficients of political, economic and legal institutions are strongly sensitive to the inclusion of the choice of the dependent variable either real GDP per capita or GDP per capita growth rate employed both in the short and long run but with exceptions on the overall institution which is consistent in its interpretation. Specifically, the study finds non-significant relationship between all institution indexes and real GDP per capital in the short run but negative and significant in the long run, except legal institution. Contrary to this empirical result, the study reveals significant relationship between all institution indexes and GDP per capital growth rate as both political and legal institutions have positive effect while economic institution has a negative effect in the short run. All institutions have a non-significant relationship with GDP per capital growth rate in the long run. The study, also finds a non-significant relationship between overall institutions and development in Africa. The study advocates for a thorough and careful assessment of variables employed as a dependent variable in examining institutional quality and development nexus in Africa