Institutions and African Economic Development

Abstract

In light of the increasing importance of institutions in economic development and Africa’s desire to catch up, the present paper provides an account of this crucial subject, ‘Institutions and African Economic Development. First, adopting the usual definition of ‘institutions’ as ‘rules of the game’, the paper shows that improvements in economic institutions, such as economic freedom, had begun by the early 1990s, and accelerated about the mid-1990s, consistent with observed improvements in economic and development outcomes. Also improved are measures of political institutions: an index of electoral competitiveness, constraint on the executive branch of government, and polity 2 as an indicator of the level of democracy, beginning in the late 1980s or early 1990s. Second, based primarily on a review of the extant literature, the paper observes that these improvements in the measures of economic and political institutions are positively associated with the increasing economic development in Africa. Third, indicators of institutional instability, measured by the frequency of civil wars and the incidence of coups d’etat, have been diminishing since the early 1990s, with implications for improved growth and human development. Fourth, some evidence is provided in support of the notion that African countries with better performance on institutional quality during the period of growth resurgence have also exhibited greater progress in poverty reduction. Finally, the paper concludes by flagging the potential risk of African countries backtracking on their respective trajectories toward achieving the democratic consolidation required to sustain the gains in growth and development.