Institutions, Fiscal Performance, and Development Trajectories in ECOWAS: Implications for Sustainability
This chapter examines the extent to which institutions affect fiscal performance in 15 West African countries (1996–2012). Employing the Feasible Generalized Least Squares (FGLS) estimator, and using institutional indicators of government effectiveness, political stability, rule of law, regulatory quality, and control of corruption, the main argument of this chapter is that, among other issues, there is a significant relationship between institutions and fiscal performance in West Africa. Further, regulatory quality plays the most significant role in improving fiscal performance, and thus development. The reason adduced for the observed relationship is that institutional quality confines the tendency of political capture by public agents, which in many instances are the originators of reckless spending that adds to the debt stock of the respective countries. The findings of the study are fundamental as the prevalence of weak institutional framework can make the governments maneuver public spending to increase their political logrolling, which will lead to soaring fiscal deficits and ultimately put these economies on the path of a weak development trajectory. Thus, the study recommends the need for fiscal discipline that anchors on strong institutional framework in managing fiscal affairs in West Africa, inter alia. It further explains that strong institutions and improved fiscal performance are useful tools for development.
JEL CodeO23 E62 E62
- Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a Fundamental Cause of Long-Run Growth. In P. Aghion & S. Durlauf (Eds.), Handbook of Economic Growth. Amsterdam: Elsevier.Google Scholar
- Aktas, A., & Tiftik, M. E. (2009). Measuring Fiscal Sustainability for Practical Use in Short-Term Policy Making (Discussion Paper, Turkish Economic Association, No. 2009/3).Google Scholar
- Alesina, A., Hausmann, R., Hommes, R., & Stein, E. (1999). Budget Institutions and Fiscal Performance in Latin America (Inter-American Development Bank Working Paper Series, No. 394).Google Scholar
- Barreto, H., & Howland, F. (2006). Introductory Econometrics: Using Monte Carlo Simulation with Microsoft Excel. Cambridge, NY: Cambridge University Press.Google Scholar
- Blanchard, O., Chouraqui, J., Hagemann, R. P., & Sartor, N. (1990). The Sustainability of Fiscal Policy: New Answers to an Old Question (OECD Economic Studies, No. 15).Google Scholar
- Chalk, N., & Hemming, R. (2000). Assessing Fiscal Policy in Theory and in Practice (IMF Working Paper, WP/00/81).Google Scholar
- Coase, R. (1998). The New Institutional Economics. The American Economic Review, 88(2). Papers and Proceedings of the Hundred and Tenth Annual Meeting of the American Economic Association, (pp. 72–74). Stable URL: http://links.jstor.org/sici?sici=0002-8282%28199805%2988%3A2%3C72%3ATNIE%3E2.0.CO%3B2-M.
- Dabla-Norris, E., Allen, R., Zanna, L., Prakash, T., Kvintradze, E., Lledo, V., et al. (2010). Budget Institutions and Fiscal Performance in Low-Income Countries (IMF Working Paper, WP/10/80).Google Scholar
- Fatas, A. (2010). The Economics of Achieving Fiscal Sustainability. Academic Consultants Meeting on Fiscal Sustainability Board of Governors, Federal Reserve.Google Scholar
- Fiscal Sustainability Report. (2012). European Economy. Economic and Fiscal Affairs, European Commission.Google Scholar
- Gleich, H. (2003). Budget Institutions and Fiscal Performance in Central and Eastern European Countries. European Central Bank Working Paper Series (Working Paper No. 215).Google Scholar
- Gollwitzer, S. (2011). Budget Institutions and Fiscal Performance in Africa. (CREDIT Research Paper, No. 10/02), Centre for Research in Economic Development and International Trade, University of Nottingham.Google Scholar
- Hoppner, F., & Kastrop, C. (2004). Fiscal Institutions and Sustainability of Public Debt in Germany. Banca d’Italia Public Finance Workshop on Public Debt, Perugia, Italy, April 1–3. www.bancaditalia.it.
- International Monetary Fund-IMF. (2014). Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative. IMF Factsheet.Google Scholar
- Keefer, P., & Knack, S. (2003). Social Capital, Social Norms and the New Institutional Economics. Munich Personal RePEc Archive (MPRA).Google Scholar
- Kelkar, V. L., Rajaraman, I., & Misra, S. (2012). Roadman for Fiscal Consolidation. Report of Committee on Roadmap for Fiscal Consolidation: 2012–13—2014–15. India: Ministry of Finance.Google Scholar
- Krejdl, A. (2006). Fiscal Sustainability—Definition, Indicators and Assessment of Czech Public Finance Sustainability (Czech National Bank (CNB) Working Paper Series 3).Google Scholar
- Marini, G., & Piergallini, A. (2007). Indicators and Tests of Fiscal Sustainability: An Integrated Approach (The Centre for Financial and Management Studies, Discussion Paper, No. 75).Google Scholar
- Obinyeluaku, M. (2013). Monitoring Fiscal Sustainability in Africa: Symptoms and Sources. Regional Integration in Africa African Economic Conference. Available online at: http://www.afdb.org/uploads/tx_llafdbpapers/Revised_Paper_for_AEC.pdf. Accessed 10 July 2014.
- Oluwatobi, S., Efobi, U., Olurinola, I., & Alege, P. O. (2014). Innovation in Africa: Why Institutions Matter. Available online at: http://dx.doi.org/10.2139/ssrn.2460959. Accessed 31 Aug 2014.
- Osabuohien, E. S. (2011). Analysis of International Trade Performance in Selected SSA Countries: The Impact of Institutional Framework. Unpublished Ph.D. thesis submitted to Department of Economics and Development Studies, Covenant University, Nigeria.Google Scholar
- Osabuohien, E., & Efobi, U. (2011). Trade Outcomes in Africa’s Regional Economic Communities and Institutional Quality: Some Policy Prescriptions. Economic Science Series, LXIII(4/2011), 19–32.Google Scholar
- Pasten, R., & Cover, J. P. (2010). The Political Economy of Unsustainable Fiscal Deficits. Latin American Journal of Economics-Formerly Cuadernos de Economía, 47(136), 169–189.Google Scholar
- Polito, V., & Wickens, M. (2005). Measuring Fiscal Sustainability. Centre for Dynamic Macroeconomic Analysis Conference Papers, CDMC05/03, Castlecliffe School of Economics & Finance, University of St Andrews.Google Scholar
- Porteba, J. M., & Von Hagen, J. (1999). Introduction to Fiscal Institutions and Fiscal Performance. In J. M. Porteba (Ed.), Fiscal Institutions and Fiscal Performance. Chicago and London: National Bureau of Economic Research, University of Chicago Press.Google Scholar
- Prakash, T., & Cabezon, E. (2008). Public Financial Management and Fiscal Outcomes in Sub-Saharan African Heavily-Indebted Poor Countries (IMF Working Paper, No. WP/08/217).Google Scholar
- Ter-Minassian, T. (2002, January). Institutional Reforms for Fiscal Sustainability with Special Reference to Latin America. Regional Seminar on Fiscal Policy, ECLAC, Santiago, Chile. Available online at: http://www.eclac.cl/de/noticias/paginas/0/9200/InaugTer.pdf.
- Todaro, M. P., & Smith, S. C. (2003). Economic Development (8th ed.). India: Pearson Education.Google Scholar
- Trading Economics. (2017). Country List Government Debt to GDP. Available online at: https://tradingeconomics.com/country-list/government-debt-to-gdp. Accessed October 2017.
- World Bank. (2013). World Development Indicators-WDI. Washington, DC: The World Bank Group.Google Scholar
- World Bank. (2014a). Global Economic Prospects: Sub-Saharan Africa. Available online at: http://www.worldbank.org/en/publication/global-economic-prospects/regional-outlooks/ssa. Accessed 11 July 2014.
- World Bank. (2014b). World Governance Indicators-WGI. Washington, DC: The World Bank Group.Google Scholar