Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: In this study, a number of factors have been considered as potential determinants of institutional quality in Sub- Saharan African countries. The empirical analysis has shown that historical factors such as state legitimacy determine the quality of current institutions in the region. Foreign aid dependence is found to erode quality of governance as measured by rule of law. Variability of aid is found to counterbalance the destructive nature of high level of aid dependence. However, the last result is not retained in the robust regression analysis performed. Countries with strong political constraints on the ruling elites, proxied by checks and balances between executive and legislative branches of governments, and press freedom, are found to have better quality of institutions. Large countries and those closer to equator are disadvantaged in their success of building better quality institutions. Unlike the popular discussions, ethnic fractionalization and identity of last coloniser do not explain variations in institutional quality in the region. The paper also devotes a section for a case study of Ethiopian institutional development to complement the cross country analysis by adding cultural, historical and political specificities.

Keywords: Institutional Quality; Rule of Law; Foreign Aid; Colonialism; Ethnic Fractionalization; Sub-Saharan Africa

JEL-codes: F35; N40; N47; P48

32 pages, June 19, 2008

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