The Role Of Political Institutions In Economic Development An Empirical Investigation
Some goods are only valuable, and some investments only profitable, in the presence of certain institutions. The empirical literature on institutions and economic growth claims that institutions are a primary determinant of growth. I find four mechanisms through which institutions may affect growth in Africa: property rights, contract enforcement, security and corruption. This dissertation consists of three papers that empirically analyze the importance of these mechanisms while addressing the major empirical issues of endogeneity, measurement and level of analysis. The first paper uses Afrobarometer surveys to measure distinct regional institutions: fear of crime, law enforcement, trust and corruption. I combine these variables with household data from 151 regions in thirteen African countries. I avoid endogeneity by regressing household wealth on aggregate institutional variables, and I find that reducing the fear of crime increases wealth and improving the legal system increases wealth when fear of crime or trust in the national government is high. Corruption in different levels of government has positive and negative effects. The results suggest that variation in institutions within countries is important. The second paper (with Christine Moser) explores institutions within Madagascar at a low administrative level. We use a unique commune census to analyze the impact of institutions and infrastructure on development of the manufacturing sector in Madagascar. We find that not only do institutions matter, they play a causal role in both employment in manufacturing and in infrastructure. The data is a spatially explicit panel countrywide census with reasonable instruments for institutions. We account for bias due to unobserved heterogeneity, endogeneity, and omission of neighboring commune characteristics. Our results suggest that property rights institutions are fundamentally important for economic development in Madagascar. The third paper analyzes democracy in Africa. Africa has become steadily more democratic since the end of the cold war, and I identify three mechanisms through which democracy may be instrumentally good. Democratization is associated with better institutions, which lead to economic growth. Democracies are more accountable and thus may have better health outcomes, and democratic countries have open political systems that may obviate civil conflict. I estimate the effects of democratization with instrumental variables (IV) and simultaneous equations models. I find no significant effects of democracy in the IV models when country and time fixed effects are included. The simultaneous equations results, which also control for country and time fixed effects, indicate that democracy may have strong effects on economic growth and significant but weak effects on the death rate in African countries.
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