Olumide Olaoye and Oluwatosin Aderajo
The purpose of this paper is to examine the relationship between the quality of different dimensions of institutional and economic growth in a panel of 15 member ECOWAS.
Abstract
Purpose
The purpose of this paper is to examine the relationship between the quality of different dimensions of institutional and economic growth in a panel of 15 member ECOWAS.
Design/methodology/approach
The study adopts Driscoll and Kraay′s nonparametric covariance matrix estimator, and the spatial error model to account for cross-section dependency, cross-country heterogeneity and spatial dependence inherent in empirical modelling, which has largely been ignored in previous studies. This is because, the likelihood that corruption and human capital cluster in space is very high because factors that affect these phenomena disperse across borders. Similarly, to test the threshold effect, the study adopts the more refined and more appropriate dynamic panel data which models a nonlinear asymmetric dynamics and cross-sectional heterogeneity, simultaneously, in a dynamic threshold panel data framework.
Findings
The empirical evidence supports findings by previous researchers that better-quality political and economic institutions can have positive effects on economic growth. Similarly, our results support a nonlinear relationship between political institutions and economic institution, confirming the “hierarchy of institution hypothesis” in ECOWAS. Specifically, the findings show that economic institutions will only have the desired economic outcome in ECOWAS, only when political institution is above a certain threshold.
Originality/value
Unlike previous studies which assume cross-sectional and spatial independence, the authors account for cross-section dependency and cross-country heterogeneity inherent in empirical modelling.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-10-2019-0630
Details
Keywords
Olumide Olusegun Olaoye, Oluwatosin Odunayo Eluwole and Faraz Lakhani
The purpose of this study is to examine the effect of foreign capital inflows on economic growth in 15 Economic Community of West African States (ECOWAS) countries over the period…
Abstract
Purpose
The purpose of this study is to examine the effect of foreign capital inflows on economic growth in 15 Economic Community of West African States (ECOWAS) countries over the period 2008–2018. Specifically, this paper investigates whether selected foreign capital inflows, namely, foreign debt, foreign aid and foreign direct investments substitute or complement government spending in ECOWAS.
Design/methodology/approach
The study adopts the two-step system generalized method of moments (GMM) method of estimation to address the problem of dynamic endogeneity inherent in the relationship.
Findings
The result shows that foreign capital inflows into ECOWAS region have not transmitted into economic growth in the region. Further, the findings reveal that foreign capital inflows to ECOWAS have substituted for government spending. The results might be as a result of the high level of corruption in ECOWAS. The results also show that when institutional quality is interacted with foreign capital inflows, the result shows a negative and statistically significant effect on economic growth.
Originality/value
Unlike previous studies which pooled both developed and developing economies together, the authors investigate this relationship in a regional study, using ECOWAS to create a roughly optimum size. In addition, the authors adopt the GMM-system method of estimation to address the problem of dynamic endogeneity inherent in the relationship, which has largely been ignored in extant studies.