Economic Growth and Political Institutions in the WAEMU: What Do We Know?

Abstract

Political institutions are recently pointed out as one of the important factors in the economic growth process. This article investigates in the West African Economic and Monetary Union (WAEMU) the direct and indirect economic growth effect of three political indicators: Political stability and absence of violence and terrorism, rule of law, and voice and accountability. The Dynamic Common Correlated Mean Group Estimator results show that investing in the rule of law increases economic growth in the WAEMU, while political stability and absence of violence and terrorism, and voice and accountability have no direct effect on economic growth in this zone. However, the indirect effect through physical and human capital results indicate that the political variables affect positively economic growth through human capital and negatively through physical capital. The final indirect economic growth effect are negative due to the dominant relative magnitudes effect of physical capital (negative) on the human capital effect (positive).

Keywords: Economic Growth, Political Institution, Dynamic Common Correlated Estimator