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"ECONOMIC INSTITUTIONS"
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Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons
Do external imbalances increase the risk of financial crises? This paper studies the experience of 14 developed countries over 140 years (1870-2008). It exploits the long-run data set in a number of different ways. First, the paper applies new statistical tools to describe the temporal and spatial patterns of crises and identifies five episodes of global financial instability in the past 140 years. Second, it studies the macroeconomic dynamics before crises and shows that credit growth tends to be elevated and short-term interest rates depressed relative to the \"natural rate\" in the run-up to global financial crises. Third, the paper shows that recessions associated with crises lead to deeper slumps and stronger turnarounds in imbalances than during normal recessions. Finally, the paper asks to what extent external imbalances help predict financial crises. The overall result is that credit growth emerges as the single best predictor of financial instability. External imbalances have played an additional role, but more so in the pre-WWII era of low financialization than today.
Journal Article
The Influence of Economic Institutions in the Debt-Growth Nexus: Evidence from Nigeria
This paper investigates the influence of economic institutions in the debt-growth nexus. Using data from 1970 to 2020 on Nigeria, the paper extends the econometric literature by deploying cointegration techniques that account for structural breaks. A long equilibrium relationship was found among debt, growth, economic institutions and associated variables. The effect of debt on growth was found to be positive up to a threshold of 13.62% and 27.19% of gross domestic product in the short and long-run respectively, beyond which its effect becomes negative and significant. Growth is more sensitive to economic institutions than debt, underscoring the criticality of institutions.
Journal Article
Society and economy : framework and principles
In Society and Economy, Mark Granovetter sees the economy as one of many activities in \"society\" - a term that refers to everything people do with one another and how this adds up to a recognizable whole. Some economic action can be well understood as people rationally using means towards well-defined ends, but much of it is harder to fit into such a simple framework. Actors follow norms that specify the \"right\" thing to do, at times with passionate belief, and at others, without conscious thought. They trust others when there is no obvious reason to do so. And they wield power over one another that comes from non-economic sources but has major impact on economic outcomes. The book explores how problem-solving actors assemble solutions from this kaleidoscope of principles, in ways that psychologists and philosophers describe as \"pragmatic,\" drawing on arguments ranging from individual psychology to social networks to long-term historical and political analysis.-- Provided by publisher
Book
Democracy and the quality of economic institutions: theory and evidence
We present a simple model, illustrating how democracy may improve the quality of the economic institutions. The model further suggests that institutional quality varies more across autocracies than across democracy and that the positive effect of democracies on economic institutional quality increases in people’s human capital. Using a panel data set that covers 150 countries and the period from 1920 to 2019, and different measures of economic institutional quality, we show results from fixed effect and instrumental variable regressions that are in line with the predictions of our model.
Journal Article
Weak economic institutions in Africa: a destiny or design?
Purpose
The primacy of institutions for economic progress has been established in the literature. Yet, less research attention is paid to the existence and persistence of weak economic institutions in Africa. Thus, the purpose of this paper is to empirically explore the determinants of the quality of economic institutions in Africa.
Design/methodology/approach
Hausman–Taylor instrumental variable estimator of panel regression was employed for a sample of 43 Sub-Sahara African countries over the period 1995–2017.
Findings
The study finds that the existence and persistence of weak economic institutions in Africa is more of design than destiny. That is, weak economic institutions are created and sustained more by bad political institutions rather than cultural diversity and geographical factors. Therefore, strong political institutions need to be entrenched to reverse the equilibrium of weak economic institutions and dismal economic performance in the continent.
Practical implications
The study provides deep understanding of the determinants of economic institutions. This is imperative for policy makers, development agencies and stakeholders in designing viable economic policies and programs for the continent.
Originality/value
The novelty of the study is rooted in the examination of the factors responsible for the development and persistence of weak economic institutions in Africa. The idea is original because previous studies focus on political institutions and neglected economic institutions.
Journal Article
Institutions and economic growth in ECOWAS: an investigation into the hierarchy of institution hypothesis (HIH)
PurposeThe 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/approachThe 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.FindingsThe 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/valueUnlike 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 reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-10-2019-0630
Journal Article