Institutional Quality and Economic Development in Sub-Saharan Africa: Can Management Effort and Bribes Compensate for Low-Quality Institutions?

Abstract:

The industrial development in sub-Saharan Africa is perhaps more affected by the quality of institutions than that of other regions. We investigate what alternatives managers may have and what their firms would need to function in case the institutional furniture they encounter is of low quality. We find that, in high quality institutional environments, management spending effort to deal with the authorities and to navigate regulations negates the effect of the institutional environment. Managers do not need to spend such efforts. Perhaps surprisingly, we find that the positive effect of high-quality institutional environments on firm performance is enhanced by making informal payments.

Keywords::

• firm performance
• informal payment
• institutional quality
• institutions
• sub-Saharan Africa

JEL Classification Codes::

• B52
• D02
• D22
• H89
• K49

Notes

¹ On the difference between gifts and bribes, see Susan Rose-Ackerman (1998). For a review of the literature on gift exchange, see Wilfred Dolfsma, Rene Van der Eijk, and Albert Jolink (2009).

Additional information

Notes on contributors

Gori Olusina Daniel

Goriola Olusina Daniel is a doctoral researcher, Kun Fu is a lecturer in entrepreneurship and innovation, and Wilfred Dolfsma is a professor of innovation and entrepreneurship, all at Loughborough University.

Kun Fu

Goriola Olusina Daniel is a doctoral researcher, Kun Fu is a lecturer in entrepreneurship and innovation, and Wilfred Dolfsma is a professor of innovation and entrepreneurship, all at Loughborough University.

Wilfred Dolfsma

Goriola Olusina Daniel is a doctoral researcher, Kun Fu is a lecturer in entrepreneurship and innovation, and Wilfred Dolfsma is a professor of innovation and entrepreneurship, all at Loughborough University.