Political Distortions, State Capture, and Economic Development in Africa

Abstract

This article studies the role of political distortions in driving economic growth and development in Africa. We first discuss how existing theories based on long-run structural factors (e.g., pre-colonial and colonial institutions, or ethnic diversity) may not capture new data patterns in the region, including changes to political regimes, growth patterns, and their variation across regions with similar historical experiences. We then argue that a framework focused on political distortions (i.e., how political incentives impact resource allocation and economic outcomes) may have multiple benefits: it encapsulates many distortions observed in practice, including patronage, variations in contract enforcement and the role of political connections in firm outcomes; it unifies results in Africa and elsewhere; and it leaves a wide scope for policy analysis. We conclude by overviewing reforms that may curb such distortions, including changes to campaign financing rules, bureaucratic reform, free trade agreements, and technology.

Africa rising: Opportunities for advancing theory on people, institutions, and the nation state in international business

“…Africa’s rise presents a number of puzzles for IB research: growth happening where extant theory would suggest that the fundamentals are not conducive to economic expansion, investment going to (or staying in) surprising places, and variation within and across countries that defies many theoretical explanations (Canen & Wantchekon, 2022 ; Darendeli & Hill, 2016 ; EY, 2021 ; Pilling, 2018 ; Stevens & Newenham-Kahindi, 2021 ; The Economist, 2017 ). Why have Ethiopia and Côte d’Ivoire experienced rapid economic growth despite continuous conflict and strife?…”

“…While conventional IB explanations for trade and investment (availability of natural resources, institutions, etc.) provide some insights, they do not seem to tell the whole story (Barnard, Cuervo-Cazurra, & Manning, 2018 ; Canen & Wantchekon, 2022 ; George et al, 2016 ).…”

“…This construct pertains to characteristics of nations’ domestic entrepreneurial culture, with a focus on businesspeople who have the business acumen, education, language skills, and international orientation to engage with foreign firms that seek local partners in Africa. Recognition of the critical importance of entrepreneurial human capital in facilitating economic development has led some to suggest that it might sometimes be a more important driver of economic development than institutions (Canen & Wantchekon, 2022 ; Gennaioli et al, 2013 ; Zallé, 2019 ). Proponents further reason that a focus on human capital offers a promising path to economic development; developing human capital from the ‘bottom up’ can be enacted rather quickly, compared to the time needed to develop institutions and close institutional gaps from the ‘top down’.…”

“…As a counterexample, however, Kenya tends to score poorly on measures of institutional quality and corruption – factors that should deter both foreign and domestic investment – but the country has done surprisingly well at attracting FDI. Part of this puzzle can be explained by recognizing that while some of Kenya’s institutions are weak and underdeveloped, policymakers have recently created new institutions that have fostered a booming information technology sector (Canen & Wantchekon, 2022 ).…”

“…Academic interest in Africa is booming in diverse fields, including economics, finance, and health (Canen & Wantchekon, 2022 ; Henn & Robinson, 2021 ; McMillan & Zeufack, 2022 ). However, international business (IB) scholarship on Africa lags (Barnard, 2020 ).…”