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Institutional Quality and Growth

Authors


  • Fabien Ngendakuriyo, Groupe d'études et de recherche en analyse des décisions (GERAD), HEC Montréal, 3000, chemin de la Cinline imagete-Sainte-Catherine, Montréal, Québec, Canada M3T 2A7 (fabien.ngendakuriyo@gerad.ca).

  • The author thanks two anonymous referees for their crucial comments and suggestions.

  • I gratefully acknowledge financial support of the Belgian research program, PAI P6/07 Economic Policy and Finance in the Global Equilibrium Analysis and Social Evaluation. This research is also part of the ARC project 09/14-18 on sustainability. I thank Raouf Boucekkine, Fabio Mariani, and Bastien Chabé-Ferret for helpful discussions and comments. Seminar participants to the doctoral workshop on “Economic Policy, Growth and Business Cycles” in Rochehaut (Belgium) and participants to the Public Economic Theory 2009 Conference at National University of Ireland and to the Globelics Dakar 2009 conference provided very helpful suggestions.

Abstract

I analyze the dynamic interaction between civil society organizations and the government in a representative developing economy. Government fails to establish efficient institutions by favoring corruption. On its side, civil society exerts pressure to constrain government to cease corruption. I distinguish between an authoritarian government and an unrestrictive one: the latter does not repress protests from the civil society while the former implements punishment mechanisms. I demonstrate analytically the existence of a unique locally stable equilibrium by solving a linear quadratic differential game for three regimes: respectively, the optimal control problem, noncooperative, and cooperative game. Everything remaining constant; numerical assessment indicates that both civil monitoring and government pressure always increase as the government’s ability to extract rents and the effectiveness of institutions increases. The government pressure also increases with an increase in the marginal utility of rent. Both government pressure and civil society's monitoring effort decrease with the increase in the cooperation weight. Total Factor Productivity effects always dominate the detrimental effect of civil monitoring on growth, except when the government’s capacity of rent extraction increases in the second regime and under some restrictions in the first. In a nutshell, I show that civil society contributes to the improvement of institutions fostering growth.

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