EconPapers    
Economics at your fingertips  
 

Governance, Incentives and Elections as Determinants of Economic Performance, Aid and Investment Flows

Al Bhimani and Mthuli Ncube ()

No 25, Working Papers from Economic Research Southern Africa

Abstract: Scholars have focused their efforts to explain poor growth and development in regions such as Sub-Saharan Africa, and parts of Asia, Eastern Europe, and Latin America, using arguments based on quality of institutions and geography and the structure and process of resource allocation and endowment. This paper presents a different argument based on an incentive compatibility and asymmetric information framework. We characterize the decision-making problem in government and public sector as being fraught with mis-information about the true state of economic performance. Misinformation can also result in a legal liability which may depend on probability of losing elections, income, and attitude to risk. The agency conflicts between the elected politicians and career-bureaucrats contribute to the mis-information problem, resulting in poor policy choices that may lead to poor economic performance. The role of international financial aid flows is examined and the paper argues that such aid flows may only serve to subsidize the inefficiencies of political leaders and reduce the economic gap created by poor policy choices. More financial aid flows may not be a panacea for poor economic growth and its insurance characteristics may cause recipient governments to choose even riskier policies. We also examine why Foreign Direct Investment (FDI) flows to poor regions, such as Sub-Saharan Africa, are low. We show that the risky policy choices create conditions that increase the value of the option-to-wait on investment decisions, thus reducing the flow of FDI. We undertake empirical analysis on some African Countries and show that the quality of governance influences GDP growth, Employment Creation, and Poverty Reduction in Africa.

Keywords: Governance; Incentives; Asymmetric Information; Elections; Economic Performance; Aid Flows; Insurance; Moral Hazard; Foreign Direct Investment (FDI); Option-to-Wait; Real Options (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.econrsa.org/node/50 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rza:wpaper:25

Access Statistics for this paper

More papers in Working Papers from Economic Research Southern Africa Contact information at EDIRC.
Bibliographic data for series maintained by Charles Tanton ().

 
Page updated 2019-11-20
Handle: RePEc:rza:wpaper:25