Institutions, Fiscal Performance, and Development Trajectories in ECOWAS: Implications for Sustainability

This chapter examines the extent to which institutions affect fiscal performance in 15 West African countries (1996–2012). Employing the Feasible Generalized Least Squares (FGLS) estimator, and using institutional indicators of government effectiveness, political stability, rule of law, regulatory quality, and control of corruption, the main argument of this chapter is that, among other issues, there is a significant relationship between institutions and fiscal performance in West Africa. Further, regulatory quality plays the most significant role in improving fiscal performance, and thus development. The reason adduced for the observed relationship is that institutional quality confines the tendency of political capture by public agents, which in many instances are the originators of reckless spending that adds to the debt stock of the respective countries. The findings of the study are fundamental as the prevalence of weak institutional framework can make the governments maneuver public spending to increase their political logrolling, which will lead to soaring fiscal deficits and ultimately put these economies on the path of a weak development trajectory. Thus, the study recommends the need for fiscal discipline that anchors on strong institutional framework in managing fiscal affairs in West Africa, inter alia. It further explains that strong institutions and improved fiscal performance are useful tools for development.