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Institutions, Trade, and Social Cohesion in Fragile States

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  • Mina Baliamoune-Lutz

Abstract

This paper examines the contribution of institutions, social cohesion, and trade to development (per-capita income) with an emphasis on fragile states in Africa. Results from Arellano-Bond GMM estimations suggest that political institutions, openness to trade, and social cohesion affect growth in fragile states via direct and indirect mechanisms. The results indicate that, beyond a certain level, openness to trade may actually be harmful to economic performance in fragile states, particularly in countries with high export concentration. Improvements in institutional quality, or more specifically in democratization, also may be harmful in the short run. On the other hand, social cohesion has a positive effect once a threshold level is reached. The results associated with the effects of political institutions and openness to trade seem to suggest the possibility of a ‘catch-22’, at least in the short run. If a fragile state tries to improve its political institutions or its openness to trade it may wind up with lower per-capita income. According to the formula used to allocate World Bank-IDA funds, such a country would get more aid. However, while obtaining more aid may be a good outcome, lower income implies more poverty (assuming no changes in income distribution). Thus, aid may not lead to significant poverty reduction.

Suggested Citation

  • Mina Baliamoune-Lutz, 2008. "Institutions, Trade, and Social Cohesion in Fragile States," Global Development Institute Working Paper Series 3908, GDI, The University of Manchester.
    • Handle: RePEc:bwp:bwppap:3908
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    Cited by:

    1. Mina Baliamoune, 2009. "Policy Reform and Aid Effectiveness in Africa," ICER Working Papers 19-2009, ICER - International Centre for Economic Research.
    2. Verdier, Thierry, 2010. "Ouverture, conflits et capacité étatique : une perspective d’économie politique," L'Actualité Economique, Société Canadienne de Science Economique, vol. 86(4), pages 415-449, décembre.
    3. Thierry Verdier, 2010. "Regional Integration, Fragility and Institution Building: An Analytical Framework Applied to the African Context," EUI-RSCAS Working Papers 38, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).

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    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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