Quality of institutions and structural transformation: case of the ECCAS zone

In an era where institutional quality has become pivotal to sustainable development, understanding its role in driving economic transformation is crucial, especially for developing regions. This study is motivated by the urgent need to unravel the governance-structure nexus in Central Africa’s quest for industrial advancement. This research delves into the impact of institutional quality on the structural transformation within the Central African states from 2000 to 2022. Employing the Instrumental Variable Two-Stage Least Square strategy to counter potential endogeneity, the results suggest a positive influence of institutional quality on structural transformation in this region. The study uses Kaufman’s six indicators of governance to proxy institutional quality while measuring structural transformation through industrial and services value-added as percentages of gross domestic product (GDP). Furthermore, the findings reveal that the diffusion of information and communication technology (ICT), financial development, abundance of natural resources, and economic progress contribute to the enhancement of structural transformation. Additionally, using two specific measures of structural transformation that reflect increased value added in the industrial and services sector, the findings continue to support the positive influence of institutional quality on structural transformation. Moreover, the study identifies Sao Tome, Rwanda, Cameroon, and Gabon as countries with better governance scores and are consequently more advanced in structural transformation compared to other nations, which are believed to be lagging in technological diffusion and institutional quality. The findings suggest that policymakers should focus on promoting institutional quality through collaboration with anti-corruption agencies and investment in ICT infrastructure to establish e-governance in public institutions.