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On the substitution of institutions and finance in investment

The Ali (2013, EB) findings on the nexuses among institutions, finance and investment could have an important influence on policy and academic debates. This paper relaxes his hypotheses on the conception, definition and measurement of finance and institutions because they are less realistic to developing countries to which the resulting policy implications are destined. We dissect with great acuteness the contextual underpinnings of financial development dynamics and elucidate why the Acemoglu & Johnson (2005) justification provided for the measurement of property rights institutions (PRI) is lacking in substance. Using updated data (1996-2010) from 53 African countries, we provide more robust evidence on the substitution of institutions and finance in investment. Results under many baseline and augmented scenarios are not consistent with the underlying paper. Justifications for the differences in findings are discussed. As a policy implication, the Ali (2013, EB) findings for countries with poor financial systems may not be relevant for Africa.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56814.

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Date of creation: 04 Jan 2014
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Handle: RePEc:pra:mprapa:56814
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