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Institutional dynamics and capital accumulation: Evidence from Namibia and Tanzania

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  • B.P. Zaaruka

Abstract

The purpose of this study is to examine the impact of institutions on fixed capital accumulation over time in two developing countries, both former German colonies: Namibia and Tanzania. This is motivated by two recent underpinning theories: the new institutional theory, which views institutions as fundamental determinants of economic outcomes and income variations among countries (the institutional hypothesis); and the theory of irreversible investment under uncertainty, which emphasis the impact of uncertainty on investment and capital-stock accumulation. Using the theoretical framework of irreversible investment under uncertainty, we apply the Vector Error Correction Model (VECM).The findings highlight the importance of uncertainty (political instability) in explaining capital accumulation over time in Namibia. The empirical evidence for Tanzania indicates the importance of property rights in explaining capital accumulation over time.

Suggested Citation

  • B.P. Zaaruka, 2012. "Institutional dynamics and capital accumulation: Evidence from Namibia and Tanzania," Working Papers 318, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:318
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    File URL: http://www.econrsa.org/node/643
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    Keywords

    Namibia; Tanzania; institutional indicators; capital stock; irreversible investment; uncertainty;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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