Document Library

Key Text Building Institutions in Post-Conflict African Economies

Author: J Aron
Date: 2002
Size: 24 pages (300KB)

Access full text: available online

Summary

The role of effective state and private institutions in promoting investment and growth is back on the agenda of multilateral agencies. Institutional reform in poor countries, especially in post-conflict countries where institutions have been altered or destroyed, is needed to encourage development and economic growth. Yet, how is it that institutional reform can have a positive impact on development? How do institutions influence growth and recovery in post-conflict countries? What are the constraints on the effective reforms of institutions?

Following North’s institutional framework (defined as a combination of both formal and informal rules and how effectively they are enforced), this WIDER discussion paper establishes that well-functioning institutions may promote development. Using empirical evidence of cross-country analysis, it is argued that weak institutions increase transaction costs and discourage investment and productive activity. This finding lends force to the need for institutional reform. Effective institutional reform requires the creation or restructuring of organisations that can implement the laws, state regulatory arrangements to oversee these organisations, and a facilitating environment for various private sector watchdog bodies. However, in practice, institution building in African post-conflict countries, as in other developing countries, may be very limited because of often-severe factor and funding constraints. The capacity to change is dependent on the available human capital and other resources in organisations.

In capacity-constrained countries, the desired scope of sustainable reform has to be traded-off against limited domestic resources. While fiscal resources may be supplemented by foreign aid, it is far harder to reverse sharply depleted capacity in post-conflict countries. Other findings include:

Institutions are neither malleable nor able to respond rapidly to institutional incentives. Change will tend to occur incrementally
The degree of institutional development achieved prior to conflict in post-conflict countries is crucial to the institution building process. Institutional memory may be more easily resuscitated than created
In post-conflict countries with little left of either formal or informal mechanisms (e.g. Somalia and Sierra Leone), partial reform may be achieved in the short to medium term by enacting minimal transparent rules, rather than expensive and time-consuming reforms
Levels of reform should be matched to capacity, so that in due course, deeper reforms can be implemented
Under resource constraints, more complex law codes can evolve by importation of tried and tested foreign law, but practical experience suggests that, to be acceptable, these laws should be carefully adapted using local expertise.

Research on practical policy interventions towards institution building is still at an early stage. Yet, the paper draws important policy implications:

Policy prescriptions for institutional reform should take into account practical constraints in implementation
In post-conflict countries, concerted institutional reforms may be more effective than piecemeal reforms
The importance of domestic demand for reform has to be emphasised to gain momentum for reform
It is important to highlight the simultaneous relationship between growth, investment and institutions, since causality may move in both directions
Domestic civil organisations have to be strengthened to regulate the state’s actions during implementation of reforms.

Access full text: available online

Source: Aron, J. 2002, Building Institutions in Post-Conflict African Economies, WIDER Discussion Paper DP2002/124, UNU/WIDER, Helsinki.
Author: Centre for the Study of African Economies, Oxford, http://www.economics.ox.ac.uk/
Organisation: World Institute for Development Economics Research (WIDER), http://www.wider.unu.edu/