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Submitted by Thierry Kangoye on
The global financial crisis beyond its macroeconomic effects will also probably affect institutions in african countries not only directly, by also through growth performances. A blog post by Jorge Arbach on 02/23/2009 highlighted that governance and conflict indicators are substantially affected by growth volatility. He pointed out some empirical evidence showing that the World Bank’s Country Policy and Institutional Assessment (CPIA) scores in Africa which is a broad measure of policy and institutional performance, has proved to be low during decelerations between 1975 and 2005. We know that one strong channel through which the financial crisis will affect Africa is the rapid decline in commodity prices that will generate terms-of-trade and growth volatility in commodity exporters. Some recent studies on aid effectiveness have shown that aid is more effective in vulnerable countries (i.e. the marginal effect of aid on growth is higher in these countries) and succeed in making growth more stable. The reasoning being that in cases shocks occcur, aid smoothes public expenditures and limit the risk of fiscal deficits. The point I want to raise is that aid can be given a role in these times of crisis in terms of helping to build institutions in the medium and long term by avoiding them to be negatively affected by instability, since growth stability matters for institutional building (e.g. investing in political institutionnal building - establishment of a strong and independent judiciary system, organization of independant elections, etc - requires stable and sustained growth resources) So, If the potential of aid to cushion the negative effects of external shocks on economic growth (and then on institutions) could be associated with strong investment policies on institutional building in Africa, institutions could be improved in the medium or long term and donors should care about this in designing funding strategies to respond to the global crisis for Africa.