Political Stability, Corruption, and Economic Development: Evidence from WAMZ Countries

This paper examines the political stability, corruption, and economic progress of the nations that make up the West African Monetary Zone (WAMZ) between 2000 and 2020. To prevent misspecification bias and therefore skewed statistical results, the common features of the panel data were examined first. First of all, the CD test did not find any evidence of cross-sectional dependency across the nations, validating the use of the conventional panel unit root, which does not account for cross-sectional dependence. According to Levin et al. (2002)'s panel unit root test, the variables are integrated of order zero, or I (0).Using the panel VAR framework as a basis, the paper investigates. Emotional intelligence data demonstrated that while corruption impedes regional economic growth, political stability and the rule of law foster it. According to the findings of variance decomposition, the factors under investigation either support or impede the WAMZ countries' economic development.

The paper has analyzed the political stability, corruption and economic development in the West African Monetary Zone (WAMZ) countries for the period of 2000 to 2020.The common properties of the panel data were first checked to avoid misspecification bias and hence biased statistical results.Firstly, the CD test revealed no evidence/absence of cross sectional dependence among the countries which validates the use of traditional panel unit root that does not take account of cross-sectional dependence.The results of panel unit root test proposed by Levin et al (2002) revealed that the variables are integrated of order zero i.e.I (0).Based on this, the paper explores within the panel VAR framework.Evidence from impulse response functions revealed that, political stability and rule of low are economic development promoters while corruption hampers economic development in the region.The results from variance decomposition indicate that the variables under study contribute or hinder economic development in the WAMZ countries.Based on the results the paper recommends that, transparency and accountability at all level of government affairs as well as respecting the constitution in these nations should be preserved in order to overcome all social and political injustice among the countries under study.

INTRODUCTION
The pursuit for the good welfare and economic development for almost five decades had insignificant success in the African countries as inadequate basic needs such as good health facilities, basic amenities, nutritional problems, as well as coup d'états and bad governance, social and internal insecurity, religion and ethnicity crisis, civil wars, increase in poverty incidence, high level of unemployment, youth restiveness, increased corruption cases and political instability still dominate the region.The level of economic development determines the level of corruption and extent of political instability as developing countries tends to be more corrupt and political unstable compared to the developed countries (Helliwell, 1994;Mauro, 1995;Montinola & Jackman, 2002;Schumacher, 2013).There are widespread of political instability and the problem of underdevelopment in the African countries which are not unconnected with the high rate of corruption as need of politicians, political leaders and public servants illegally accumulation of wealth in the process of using public office for private gain.Also, Political instability and violence may reduce access to security, property right, reduce capital formation, encourage capital flight, discourage foreign direct investment, reduce capital inflow and therefore posed significant impediment to economic development on African economy.
Although a body of literature has established that corruption hurts economic development (Gyimah-Brempong, 2002;Scheifer and Vishny, 1993) and determine political instability (Abu et al, 2014;Mauro, 2004), some researchers have argued that political instability accounted for high level of corruption found in many countries (Campbell and Saha, 2013;Zhang et al., 2009).Other researchers maintained that corruption may be desirable economically because of efficient provision of government services by bypassing inefficient regulation through greasing the wheels hypothesis to solve the problem of unnecessary bureaucratic delay and red tapism which constitute formidable barrier to productive investment which lead to economic development (Meon and Sekkat, 2005).It has been posited that frequent change in government reduces development, low development may also increase the frequencies of a government change, hence the need to deal with the problem of endogeneity (Alesina et al., 1996).economy, and hence should be pursued through sequential reforms.This study also found that continuous implementation of the current policies towards having both political stability and effective corruption control may not have positive impact on development in Africa.The study strongly supports sequential policy reform in the region and also recommends review of the ongoing policies towards ensuring effective control of corruption in the region.Uddin et al. (2017) examined the effect of political stability on economic growth by taking 120 developing countries over the period of 1996-2014.The study applied relatively advanced dynamic two step system-GMM and quintile regression.Political stability was found to be a key determinant of economic growth according to the result of the study.More importantly, political instability (or risk) is found to be higher in the OIC countries and is a deterrent to economic growth.Also, for the lower and middle income OIC countries, political instability appears to affect economic growth more severely perhaps due to the absence of strong economic and political institutions.Moreover, political instability is also found to be significantly higher in the oil-dependent OIC countries.Notably, political instability is likely to affect growth through the channels of investment and human capital accumulation in the developing countries.Finally, the impact of political stability and political instability on growth is found to be equally distributed across the OIC countries with higher or lower growth level.Therefore, the development of political and economic institutions along with human capital development is recommended for all the developing countries in general and the OIC countries in particular.spending, the study suggested that combating corruption will not only have direct positive effects, but is also likely to have positive indirect effects, through reducing the size of the negative impact of the military burden.They are also found to be robust across different measures of corruption, levels of economic development and groupings of countries.This suggests that policies to reduce corruption, combined with those to reduce military burdens, such as regional security agreements, would have a considerable impact on economic growth.

METHODOLOGY
This section presents and discusses the econometric methodology used in the paper.The section begins by discussing the source and features of the data used for the purpose of this paper.It also discusses the variables and how they were constructed.The section goes further to discuss the pre-estimation as well as post estimation statistical tests used in the paper.The pre-estimation tests include CD tests out to ascertain the appropriate unit root test to be carried out and panel Unit Root tests.The unit root tests were carried out to ascertain order of integration of the series and to avoid statistical misspecification of the model.

Sources of Data
The data for this research is mainly secondary obtained from the world development indicators and world governance indicators (2020).The period of the study covers from 2000 to 2020 and it is panel data of five countries in the West African Monetary Zone (WAMZ).The countries are Gambia, Ghana Nigeria, Guinea, and Sierra Leone.The variables are Per-Capita GDP proxy for Economic Development (GDP_P), Political Stability (PS) by Political Stability and Absence of Violence/Terrorism: Estimate, Rule of Law (RL) and Corruption (COR) proxy by Control of Corruption: Estimate.In order to reduce the disparity among the data, the data Per-Capita GDP proxy for economic development is transformed in to logarithm form.

Model specification
The model of this paper is specified as: The econometric model is specified as: _  =  0 +  1   +  2   +  3   + Ɛ  Where 1 ,  2,  3 are the coefficient of the variables, α0 is the vector of constant, and Ɛ  is a white noise disturbance.The prior expectation of the parameters is  1  3 > 0 ℎpositive relationship with economic development, while  2 < 0 that is negative relationship with economic growth

TECHNIQUES OF DATA ANALYSIS The Pre-Estimation Tests
Cross-sectional Dependency Test Pesaran (2004) developed the cross-section dependence test.It is the principal test before to investigates, at the order of integration of the series; the most concern is to test the cross-sectional dependence of the arrangement.Hence, it is the first analysis to choose the fitting unit root series.The failure to consider about cross-sectional dependence between the series may bring about bias results (Breusch & Pagan, 1980;Pesaran, 2004).

Unit Root
Panel unit root test: the panel unit root test presented in this paper are Levin and Lin(LL thereafter) test proposed in Levin andLin (1992, 1993) and Levin, Lin, and Chu (2002) thereafter (LLC 2002).LLC created a method for testing the hypothesis that each time series includes a unit root against the alternate assumption that each time series is stationary.Hence, LLC assumes a homogeneous coefficient of autoregression between individuals.The LLC structure may be laid down as follows: Where   ′ are the deterministic variables,   is(0,   2 ) and   =

Model Estimation: A Panel VAR
We consider a k-variate homogeneous panel VAR of order p with panel-specific fixed effects represented by the following system of linear equations, where Yitisa (1×k) vector of dependent variables, Xitisa (1×l) vector of exogenous covariates, and ᶙ  and   are (1×k) vectors of dependent variable-specific panel fixed effects and idiosyncratic errors, respectively.The (k×k) matrices A1, A2…….Ap−1, Apand the (l×k) matrix B are parameters to be estimated.We assume that the innovations have the following characteristics: (  ) = 0, (  ;   ) = , (  ;   ) = 0  >  Similar to Holtz-Eakin, Newey, and Rosen (1988), we assume that the crosssectional units share the same underlying data generating process, with the reduced-form parameters A1,A2, . . .,Ap−1,Ap, and B to be common among them.Systematic crosssectional heterogeneity is modeled as panel-specific fixed effects.This setup contrasts with time-series VAR, where by construction; the parameters are specific to the unit being studied, or with random-coefficient panel VAR, where the parameters are estimated as a distribution.The parameters above may be estimated jointly with the fixed effects or, alternatively, with ordinary least squares (OLS) but with the fixed effects removed after some transformation on the variables.After the estimate the PVAR is subjected to stability test in order to find out whether the PVAR result is stable

Cross-Sectional Dependence Test (CD Test)
Cross-sectional dependence test was conducted in order to examine the contagious effects of shocks within the cross-sections (Pesaran& Yamagata, 2008)  For example, PS, RL and COR were stationary at 1% statistically level of significant while, LGDP_P was statistically significant at 5% level of significant.This means that, the variables are integrated of order zero I(0).

Panel VAR estimation
In order to find the response of economic development (GDP_P) due to the shocks of Political stability (PS), Rule of Law (RL) and Corruption (COR) the paper estimates the PVAR and thereafter deduces Impulse response function and factor error variance decomposition in order to achieve the desire objectives of the paper.Therefore, before estimation of impulse response function and factor error variance decomposition the stability of the PVAR must to be checked to avoid unbiased estimation.Table 3 shows the result of stability test and the PVAR satisfies the stability condition since all the eigenvalues lie inside the unit circle.

Variance Decomposition
The impulse response functions trace the effects of a shock to one endogenous variable on the other variables in the PVAR; while, the variance decomposition provides information about the relative importance of each random innovation in affecting the variables in the PVAR.Table 4 presents the PVAR Forecast Error Variance Decomposition with specific focuses on Proportions of forecast error in GDP_P accounted by itself, PS, RL and COR under study.The results indicate that GDP_P account for more than 65% variation on itself at the end of the period even though at the first and second periods it accounts for 100% and 90% variation for itself respectively.It is also reveals from the Table 4 that PS accounting for more than 14% variation of GDP_P at the end of the period, RL account for more than 15% variation at the end of period.
While COR account for less than 6% variation of GDP_P in the WAMZ countries over the period under study.
Coorayet al. (2017)  has studied the role of political institutions, democracy, political rights, and civil liberties on trade openness and labor force participation rate in Africa.Their results tend to indicate that improved political institutions enhance labor force participation rate (LFPR) which in turn boost a country's economic development.In other words, political stability may affect growth through various channels.Political stability creates a favorable environment for business to flourish, attracts domestic and foreign investment, creates employment opportunities and migration into the cities which increase aggregate demand and stimulate economic growth.Saha and Ali (2017) examined the impact of Corruption and EconomicDevelopment, the study applied linear and non-linear effects in analyzing the data of the study.The result reveals that interactive relationship between economic and political freedoms and government size leads to a reduction in corruption.Furthermore, the results indicate robust support and also suggest that an increase in income increase corruption on natural resources of rich countries.Over roll the findings provide some relevant policy implications to Mena countriesShabbir et al. (2016) examined the Corruption, Political Stability, and Economic Growth in developing eight muslin countries.The study investigated whether conditional liaison between corruption and political stability matters or not.The empirical findings indicated that investment, population and political stability play positive role in promoting economic growth, While Corruption not only impact growth but also influenced by the institutional quality that a nation experiences.Corruption acts as sands in the wheels of the nations that have higher degree of political stability, and greases the wheels in less politically stable countries such as Nigeria and Pakistan.Thus, political stability is conducive to growth, as it reduces the social unrests, political turmoil, encourages investment, and there by economic growth.d'Agostino et al. (2016)  investigated the effects of corruption on components of government spending, namely military and investment spending of panel of 106countries and the results show that the interactions between corruption and investment and corruption and military spending have strong negative impacts on economic growth.The results also indicate important complementarities between corruption and military _ = (, , ) Where _=Per-Capita GDP proxy for Economic Development = Political Stability proxy by Political Stability and Absence of Violence/Terrorism: Estimate = Corruption proxy by corruption perception index = Rule of Law: Estimate The suggested test of the ordinary least squares (OLS) residual from the panel regressions are: , =   +     +   … … … … … … . .1Where are the intercepts and slope,  = 1,2,3----N is an indexes of the cross section dimension and t=1,2,3…………Q is the time series dimension.For each ,   , ~(0,   2 ) and for all t, while they could be cross sectional interrelated.The dependence of  across could arise in a various ways.It could be due to unobserved common components of      ≠ .the regressors could have lagged values of   , be either stationary or non-stationary.The CD test is as follows:

Table 2 : Levin et al Panel Unit Root Test
. Table1 presents three Cross Sectional Dependency Tests, which include: The Breusch-Pagan LM test, the Pesaran Scaled LM test and the Pesaran CD tests of cross-sectional dependence.Based on the results, all the variables indicate no presence of common factor affecting the cross sectional units which paved way to use the first generation panel unit root test.

Table 2
shows the Levin et al unit root test both with trend and intercept.The result reveals that, all the variables were stationary at level with different level of significant.

Table 3 PVAR Stability Test Eigenvalue
corruption has a negative shock/impact on economic development among the countries under study in the West African Monetary Zone.

Table 4 Forecast Error Variance Decomposition Dependent Variable GDP_P
Source: Author's Computation 2021