DOES INSTITUTIONAL QUALITY EXPLAIN THE LUCAS PARADOX? EVIDENCE FROM AFRICA

Abstract

The Lucas Paradox occurs when capital does not flow from the rich to poor countries contrary to the prediction of the neoclassical model. We examine whether institutional quality explains the Lucas paradox in Africa. Our evidence suggests that, the paradox by far is unexplained by institutional quality. This evidence is robust to the presence of outliers and endogeneity.