The Impact of Official Development Assistance (ODA) on Institutional Quality in COMESA Countries.

Abstract The study examines the impacts of Official Development Assistance (ODA) on institutional quality in COMESA countries. A panel data from 2006 to 2022, employed advanced estimation techniques such as the System Generalized Method of Moments (Sys-GMM) to mitigate endogeneity and dynamic panel data bias. The results of the dynamic panel data analysis show a direct statistically significant positive relationship between the index of institutional quality and its own lagged values, this indicates that past institutional quality is more than just short term moments in time, it is a component of current institutional quality. The result also show that ODA has negative and statistically significant impact on institutional quality, this suggest that development assistance might actually be undermining governance and institutional regimes in COMESA countries. However, ODA interacted with institutional quality has a statistically significant and positive impact on institutional quality in COMESA countries, which signifies that the aid must be correlated with the current exist institutional capacities. GDP per person, labor force participation and Gini coefficient also positively and statistically affects institutional quality while remittance and inflation show statistically insignificant positive relationship with institutional quality in COMESA Countries. The study also extends ODA volatility on institutional quality on COMESA countries and shows that ODA volatility has negatively but statistically insignificant effects on institutional quality in COMESA countries. The study also employ diagnostic checks and found (AR (2) p > 0.05, Hansen p > 0.05, Wald p < 0.05) provide confidence in the System GMM results. The comprehensive framework provides reliable estimated quantities for policy analysis. Finally, this study crowds hypothesized and practical contributions to ODA effectiveness and contributions to the ongoing development of coherent implementation practices for policymakers and practitioners by showing and documenting empirically the conditions under which it is possible for ODA to have a positive impact on institutional qualities.