The empirical determinants of state fragility

Graziella Bertocchi 06 April 2010

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The concept of state fragility, which was originally introduced by political scientists, has entered the debate on economic development only relatively recently. This concept has been associated with various combinations of the following dysfunctions:

  • inability to provide basic services and meet vital needs,
  • unstable and weak governance,
  • a persistent condition of extreme poverty,
  • lack of territorial control, and
  • high propensity to conflict and civil war.

Failure, vulnerability, and weakness have often been used as synonyms for state fragility. Likewise, there are several measures of state fragility. For example, according to the World Bank, fragile states are defined as low-income countries scoring 3.2 and below (over a range of 1 to 6) on the Country Policy and Institutional Assessment (CIPA). The OECD Development Assistance Committee defines fragile states as those countries in the bottom two CPIA quintiles (as well as those which are not rated).

Despite the fact that the condition of state fragility crucially affects aid allocation, its causes are not yet fully understood.

State fragility and aid

CPIA ratings, which are the basis of the definition of state fragility for the World Bank and the OECD, carry huge practical relevance for aid allocation since they significantly influence the Bank’s concessional lending and grants delivered through the International Development Association according to a specific formula. The association is the part of the World Bank that helps the world’s poorest countries by providing interest-free credits and grants.

CPIA ratings are prepared annually by World Bank staff and are intended to capture the quality of a country’s policies and institutional arrangements. The ratings focus on the key elements that are within the country’s control, rather than on outcomes (such as growth rates) that are influenced by elements outside the country’s control. Scores are assigned on the basis of 16 criteria (20 until 2003) which are grouped in four equally weighted clusters:

  • Economic Management
  • Structural Policies
  • Policies for Social Inclusion, and
  • Equity, and Public Sector Management and Institutions.

The ratings reflect a variety of indicators, observations, and judgements based on country knowledge, originated in the World Bank or elsewhere, and on relevant publicly available indicators.

CPIA ratings are publicly only available since 2005. However, information on their distribution by quintiles can be recovered from 1999. Therefore, if we focus on the measure of state fragility adopted by the OECD Development Assistance Countries, we can construct a series covering a relatively extended time period.

State fragility in sub-Saharan Africa

Out of the 79 poorest countries of the world – 39 are currently in Africa. Moreover, the majority of countries affected by state fragility are located in the same region. These facts combined have drastic consequences on the eligibility of the region to aid flows.

A recent initiative undertaken by the EU in order to elaborate a European perspective on development issues is the European Report on Development, an annual report scheduled to be published every year from 2009. The first edition of the report is entirely dedicated to the analysis of fragility in Africa. Research described in the report and elsewhere has failed to find a clear impact of state fragility on economic outcomes. For instance, Baliamoune-Lutz (2009) show that in sub-Saharan Africa the impact of state fragility on per capita income interacts with several other factors. For instance, in fragile countries, beyond a threshold level, trade openness may actually be harmful to income, while small improvements in political institutions can have adverse effects. For a comparable sample, Andrea Guerzoni and I (2010a) find that the OECD Development Assistance Countries measure of state fragility is not a significant determinant of growth once standard repressors are accounted for. One possible explanation for the absence of a clear causal link running from state fragility to development is the presence of reverse causation.

Establishing cause and effect

In a recent paper (Bertocchi and Guerzoni 2010b), we investigate the determinants of state fragility while explicitly taking into account its potential endogeneity with respect to other relevant economic and non-economic factors. We focus our attention on sub-Saharan Africa for two reasons.

  • The first reason is that as previously explained this issue is particularly important for policy intervention in this region.
  • The second reason is that state fragility has proven such a multi-faceted issue that to concentrate on a specific, relatively homogeneous area may lead to more meaningful conclusions. At the same time, within sub-Saharan Africa fragile states are sufficiently heterogeneous, in terms of their economic, social, geographic, and political characteristics, to allow an empirical investigation.

Among the potential economic determinants of state fragility we consider per capita GDP (both levels and growth rates), investment, government expenditures, human capital, trade openness, and inflation. We also consider demographic factors, namely: life expectancy and the fertility rate, as well as the index of ethnic fractionalisation. We measure the impact of institutions through the Freedom House index of civil liberties and the number of revolutions, which should capture the ability of a country to guarantee fundamental freedoms and political stability. We also control for geography through a country’s latitude and its access to the sea.

In the literature on Africa a lot of attention has been devoted to the role of colonial history. Africa represents an appropriate setting for analysing the impact of colonial rule because, historically, nowhere else was colonisation as far-reaching as in the African experience that began at the end of the 19th century. There is a shared perception that state fragility – as well as other dysfunctions such as corruption and ethnic conflict – might find its roots in the legacy of colonisation. We explore the impact of colonial history by including in our dataset, as in Bertocchi and Canova (2002), the nationality of the colonisers and, following Acemoglu et al. (2001), the mortality rate of the earlier settlers.

New insight on the causes of state fragility

We find that institutional variables are the key determinants of state fragility. The probability of a country having a fragile state decreases with the level of civil liberties and increases with the number of revolutions. Economic determinants such as per capita GDP growth and investment are not significant when we introduce standard controls for omitted variables. Geography is also insignificant while colonial history appears to be only marginally relevant. These conclusion hold after controlling for endogeneity with standard analytical tools.

The only other empirical study on the determinants of fragility is Carment et al. (2008) who find, over a world sample, that per capita income level is the main factor, with higher income being associated to lower fragility. This radically different conclusion can be explained by the fact that they employ a different indicator of fragility (the index of Failed & Fragile States provided by Country Indicators for Foreign Policy) and also by the specificity of the African region. On the other hand, our results are in line with the intuition advanced in non-quantitative studies in the field of political sciences such as Vallings and Moreno-Torres (2005), who have pointed to institutions as the central driver of fragility.

Implications for EU policy

To understand the determinants of the condition of state fragility, in particular in sub-Saharan Africa, is important not only from the vantage point of the region itself, but also for the EU, which is a major provider of development aid and is still in the process of defining its foreign policy.

Among the goals declared since the 1992 Maastricht Treaty, the EU emphasises international cooperation, with the objectives to foster and consolidate democracy, the rule of law, and respect for human rights and fundamental freedoms. Our findings suggest that pursuing these objectives may indeed complement economic aid to developing countries, since it implies that the EU should be interested in reducing of the likelihood of state fragility throughout the world, resulting in a positive impact on their aid absorption.

References

Acemoglu, Daron, Simon Johnson, and James A Robinson (2001), “The Colonial Origins of Comparative Development: An Empirical Investigation”, American Economic Review , 91:1369-1401.

Baliamoune-Lutz, Mina (2009), “Institutions, Trade, and Social Cohesion in Fragile States: Implications for Policy Conditionality and Aid Allocation”, Journal of Policy Modeling, 31:877-890.

Bertocchi, Graziella and Fabio Canova (2002), “Did Colonization Matter for Growth? An Empirical Exploration into the Historical Causes of Africa’s Underdevelopment”, European Economic Review, 46:1851-1871.

Bertocchi, Graziella and Andrea Guerzoni (2010a), “The Fragile Definition of State Fragility”, RECent Working Paper No. 43.

Bertocchi, Graziella and Andrea Guerzoni (2010b), “Growth, History, or Institutions? Wthat Explains State Fragility in Sub-Saharan Africa”, CEPR Discussion Paper 7745.

Carment, David, Stewart Prest, and Yiagadeesen Samy (2008),“Determinants of State Fragility and Implications for Aid Allocation: An Assessment Based on the Country Indicators for Foreign Policy Project," Conflict Management and Peace Science, 25, 349-373.

European Report on Development (ERD) (2009), Overcoming Fragility in Africa. Robert Schuman Centre for Advanced Studies, European University Institute, San Domenico di Fiesole.

Vallings, Claire, Magui Moreno-Torres (2005), “Drivers of Fragility: What Makes States Fragile?”, PRDE Working Paper 7.

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Topics:  Development Politics and economics

Tags:  Africa, institutions, Stage fragility, failed states

University of Modena and Reggio Emilia, CEPR Research Fellow, CHILD and IZA