Institutional Quality, Co-operatives, and Economic Transformation in Uganda:

Abstract

Co-operatives in Uganda have been growing steadily in terms of membership and capital investment. Theories suggest that strong co-operatives, combined with good institutions, can drive economic development. However, there are few studies exploring how institutional quality and co-operatives jointly impact economic growth from a macroeconomic perspective. This paper aims to examine the effects of co-operatives and institutional quality on economic development, analysing both direct and indirect effects using advanced estimation techniques. The study covers 1,105 active co-operatives across 19 districts from 2000 to 2023. The descriptive analysis reveals a decline in co-operative membership from 310 in 2019 to 199 in 2022. Institutional quality indicators are also notably low, (43.92) as indicated by additive index. Specific institutional quality indicators such as political stability (11.55), rule of law (41.72), and voice and accountability (29.40) are specifically rated poor in Uganda. Applying endogenous growth theory and a bias-corrected linear dynamic panel model, the analysis shows that weak institutional significantly hampers economic development and co operative growth. Poor political stability, rule of law, and voice and accountability negatively affect co-operative performance, overshadowing any positive impacts from improved government effectiveness, corruption control, and regulatory measures. To enhance the benefits of co-operative investments, Uganda's co-operative sector and government need to strengthen political stability, establish the rule of law, and improve voice and accountability mechanisms.