Institutional quality and economic development in sub-Saharan Africa: Can management effort and bribes compensate for low-quality institutions?

The industrial development in sub-Saharan Africa is perhaps more affected by the quality of institutions than that of other regions. We investigate what alternatives managers have to secure what their firms need to function in case the institutional furniture they are confronted with is of low quality. We find that in high quality institutional environments management spending effort dealing with authorities and navigating regulations negates the effect of the institutional environment. Managers do not need to spend these efforts. Perhaps surprisingly, we find that the positive effect of high-quality institutional environments on firm performance is enhanced by making informal payments.