Institutional quality, domestic resource mobilization, and economic growth in Zambia: A quantitative ARDL analysis (1990–2021)

Abstract

This study empirically investigates the long-run and short-run determinants of economic growth in Zambia. It focuses on the roles of institutional quality and domestic resource mobilization (DRM). Utilizing an Autoregressive Distributed Lag (ARDL) bounds testing approach on annual time-series data from 1990 to 2021, the research quantifies the impact of governance indicators (control of corruption and rule of law) and fiscal instruments (tax and non-tax revenue) on Gross Domestic Product (GDP) per capita. The results reveal a significant long-run positive relationship between non-tax revenue and economic growth. However, tax revenue exhibits a negative coefficient (β=-0.99), suggesting potential inefficiencies or distortionary effects in the current tax system. Furthermore, institutional quality, specifically law and order and control of corruption, is found to be a significant positive driver of long-term growth. The study concludes that improving institutional quality, digitizing revenue collection, and diversifying domestic revenue sources are critical for sustainable economic development in Zambia. Quantitative evidence necessitates a paradigm shift in fiscal policy, emphasizing substantial institutional reforms above mere rate adjustments. Law & Order has a high elasticity (+2.26); therefore, for growth, there’s a need to increase judicial independence, contract enforcement, and anti-corruption measures. Digitizing revenue systems should be done promptly. At the same time, tax administration needs to restructure to a bottom-heavy model that makes the informal sector tax compliant to grow the tax base without raising tax rates. Further, revenue collection can be improved by modernizing non-tax instruments like digitizing mineral royalties’ collection and systematically converting customary land to state land, which can open up stable, scalable revenue streams from the underutilized assets.