Local institutions and local economic development in Guto Gidda district, Oromia region, Ethiopia

Local institutions can facilitate local economic development (LED) processes by reducing transaction costs, enhancing social capital, and creating enabling environments for business to flourish. However, factors such as the actors’ preference to accept and practice one type of institutions over the other, and the nature of the functional linkages between the different kinds of institutions influence the role they play in development processes. This study empirically investigates the contributions of institutions to local economic development processes in the Guto Gidda district of the Oromia region, Ethiopia, using an institutional analysis of a case study. A qualitative research approach using in-depth interviews with local development actors was employed to collect the data. Results show that local development actors prefer to practice indigenous institutions over government institutions because they offer more accessible services and are less reliant on ruling party affiliation. There were weak functional linkages between the two types of institutions, which had a negative development impact on the locality. The paper recommends mutual and collaborative functional linkages between the local institutions to maximize the contributions of both to LED.