Study of the relationship between institutional quality and economic growth

In the recent years, there has appeared a common belief that institutions are the principaldeterminants of the nations’ per capita differences, economic growth, and development. Thispaper is aimed to assess relationship between institutional quality and economic growth in theperiod 1998-2014 for selected developing countries. Therefore, we used panel data method.Good governance and other institutional quality such as economic freedom, economic, politicaland legal institutions were applied. Results show that legal and economic indexes have positiveeffects on economic growth of developing countries, implying that improvement in these indexesincreases competitiveness of theses countries’ productions, leading to production increase, but, inthe estimated models, estimated coefficient of political indexes is negative, meaning that increasein administrative corruption and bureaucracy lead the economic growth to decrease. Thus,economic and legal institutions, relative to their adaptability to development process, affectfactor accumulation as well as total factor productivity and finally nations’ output. Theseinstitutions, by forming incentives in supporting production and providing a desirable context forproductive activities, could appear as an encouraging factor or, inversely, by causing deviation inoutput and increasing transaction costs, play role as preventive factors.

Keywords:

Institutional Quality , Economic Growth , Economic and Legal Institutions , Panel Data Method