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Revisiting the Relationship between Governance Quality and Economic Growth

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  • Mohammad Salam Ibrahim AlShiab

    (Higher Colleges of Technology, Abu Dhabi Men s College, Abu Dhabi, United Arab Emirates,)

  • Husam-Aldin N. Al-Malkawi

    (Faculty of Business and Law, The British University in Dubai, United Arab Emirates.)

  • Abdelmounaim Lahrech

    (Faculty of Business and Law, The British University in Dubai, United Arab Emirates.)

Abstract

This study provides evidence on the relationship between governance quality and economic growth. We use the six Worldwide Governance Indicators (WGI) published by the World Bank and a sample of 29 countries (23 developed countries and 6 emerging economies) covering the period. To account for the potential endogeneity problem, we employ panel GMM estimators. The analysis proceeds in three stages. Firstly, we examine the effect of these six governance indicators on economic growth for the whole sample. Next, we apply a principal component analysis (PCA) to these indicators to construct a global governance index (GGI) and test its impact on economic growth. Finally, to examine the effect of the GGI on economic growth in emerging economies relative to developed countries, we introduce an interaction dummy variable. The results show a positive relationship between governance quality and economic growth in both developed and emerging economies. Moreover, the contribution of the GGI to the economic growth of emerging economies is more than that of developed ones.

Suggested Citation

  • Mohammad Salam Ibrahim AlShiab & Husam-Aldin N. Al-Malkawi & Abdelmounaim Lahrech, 2020. "Revisiting the Relationship between Governance Quality and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 54-63.
    • Handle: RePEc:eco:journ1:2020-04-8
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    More about this item

    Keywords

    Worldwide Governance Indicators; Economic growth; Principal component analysis; Panel GMM estimator;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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