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Institutions and Economic Performance: What Can be Explained?

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  • Simon Commander
  • Zlatko Nikoloski

Abstract

Institutions are now widely believed to be important in explaining performance. In this paper, we analyze whether commonly used measures of institutions have any significant, measurable impact on performance, whether of countries or firms. We look at three ‘levels’ of institutions and associated conjectures. The first concerns whether the political system affects performance. The second concerns whether the business and investment environment affects the performance of countries and the third concerns whether perceived business constraints directly affect the performance of firms. In all instances, we find little evidence of a robust link between widely used measures of institutions and our indicators of performance. We consider why this might be the case and argue that mis-measurement, mis-specification, complexity and non-linearity are all relevant factors.

Suggested Citation

  • Simon Commander & Zlatko Nikoloski, 2011. "Institutions and Economic Performance: What Can be Explained?," Review of Economics and Institutions, Università di Perugia, vol. 2(2).
    • Handle: RePEc:pia:review:v:2:y:2011:i:2:n:3
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    Citations

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    Cited by:

    1. Carlin, Wendy & Schaffer, Mark & Seabright, Paul, 2013. "Soviet power plus electrification: What is the long-run legacy of communism?," Explorations in Economic History, Elsevier, vol. 50(1), pages 116-147.
    2. Myint Moe Chit, 2018. "Political openness and the growth of small and medium enterprises: empirical evidence from transition economies," Empirical Economics, Springer, vol. 55(2), pages 781-804, September.
    3. Markus Alzer & Ramin Dadasov, 2013. "Financial Liberalization and Institutional Development," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 424-452, November.
    4. Ben Rejeb, Adnene, 2022. "Les canaux clés de transmission de l’effet de la gouvernance à la croissance économique : cas pratique de la Tunisie [The main transmission channels of governance effect on economic growth: practic," MPRA Paper 114780, University Library of Munich, Germany, revised 2021.
    5. Petar Stankov, 2013. "Firm Size, Market Liberalization and Growth," CERGE-EI Working Papers wp485, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Wendy Carlin & Mark Schaffer, 2012. "The Business Environment in the Transition," CESifo Working Paper Series 3934, CESifo.

    More about this item

    Keywords

    institutions; economic growth; development; firm performance;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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