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Do Institutions Influence Economic Growth?

Author

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  • Klára Čermáková
  • Pavel Procházka
  • Lucie Kureková
  • Jiří Rotschedl

Abstract

Economic growth has been the subject of much focus throughout the history of economic thought as it has profound economic, social and political consequences. The sources of economic cycles are surrounded by intense and controversial scientific dispute. In our article, we want to contribute to the institutional economics debate by analysing selected institutional factors and testing their influence on economic growth. On a 2012-2018 dataset, we prove that soft factors such as property rights, freedom of corruption, level of freedom on different markets and other components of the Index of Economic Freedom and legal framework explain the differences in GDP per capita dynamics across countries. We present new evidence on how institutional factors determine economic growth. Unlike previously conducted studies, we use panel data and a set of general control variables in an attempt to respect causal inference. Moreover, we show that the mainstream economic conviction - more economic freedom leads to higher economic growth - fails in some cases, and regulation does not always hamper economic growth.

Suggested Citation

  • Klára Čermáková & Pavel Procházka & Lucie Kureková & Jiří Rotschedl, 2020. "Do Institutions Influence Economic Growth?," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(6), pages 672-687.
    • Handle: RePEc:prg:jnlpep:v:2020:y:2020:i:6:id:749:p:672-687
    DOI: 10.18267/j.pep.749
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    References listed on IDEAS

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    1. Demsetz,Harold, 2012. "From Economic Man to Economic System," Cambridge Books, Cambridge University Press, number 9781107640856.
    2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
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    6. Guangdong Xu, 2011. "The Role Of Law In Economic Growth: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 833-871, December.
    7. Blaug,Mark, 1997. "Economic Theory in Retrospect," Cambridge Books, Cambridge University Press, number 9780521577014.
    8. Heekyung SON, 2016. "Trust, Economic Growth and Importance of the Institution," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 5(4), pages 32-50, December.
    9. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
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    Cited by:

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    6. Mirzat Ullah & Hafiz M. Sohail & Hossam Haddad & Nidal Mahmoud Al-Ramahi & Mohammed Arshad Khan, 2022. "Global Structural Shocks and FDI Dynamic Impact on Productive Capacities: An Application of CS-ARDL Estimation," Sustainability, MDPI, vol. 15(1), pages 1-13, December.

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    More about this item

    Keywords

    Institutions; institutional economics; economic growth; Index of Economic Freedom; soft factors of economic growth;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other

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