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What determines the quality of institutions?

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Author Info
Islam, Roumeen
Montenegro, Claudio E.
Abstract

In trying to explain institutional quality, different authors have come to conflicting conclusions. In tackling the problem themselves, the authors show three things. First, openness is positively and pretty robustly associated with institutional quality. To minimize selection bias, the authors use data sets with the greatest cross-country coverage, though they also test the significance of the variables for smaller sample sizes. The results confirm that both natural and policy measures of openness are important. Concentration of trade in natural resource exports continues to be associated with poor institutional quality after openness in trade is accounted for. Second,"social"variables, such as income inequality or ethnic diversity, are not associated with institutional quality. The significance of the inequality variable disappears when continent dummy variables are included for Africa and Latin America. Third, features of specific institutions, such as freedom of the press and checks and balances in the political system, are positively associated with overall perceptions of institutional quality. These findings hold strongly across different data sets and samples even after the authors control for the variables commonly used in the literature.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2764.

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Date of creation: 31 Jan 2002
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Handle: RePEc:wbk:wbrwps:2764

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Keywords: Decentralization Environmental Economics&Policies Public Institution Analysis&Assessment Economic Theory&Research Poverty Monitoring&Analysis Governance Indicators Economic Policy Institutions and Governance Public Institution Analysis&Assessment Economic Theory&Research Poverty Monitoring&Analysis

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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
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  2. Easterly, William, 2000. "the middle class consensus and economic development," Policy Research Working Paper Series 2346, The World Bank. [Downloadable!]
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  5. Nadeem Ul Haque & Manmohan S. Kumar & Donald J. Mathieson & Nelson C. Mark, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 96/9, International Monetary Fund.
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  9. Laffont, Jean-Jacques & N'Guessan, Tchetche, 1999. "Competition and corruption in an agency relationship," Journal of Development Economics, Elsevier, vol. 60(2), pages 271-295, December. [Downloadable!] (restricted)
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  13. Gaviria, A. & Panizza, Ugo & Seddon, J. & Stein, E.H., 2000. "Political Institutions and Growth Collapses," RES Working Papers 419, Inter-American Development Bank, Research Department.
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  14. Brewer, Thomas L & Rivoli, Pietra, 1990. "Politics and Perceived Country Creditworthiness in International Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(3), pages 357-69, August. [Downloadable!] (restricted)
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  17. Knack, Stephen & Azfar, Omar, 2000. "Are larger countries really more corrupt?," Policy Research Working Paper Series 2470, The World Bank. [Downloadable!]
  18. Chong, Alberto & Calderon, Cesar, 2000. "Institutional Quality and Income Distribution," Economic Development and Cultural Change, University of Chicago Press, vol. 48(4), pages 761-86, July.
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  20. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
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  22. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Aggregating governance indicators," Policy Research Working Paper Series 2195, The World Bank. [Downloadable!]
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  1. Nelson Ramírez-Rondán & Saki Bigio, 2006. "Corruption and Development Indicators: An Empirical Review," Working Papers 2006-007, Banco Central de Reserva del Perú. [Downloadable!]
  2. Thorsten Drautzburg & Inna Melnykovska & Rainer Schweickert, 2008. "Which Membership Matters? External vs. Internal Determinants of Institutional Change in Transition Countries," Kiel Working Papers 1421, Kiel Institute for the World Economy. [Downloadable!]
  3. Jiro Honda, 2008. "Do IMF Programs Improve Economic Governance?," IMF Working Papers 08/114, International Monetary Fund. [Downloadable!]
  4. Jacinto Brito González, 2004. "Conocimiento, geografía e instituciones: Una aproximación a la problemática del crecimiento en el archipiélago canario," Documentos de trabajo conjunto ULL-ULPGC 2004-03, Facultad de Ciencias Económicas de la ULPGC. [Downloadable!]
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