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The growth effects of institutional instability




We study the effects of institutional instability on growth. Using principal components analysis, we construct measures of institutional quality and instability from the political risk index of the International Country Risk Guide. A panel-data analysis of 132 countries during 1984–2004 reveals that institutional quality, especially with regard to the legal system and the protection of property rights, is positively linked to growth. As for institutional instability, we find evidence of a positive relationship in rich countries but a negative link in poor countries, suggesting that instability may reduce problems of institutional sclerosis in the former and that instability primarily entails an increase in transactions costs and uncertainty in the latter.

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  • Berggren, Niclas & Bergh, Andreas & Bjørnskov, Christian, 2012. "The growth effects of institutional instability," Journal of Institutional Economics, Cambridge University Press, vol. 8(02), pages 187-224, June.
  • Handle: RePEc:cup:jinsec:v:8:y:2012:i:02:p:187-224_00

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    Cited by:

    1. Rode, Martin & Gwartney, James D., 2012. "Does democratization facilitate economic liberalization?," European Journal of Political Economy, Elsevier, vol. 28(4), pages 607-619.
    2. Chen, Hao & Liao, Hua & Tang, Bao-Jun & Wei, Yi-Ming, 2016. "Impacts of OPEC's political risk on the international crude oil prices: An empirical analysis based on the SVAR models," Energy Economics, Elsevier, vol. 57(C), pages 42-49.
    3. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    4. Mogens Justesen & Peter Kurrild-Klitgaard, 2013. "Institutional interactions and economic growth: the joint effects of property rights, veto players and democratic capital," Public Choice, Springer, vol. 157(3), pages 449-474, December.
    5. repec:ejw:journl:v:12:y:2015:i:3:p:400-431 is not listed on IDEAS
    6. Eugen Dimant & Tim Krieger & Margarete Redlin, 2015. "A Crook is a Crook … But is He Still a Crook Abroad? On the Effect of Immigration on Destination-Country Corruption," German Economic Review, Verein für Socialpolitik, vol. 16(4), pages 464-489, November.
    7. Thibaut Dort & Pierre-Guillaume Méon & Khalid Sekkat, 2014. "Does Investment Spur Growth Everywhere? Not Where Institutions Are Weak," Kyklos, Wiley Blackwell, vol. 67(4), pages 482-505, November.
    8. Enrico Colombatto, 2012. "A theory of institutional legitimacy," ICER Working Papers 05-2012, ICER - International Centre for Economic Research.
    9. Christian Bjørnskov, 2015. "Constitutional property rights protection and economic growth: evidence from the post-communist transition," Constitutional Political Economy, Springer, vol. 26(3), pages 247-280, September.
    10. Mangaard Jørgensen, Christina & Bjørnskov, Christian, 2015. "Did Africa’s First Choices Matter? Growth Legacies of Leaders at Independence," Working Paper Series 1090, Research Institute of Industrial Economics.
    11. Bjørnskov, Christian & Méon, Pierre-Guillaume, 2015. "The Productivity of Trust," World Development, Elsevier, vol. 70(C), pages 317-331.
    12. Daniel L. Bennett & Hugo J. Faria & James D. Gwartney & Daniel R. Morales, 2016. "Evaluating Alternative Measures of Institutional Protection of Private Property and Their Relative Ability to Predict Economic Development," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 31(Summer 20), pages 57-78.
    13. Andreas Bergh, 2014. "Sweden and the Revival of the Capitalist Welfare State," Books, Edward Elgar Publishing, number 15717.
    14. Elert, Niklas & Halvardsson, Daniel, 2012. "Economic Freedom and Institutional Convergence," Ratio Working Papers 200, The Ratio Institute.

    More about this item

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth


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