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Institutions, growth and economic stability

Author

Listed:
  • Aline Gadelha

    (Catholic University of Brasília)

  • Jose Angelo Divino

    (Catholic University of Brasília)

Abstract

This paper investigates the effects of institutions on the countries economic performance, controlling for some macroeconomic policies and disaggregating the impacts by income levels. The empirical analysis considers a balanced panel of 118 countries from 2002 to 2016 and estimates impulse response functions by a Panel VAR model. A positive shock in institutional efficiency increases GDP per capita, reduces government consumption over GDP, and decreases the volatilities of these variables. Institutional improvements raise public spending efficiency, leading to a drop in government size and a simultaneous rise in GDP. Fiscal policy is more sensitive to institutional improvement, constituting an important channel of transmission of the effects of institutions for economic performance. Under all scenarios, the gain in institutional efficiency is more relevant for countries with lower levels of income.

Suggested Citation

  • Aline Gadelha & Jose Angelo Divino, 2019. "Institutions, growth and economic stability," Economics Bulletin, AccessEcon, vol. 39(1), pages 554-563.
    • Handle: RePEc:ebl:ecbull:eb-18-00621
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    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I1-P56.pdf
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    References listed on IDEAS

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    Cited by:

    1. Çetin, Ahmet Burak, 2019. "The Effect of Economic and Political Institutions on Economic Growth: The Case of Developed Countries and Emerging Market Economies," Bulletin of Economic Theory and Analysis, BETA Journals, vol. 4(2), pages 1-31, December.
    2. Aline Gadelha & José Angelo Divino, 2021. "Institutions and Cyclicality of the Fiscal and Monetary Policies in Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(4), pages 1-25, April.

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    More about this item

    Keywords

    Institutions; Economic growth; Panel VAR; Economic stability.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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