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The effect of institutions on economic growth: A global analysis based on GMM dynamic panel estimation

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  • Siddiqui, Danish Ahmed
  • Ahmed, Qazi Masood

Abstract

This study examines how institutional indicators influence economic growth in a theoretical framework proposed by North (1981). Thirty-one indicators each covering 84 countries over a span of 5 years have been used to extract factors based on principal component analysis. Factors based on these indicators are classified as institutional and policy rents, political rents and risk-reducing technologies. These institutional factors are then used in a formal growth model employing panel OLS and GMM-based estimation methodologies. The findings suggest that favorable institutions positively affect economic growth. This study also shows that for a developing country the institutional and policy rent is more important than other two indices that curb political rents and those that reduce transaction risks. This study also highlights the positive complementarities between index of political rents and index of risk-reducing technologies.

Suggested Citation

  • Siddiqui, Danish Ahmed & Ahmed, Qazi Masood, 2013. "The effect of institutions on economic growth: A global analysis based on GMM dynamic panel estimation," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 18-33.
  • Handle: RePEc:eee:streco:v:24:y:2013:i:c:p:18-33
    DOI: 10.1016/j.strueco.2012.12.001
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    More about this item

    Keywords

    Institutions; Factor analysis; Index; GMM panel;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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