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Determinants of institutional quality and their impact on economic growth in the MENA region

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  • Magda Kandil

Abstract

Purpose - The purpose of this paper is to analyze determinants of institutional quality based on six separate indicators of governance: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Design/methodology/approach - The determinants under consideration include measures of economic freedom by the Cato Institute and the Heritage Foundation, indicators of policy quality, real per capita gross domestic product (GDP), risk rating, and the degree of openness. Findings - Five measures of institutional quality increase real GDP growth significantly across Middle East and North Africa (MENA) countries. In contrast, institutional quality has a negative impact on the growth of private credit and private investment. Further, the combined evidence does not suggest that improvement in institutional quality is a major factor in attracting foreign direct investment flows to MENA countries. Research limitations/implications - The research provides startling evidence that illustrates how institutions have impacted macroeconomic performance and the underlying roots of institutional quality. Addressing shortcomings in institutions should top the policy agenda in an effort to drive the growth process. Practical implications - Improving institutional quality will distribute the benefits of growth and enhance macroeconomic performance in the MENA region, which is rich in endowed resources. Nonetheless, the region lacks fundamentals of economic management and quality governance to utilize resources in the most efficient and productive fashion in order to maximize the welfare for a growing population that is constantly seeking productive opportunities to secure employment and a higher real standard of living. Originality/value - The MENA region is understudied and worthy of much more empirical work. Many cross-country studies of the determinants of growth omit oil-producing nations. Focusing on this oil-rich region is an attempt to fill this void. Unlike previous literature on the relationship between institutions and growth, the paper's approach to the issue analyzes micro foundations in the transmission channel between institutions and economic growth.

Suggested Citation

  • Magda Kandil, 2009. "Determinants of institutional quality and their impact on economic growth in the MENA region," International Journal of Development Issues, Emerald Group Publishing, vol. 8(2), pages 134-167, October.
  • Handle: RePEc:eme:ijdipp:v:8:y:2009:i:2:p:134-167
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    Citations

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    Cited by:

    1. Hassan Gholipour Fereidouni & Tajul Ariffin Masron & Reza Ekhtiari Amiri, 2011. "The effects of FDI on voice and accountability in the MENA region," International Journal of Social Economics, Emerald Group Publishing, vol. 38(9), pages 802-815, August.
    2. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
    3. Le, Minh Son, 2014. "Trade openness and household welfare within a country: A microeconomic analysis of Vietnamese households," Journal of Asian Economics, Elsevier, vol. 33(C), pages 56-70.

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