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The Effects of Institutional Development Upon Costs of Country Level Borrowing

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  • Owenhouse, John
  • Atwood, Joseph
  • Watts, Myles

Abstract

We examine relationships between country level private lending rates and four metrics of institutional development: the Economic Freedom of the World (EFW), the Worldwide Governance Indicators (WGI), the Index of Economic Freedom (IEF), and the Freedom in the World Index (FWI). We find the EFW, WGI, and IEF metrics are largely consistent but anomalies exist between FWI and other indices. Robust regressions indicate that higher institutional metrics are associated with lower domestic lending rates. The effects a country's institutional metric upon nominal domestic interest rates is of similar magnitude or exceeds the effects of shocks in inflation.

Suggested Citation

  • Owenhouse, John & Atwood, Joseph & Watts, Myles, 2020. "The Effects of Institutional Development Upon Costs of Country Level Borrowing," MSU Staff Papers 307241, Montana State University > Department of Agricultural Economics and Economics.
  • Handle: RePEc:ags:msaesp:307241
    DOI: 10.22004/ag.econ.307241
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