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Institutions and economic performance: What can be explained?

  • Simon Commander

    (IE Business School, EBRD)

  • Zlatko Nikoloski

    (University College London)

Registered author(s):

    Institutions are now widely believed to be important in explaining performance. In this paper, we analyse whether commonly used measures of institutions have any significant, measurable impact on performance, whether of countries or firms. We look at three ‘levels’ of institutions and associated conjectures. The first concerns whether the political system affects performance. The second concerns whether the business and investment environment affects the performance of countries and the third concerns whether perceived business constraints directly affect the performance of firms. In all instances, we find little evidence of a robust link between widely used measures of institutions and our indicators of performance. We consider why this might be the case and argue that mis-measurement, mis-specification, complexity and non-linearity are all relevant factors.

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    Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 121.

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    Length: 32 pages
    Date of creation: Dec 2010
    Date of revision:
    Handle: RePEc:ebd:wpaper:121
    Contact details of provider: Postal: One Exchange Square, London EC2A 2JN
    Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml
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