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Institutions and Economic Performance: What Can Be Explained?

Author

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  • Commander, Simon

    (IE Business School, Altura Partners)

  • Nikoloski, Zlatko

    (London School of Economics)

Abstract

Institutions are now widely believed to be important in explaining performance. In this paper, we analyze 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.

Suggested Citation

  • Commander, Simon & Nikoloski, Zlatko, 2010. "Institutions and Economic Performance: What Can Be Explained?," IZA Discussion Papers 5247, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp5247
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    2. Cosmin Marinescu, 2013. "Institutional Quality of the Business Environment: Some European Practices in a Comparative Analysis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 15(33), pages 270-287, February.
    3. Rajesh Raj S.N. & Kunal Sen, 2017. "Does Institutional Quality Matter for Firm Performance? Evidence from India," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(2), pages 184-213, September.
    4. Ndzembanteh Aboubakary Nulambeh & Kadir Yasin Eryiğit, 2022. "Exploring the energy-environment growth nexus in francophone Africa in presence of institutions," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(8), pages 10069-10087, August.
    5. Petar Stankov, 2013. "Firm Size, Market Liberalization and Growth," CERGE-EI Working Papers wp485, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    6. Carlin, Wendy & Schaffer, Mark & Seabright, Paul, 2013. "Soviet power plus electrification: What is the long-run legacy of communism?," Explorations in Economic History, Elsevier, vol. 50(1), pages 116-147.
    7. Martínez-Zarzoso, Inmaculada & Johannsen, Florian, 2017. "Monetary uncertainty and trade in Eastern Europe and Central Asia: A firm-level analysis," International Business Review, Elsevier, vol. 26(3), pages 476-490.
    8. Costa Junior, Celso Jose, 2012. "Institutional Barrier and the World Income Distribution," MPRA Paper 45633, University Library of Munich, Germany.
    9. Dutz, Mark A. & Kessides, Ioannis & O'Connell, Stephen & Willig, Robert D., 2011. "Competition and innovation-driven inclusive growth," Policy Research Working Paper Series 5852, The World Bank.
    10. Abu Bakkar Siddique, 2016. "Comparative Advantage Defying Development Strategy and Cross Country Poverty Incidence," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(4), pages 45-78, December.
    11. Aktoty Aitzhanova & Shigeo Katsu & Johannes F. Linn & Vladislav Yezhov (ed.), 2014. "Kazakhstan 2050: Toward a Modern Society for All," Books, Emerging Markets Forum, edition 1, number kazakh2050, September.
    12. Udaya Shankar Mishra & Hrushikesh Mallick & Balakrushna Padhi, 2023. "An Inquiry into Households’ Confidence Levels in Various Institutions in India: A Temporal Assessment from the IHDS," Review of Development and Change, , vol. 28(1), pages 90-111, June.
    13. Cosmin Marinescu & Octavian-Dragomir Jora, 2013. "Assessment on the “institutional economics” of corruption. Business and development in Romania, between formal and informal practices," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 15(Special 7), pages 603-616, November.

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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