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Institutions and Economic Performance: What Can Be Explained?

Author

Listed:
  • 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, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5247
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    References listed on IDEAS

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    1. Wendy Carlin & Mark Schaffer & Paul Seabright, 2006. "Where are the Real Bottlenecks? A Lagrangian Approach to Identifying Constraints on Growth from Subjective Survey Data," CERT Discussion Papers 0604, Centre for Economic Reform and Transformation, Heriot Watt University.
    2. Facundo Albornoz & Jayasri Dutta, 2007. "Political Regimes and Economic Growth in Latin America," Discussion Papers 07-06, Department of Economics, University of Birmingham.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-842, June.
    4. Heitor Almeida & Daniel Ferreira, 2002. "Democracy and the Variability of Economic Performance," Economics and Politics, Wiley Blackwell, vol. 14(3), pages 225-257, November.
    5. Robert J. Barro & Jong-Wha Lee, 1993. "Losers and Winners in Economic Growth," NBER Working Papers 4341, National Bureau of Economic Research, Inc.
    6. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," World Bank Research Observer, World Bank Group, vol. 15(1), pages 99-135, February.
    7. Mary Hallward-Driemeier & Scott Wallsten & Lixin Colin Xu, 2006. "Ownership, investment climate and firm performance," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(4), pages 629-647, October.
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    Cited by:

    1. Rochat, Jean, 2017. "Les origines de la société anonyme en France: un cas pour penser les institutions de l'économie," Working Papers unige:94467, University of Geneva, Paul Bairoch Institute of Economic History.
    2. 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, August.
    3. repec:eee:iburev:v:26:y:2017:i:3:p:476-490 is not listed on IDEAS

    More about this item

    Keywords

    institutions; growth;

    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 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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